♪ francine: cut to commerzbank or the german lender will eliminate 9600 jobs and suspend dividends. the blame game -- mario draghi says european banks should focus on fixing their other problems rather than criticize the ecb. arabia, vocusaudi thing on higher prices. opec -- focusing on higher prices. opec strikes a deal. this is "bloomberg surveillance ." i am francine lacqua in london. tom keene is in new york.

bank, nowsche commerzbank, the share prices are likely to come down, despite thing dividend is up, but 9600 jobs will go. tom: it has always been the news, and it has been for years, what to do with commerzbank. it will be a good hour to inform people of the dissensions between commerzbank and beleaguered deutsche bank. there are differences between these stories. francine: you are absolutely right. they are different. this is surprising because it is after brexit. we will get more on that. bloombergstraight to first word news. here is taylor riggs. the army says it and selected heavy casualties on militants trying to infiltrate india. no more attacks or plans. the attack was in retaliation for a deadly strike on the indian army earlier this one. eight and soldiers were killed.

meanwhile, pakistan denied the indian forces staged a raid, saying they fired across the border. congress has top suspending the u.s. government shutdown through the summer ninth. it puts money forth to fight the repair floodd damage. they have a contaminated water crisis eight in a separate bill. it may hard brexit for the u.k. the eu government refusing to give u.k. any leeway on the link between immigration and trade as it prepares to leave the block. ireland's finance minister tells bloomberg u.k. cannot have the advantages of the eu without carrying out the obligations. and tomrancine mentioned, big cuts on the way at commerzbank, germany's second-largest lender. it will eliminate 9600 jobs and suspend linens. -- a dividends. profits have been

hurt by volatility markets and negative interest rates. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine, tom? tom: thank you so much. let's get to the data check quickly. pretty flat, flat, flat. oil moving around after that big bounce yesterday. we will have a beer blaster -- javier on in a bit. buoyant equities in the united states. there is brent in the the sanity. deutsche bank has really stabilized over the last 48 hours. francine: yes, it has. my data check, it stopped rallying in europe. 7%ually, they are getting pure there is a little concerned from the emerging markets. for example, the country of

india, said it attacked targets in pakistan. also, watching inflation. 101 on the back of opec. i have never seen such a link. tom: and then a shift depending on the news flow as well. right now, i would say we are away from the european banking correlation, but nevertheless, those are the headlines across bloomberg. let's go to the bloomberg. switch to ato commerzbank chart. no, this is u.s. trade. this is where i was at 4:00 a.m. the huge this is expansion over 40 years of the combination of u.s. x boards and ports and imports. it is a beautiful trend with two recessions, and if something changes. i will tell you, this was a great thing yesterday on our bloomberg markets. outstanding on

what this means for emerging markets. full disclosure, she is exceptionally negative on the political economic mix of e.m. as they look at flat trading. you see it within the u.s. trade statistics. , in the last two seconds come i decided to show you yields and the pressure between banks and mario draghi appeared i was going to show you oil. forget oil. this is bigger given what we heard from commerzbank. --light of japanese yields, and white is japanese yields, the u.k. and purple. the problem is that for the banks, and this is the market's most influential summit yesterday, they say we are hurting because of negative rates. mario draghi saying, guys, fix your model. it is not my fault you are not doing well.

commerzbank saying we will suspend dividends and cut 9600 jobs. going through the commerzbank headlines. we have more from bloomberg news reporter, and an expert on fx strategy. that there would be job losses. are you surprised that the share price is actually gaining? have no, i think investors wanted a new strategy from the new ceo, and they want cost cuts, they want a simpler bank. that seems to be the same across european banks, simple fight, shrink, try to get probability back up. given the revenue headwind, the only thing that these banks can control is the cost side, and they are moving to pretty dramatic cuts to do that. and this is talked

about, we were also talking about deutsche bank, there is a profitability problem, and that is why investors are testing it or have concerns. and then yesterday, we spoke to the vice chair of blackrock, and they were saying my problem, former central bank of the s&p, i do not understand the business model. does commerzbank have a business model at all that we understand? tom: i think michael: -- michael:i think they're trying to simple five he business model to be a lender to german companies. that is what they have been good at historically they are shrinking their investment operations in these cuts, trying to focus the business a little bit. i think you are seeing that across the banking sector, you know, banks trying to find one or two things that they have historically been good at and focusing on. tom: let me bring up this chart, michael moore. distinguishing line between commerzbank and deutsche bank. , theythey go from 2007

bounce off the lehman low, deutsche bank rolls over, not quite as ugly as commerzbank. to me, michael moore, it screams -- is commerzbank essentially awarding german government? michael: the german government still has a stake, and you can see the difference in business models in those charts. deutsche bank had the bounce, like all investment banks that, from a very strong 2009 to 2010 trading environment, where commerzbank immediately after the crisis, you had a prolonged recession, and you have had negative interest rates for several years now, and that is really what has been killing their business model. they have been trying to cut back in deposits, introduce new fees, but they just have such a strong revenue headwind from the current environment. tom: maybe an unfair question for you in london, but when you speak to our german reporters, what is the response of the german people to these devonian cuts?

5200 jobs earlier -- draconian cuts? no 9600 jobs.ier, it is well over 10% of jobs, isn't it? chunkl: yes, it is a huge euros you also have deutsche bank cutting several thousand jobs in germany. this seems the new reality as banking is going to be a smaller sector of that economy, just like in several countries across you know, the interest rate outlook does not seem to be changing anytime soon. francine: we've not want to get you in trouble, but you work for american banks. european banks -- is different. how does that translate into your world? growth needs banks, and banks need growth? somewhat of as as surprise, but commerzbank has been concerned about the yield curve for some time. i think the current news story

saying that they want to fall to their cash rather than play it -- place it with the ecb. no eurocentric concern, is coincidence that the swiss bank is now looking quite healthy going through the environment. so the spillover effect into the broader european economy, avious the confidence, and bit of a risk-off environment should be conducive. the great here is unspoken, in the "ft," they get out of front of commerce inc. -- commerzbank. it will be interesting to see this ondraghi addresses a day-to-day basis. very different from the fed dynamic in the united states. i miss him terribly. trip,l mckee, road dublin. michael mckee is in ireland. an important conversation later today with mr. burton. before that come our

conversation with patrick harker, he is the new president of the philadelphia fed. michael mckee in dublin. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london. tom keene is in new york. here is taylor riggs. first -- has's arrived in the u.s. for testing. the jets and three others will go 2300 hrs of flying of the company can apply for certification. mitsubishi is trying to affect the doo-wop the duopoly. saudi arabia has made a return on oil cured opec, led by the saudi's, have agreed to cut production to boost prices. that will be the first apply cut

in eight years. for the last two years, the saudis have had a pump at will policy. that is your bloomberg business flash. tom and francine are keeping the focus on opec. francine: we certainly are. us, directorjoins of g 10 fx strategy at bank of america merrill lynch. michael moore as well. opec is back in business, right? kamal: we have announced sony times the death of opec over the last 60 years, and every time, we have been proven wrong. guest: i like the way another put it. opec needs hot water to work. the water in the oil market was boiling. that is why the saudi's have access now. francine: i was thinking justin timberlake, bringing opec back. you have the smarter reference. how can they be sure that this has a longer term impact on the oil price?

. if. it does not, they give up market share, and it does not help them that much. avier: they are taking a huge gamble now. they're thinking that this time they can cut production, and they are increasing price -- it will be big enough to compensate , and they will have the same or even higher revenues. work? that going to it depends on whether we can carry other countries in opec. they need the support of kuwait and the united arab emirates. i think the saudis think they can increase production. they think the iranians have control. what is outside opec? is russia going to join this agreement? i think the russians will pay lip service, but they are unlikely to cut production. what happens in the u.s.? if you are a u.s. shale ceo, yesterday was great news.

you informed your banker, hedged your 2017 prices, and started journaling again. that is a big risk for the saudis. javier, help me, we talked an employee of bnp paribas, and he said this is important, getting to vienna in november. with brent crude, we get the saudi announcement. is there a cartel to meet in november? i think there is a cartel to meet in november and vienna, but i think this agreement is more or less like the middle east oil field, and the difficult conversation is going to happen between now and november 30 when opec needs to meet again and vienna. but these two months really give time for opec for behind the scenes conversations where they can reach an agreement in vienna. i think opec has some time. they have a buffer for conversations.

they are not going to be in front of everyone. tom: kamal sharma with us. correlated to u.s. dollars, there is something odd going on in this september. kamal: if you look at the cross-section, the yen is actually trading higher. aboard the say risk-on environment today has put the dollar, under pressure more broadly. looking at the broader implications, if you are a medium-term bull on the krone, like we have been for a number of months now, this plays right into our hands. we think the norwegians made quite a statement at the meeting last week. this combined with the oil price should set the stage for the norwegian krone to graze. this is a positive risk-on environment. francine: it helps with inflation?> kamal: it should help with inflation. francine: at the margins? kamal: we will be desperately

looking at where the inflation pressure will come. this as some pressure. the question is whether this deal will stick in november, and whether the opec makes an agreement in vienna. tom: crystal clear, really wonderful update on what we see in global oil. coming up on bloomberg radio, speaking of oil, going the other way, looking for weaker oil prices. t k burger on the announcement of opec. coming up, we look at commerzbank and deutsche bank. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. tom keene is in new york. -- commerzbank will illuminate 9600 jobs and suspend dividends. we are joined by kamal sharma with bank of america merrill lynch. we have another guest on the phone. everyday we talk about deutsche -- almost -- and now we know what the strategy going forward is. will it work with commerzbank? guest: yes. it is unimportant announcement, roughly in line with what has been sort of speculated on in the press recently, but i think it is a strategy to sort of the -- sort of solidify the bank in the coming years and the current challenges. francine: what are the current

challenges? is this a domestic play, because there is not enough online? the government owns 50% of the bankers. what will commerzbank look like months from now? otto: i think the two key reasons for this come on one hand, the additional regulatory that areequirements coming in the next months and big one isthe other the very low interest rate environment, which strains margins and return potential for the various banks. maybe a third one, you know, the futures were challenged. that is also there for banks and also plays into this. this is their reaction to it, basically. is the commerzbank management independent, or is this aggressive combination and cost-cutting, is it being dictated by one institution of

the german government or by mr. draghi and the ecb? well, i would expect that this is the bank's own doing, basically. ceo, actually, who was installed a few months ago, and i think this is the plan going forward on how to achieve a reasonable return on investment. i would not expect that the government with a 15% stake would dictate things there. i mean, the ecb and mr. druggie, maybe they can question the i mean, the ecb and mr. draghi, maybe they can question the bank, but i would nothing they dictate strategy really. tom: for our global audience, what does commerzbank do? we have an idea of bnp paribas, socgen, rbs, etc., what is commerzbank good at? particular strength

is in the german midcap corporate segments, where they have market shares around 20% to 25%, and it is one of their bigger profit. generators -- profit generators. they have a retail isket in germany, but it relatively small. apart from that, they have businesses in poland where they are one of the bigger players in the banking market. francine: otto, how much of a headache are commerzbank and deutsche bank to angela merkel? otto: commerzbank i do not think is a big headache, really, for the government at this stage. i think what we're talking about here is more a matter of achieving adequate returns on investment going forward more than anything else and responding to the changes in

regulation, etc. i do not think it is any together great risk, commerzbank might fail or anything. deutsche bank i think is a bigger challenge in that respect. not that they are insolvent or anything like that, but clearly the market is running a huge amount of pressure on them, and investment banking, many of their businesses are market-sensitive, of course. the huge challenge in deutsche, in germany and globally, of course, is systemically important. that is a bigger challenge. francine: thank you so much, otto dichtl and kamal sharma. coming up, the paris auto show. this is bloomberg. ♪

tom: good morning. a busy day on international relations. let's get right to our first word news. saysr: turkey's president

a 12 month state of emergency may not be enough. he said the government is still struggling in the wake of the failed coup. they are trying to eradicate the threat posed by followers of the muslim cleric who lives in pennsylvania. hillary clinton is trying to work up enthusiasm among millennial voters. the candidate campaigned in new hampshire with her one-time rival, senator bernie sanders. to work with sanders to push her agenda through congress. regaintrump is trying to his predebate swagger, campaigning in iowa. he offered fresh attacks on hillary clinton's health and trustworthiness and he hit on a familiar theme, her deletion of government e-mails from a private server she used while

secretary of state. the biggest military +++ camps in pakistan, overnight. heavy casualties were inflicted on the litan's apparent to infiltrate india. the raid was in retaliation for attacks on indian soldiers along the border. pakistan denies there was an indian raid. global news 24 hours a day published by 2600 journalists and analysts. this is bloomberg. francine: let's get to our economy reporter in mumbai. nuclear between the arms neighbors who have fought three wars since 1947 have been escalating. is this a much bolder india? >> there were definitely some

expectations for talks to that youhe attacks just mentioned on 7 -- on september 18. it is unusual for india to say it conducted such movements. a lot of uncertainty, that they say it is over for now and there are no more plans. francine: this is the biggest military escalation since the standoff in 1999. when will we have an idea about what comes next? >> i think pakistan as you heard, calls this move on the part of india to appease its people who are angry and shocked by these attacks. there are lots of meetings happening now in delhi.

for now, we don't see any talk of an escalation, which then can really have mormon impact on markets. tom: the map of cashmere -- of kashmir, the border is 1800 miles. the difference i see among the insurgents in pakistan is their linkage to the government. what is the character of the rebels in pakistan, not attacking, but killing civilians and soldiers in india? are they tell event? are they something new, or is it the same old story? -- are the taliban -- are they taliban? are they something new, or is it the same old story? kashmir storyd still stands. there has been a lot of firing

back and forth. india said they attacked these camps. there has been a lot of violence been ath and there has curfew on the indian side. what is the pressure in financial mobile -- mumbai? there is definitely among the -- resentment and anger after these attacks. up inections are coming some very populated regions in india, next year, and some people see the announcement as a way of showing what pakistan is accusing him of, he wants to appease people.

much.ne: thank you so indian shares, currencies and bonds, following after they say they did attacked terrorist targets in pakistan. ceos from the auto sector me today at the paris motor show. one year ago, volkswagens diesel emissions cheating scandal rocked the world. we go now over to caroline. we stand here in front of new suvs, a lecture vehicles. will everything be electric? electric car sales have doubled compared to last year, so we see a trend coming up and we have announced we will bring our in-house technology by 2019

with four new electric vehicles. electrification is a trend, but we need to think about it not only from the mobility device perspective but also from the electricity production perspective so that they can embrace the full scope, and just well to wheel and not tank to wheel. we recognize that we need to work closely with our partners in battery technology and also that the number one expectation from our consumers is range. there is a range anxiety that is tied to the technology of the products related to the density of the charging network. timing withe that

the density of the charging network of the customers are expecting, this removes that anxiety, despite the fact we double our sales from last year. caroline: opec looking to strike a deal, part -- prices potentially on the rise. what does that do for your business? theos: it will change decision of our consumers when they look at the total cost of ownership of their cars. if oil goes up, it will give more intensity to electrification because they will skew there are more savings on electricity than oil. many countries that have a economy depending on oil, if the price goes up, their economy will go stronger, their markets will go up and they will be in a better shape to sell our cars. we need to balance all of this, but we have learned from our

near-death experience that what is most important is to be agile and able to adapt to a changing world. iran,ne: you are entering a country that could benefit from an oil price increase. volume goal to be? carlos: this plan embraces many initiatives. african middle east and india, china, latin america and even north america. ,his is one of the initiatives a historic location of our brand. caroline: wonderful to speak to

you, today. tom: thank you so much. let's look at the data right now, it's a quiet market, but some real churn waiting for news flow to come in. good equity markets. the yen, weaker than it's been. ♪

tom: good morning. ireland whyurage of

wide acclaim by all of economics, more than any other nation, got out front of the financial crisis of august 2007. ireland had the courage to make tough decisions. michael mckee is in dublin. michael: good morning. we are at the global interdependence center, central banking conference. brexit is the nominal subject, but everyone talking about banks, the wells fargo situation and the commerzbank news and what the overall state of european banks is. i spoke with the deputy governor of the central bank of ireland. she is also the person in charge loansveying nonperforming in the eurozone as a whole, and she is not happy with what she sees. >> there are high levels of nonperforming loans in europe

and ireland as well. these issues take time to work out and what we need to make sure is that banks are clear about what their plans are. michael: she would not talk about specific banks, but clearly commerzbank with a clear plan, this morning. francine: when you look at what the fed is doing, and we are looking forward to your interview with mr. harker. are they becoming more like other central banks with a confusing message? michael: when you talk about monitored policy, the fed is at a point where mr. harker said this morning, monetary policy has reached its limit. he makes a strong case for the fiscal side to get involved. we will talk more about that with him, when he joins us.

when you talk more about supervision, the fed is just like the other banks. problem ahead of the faster than other countries. wells fargo taking them by surprise. they are the primary supervisors of wells fargo, and it still shows -- it shows there is still a problem with attitudes and bank management. francine: thank you so much. everyone should tune in for that exclusive interview with mr. harker in 16 minutes. what is the killer question you would like to ask? i guess it plays down to what he would do on interest rates. --one of the key questions the fed seems to be looking to get any excuse not to hike rates. it all centers around the third mandate.

what is this global mandate that the fed has? is it higher level of overall volatility, how do we calibrate that, the market is getting increasingly frustrated. that how to calibrate third monday and it's one on his -- francine: what are you expecting? they will go in september? kamal: we think they will. that you give the dollar some moderate strength, but as you've , that policyments divergence is beginning to weigh in, quite -- is beginning to wane, quite significantly. tom: your shop in the u.s. was way out front on soft gdp.

ethan harris was two years ahead of everybody else on the quiet that would ensue. do you guys just frame across all of your platforms, lower for longer? is your timeline out three or five years? we've got two rate hikes priced in for next year, another two first hit -- 2017. that is a very shallow path of monetary tightening, so the message is clear that the market does not necessarily focus on whether december is on or off. but the market is looking at is a passively, overall, and now it is quite interesting listening to the comments coming out of the foc. they have reduced the terminal toe, that's a sign of things come because you don't see any

pushback from the ecb in terms of turning its interest rate policy around. the bank of japan on a new course, the ecb -- the bank of england on a new course. i think the fed is cognizant that it has to slow down the pace of tightening. tom: we will talk about in a minute, what is the dynamic of sterling and euro. sterling,k at euro which way will that cut as we go through 2017? ofal: there has been a lot expectations that euro sterling will have a parity. 2007 and 2008, when we had it was a significant divergence of monetary policy. the bank of england was doing quantitative easing. we don't see that level of dislocation.

we do have a small issue of certainty in europe. we've got that selections, and german elections. with the ongoing concerns about article 50, we do think euro sterling could drift higher, but we don't see parity. tom: we will continue with come harmar.rm or -- kamal s from london, new york, dublin, this is bloomberg. ♪

tom: good morning. includingng up, disinflation and inhalation. -- and inflation. commerzbank will eliminate 9600 jobs and suspend dividends. they will take charge of about $1.2 billion for restructuring

costs. profits have been hurt by volatile markets and negative interest rates. talks aboute is in mortgage bonds. the deal could be announced within weeks, though it is possible that it could be drug out or fall apart. deutsche bank is also in talks to resolve its mortgage bond case. elon musk is telling employees of his tesla motor company to stick to note discounts for employees. tesla has taken aggressive measures to sell cars full of awaits the arrival -- arrival of a smaller, less expensive model, next year. secretaryu.k. trade is here to give us a -- to give a major speech in manchester and about 10 minutes. he was one of the main forces behind brexit. you -- we expected him to

give that speech, two weeks ago and then he shied away from it. the bigger outline is that he is a -- he wants a heart out and wants to renegotiate trade deals. will that do to the pound? -- what will that do to the pound? kamal: i think the uncertainty we could face the u.k. renegotiating the number of trade deals could be negative. we have a q1 forecast of 21 in cable. we think the article 50 will be triggered in the early part of 2017. the announcement could send sterling spiraling. there is a bigger world and there is no denying that. the problem is it is a world that is looking more inwards

than two or three years ago. the u.s. still has a chance of electing donald trump. a hard brexit coupled with trade negotiations that will be difficult, long and probably worse than what we have at the moment. kamal: any deal to take the u.k. out will also be a worse deal. looking forward, the concern that we have a large curis account needs to be funded, we are totally reliant on economy on financial service, 80% of gdp is financial services. anything that threatens the stability of growth going forward has to be a negative on currency. tom: this is trade weighted sterling, not a currency pair.

the ugly is back in the 90's, the red circle. sterling never recovered on a trade weighted business -- basis. to blue circle right on down hsbc's outlier call of a 110 sterling. it is unimaginable we would exceed the major weakness. is that feasible? is that possible? kamal: the risk of the downside is undeniable. the way in the form that we have this negotiation process will very much be the key. scenario we exit in q1, we get a deal in two years. what is important is how the thediate aftermath of triggering article 50 is treated by the markets, whether the government could come in and alleviate any concerns of the .arket

we do concede that the risk to our forecast is very much to the downside, but it doesn't hurt the government can quickly negotiate its trading arrangements. at the moment, it does seem some of the comments coming out of the australia -- australia and the u.s. is the global trade agreements with block such as europe are more prioritized than trades with the u.k.. tom: a wonderful hour, thank you so much. michael mckee in dublin. coming up, a conversation with the philadelphia fed president, patrick parker. this is bloomberg. ♪

tom: ending september with modest stability in markets. all is quiet on the deutsche

bank front. in the hour, commerzbank may suspend their dividend, 9600 will exit. oil advances. saudi arabia says enough is enough. michael mckee in dublin in a few minutes, after parker of the philadelphia federal reserve. this is bloomberg surveillance, live in new york. i'm francine lacqua, she is tom keene. i think i messed that up. you get lucky when we have the news flow we have. tell me the importance of the commerzbank headlines. francine: you need to focus on european stocks. commerzbank is huge because it plans to cut jobs. it was expected, but they are

also suspending the dividend for the moment. this is also a time to take stock of the broader conversations related to the negative rates. mario draghi really pushed back, he almost took offense. tom: this is must watch for everyone in global markets -- in global wall street markets. what a perfect timing with the banking turmoil. here is taylor riggs. taylor: india attacked terrorist camps overnight inflicting heavy casualties on militants who had been assembled to infiltrate india. are over ands india says no more are planned, that it was an intelligent -- that -- that it was in retaliation for an attack on indian forces on the border. congress has passed a spending bill that averts a u.s. government shutdown.

the measure will pay for flood damage in several states. democrats agreed to vote for the measure up to -- after the was an agreement to pay for flint michigan's contaminated water crisis. it may turn out to be a hard brexit for the u.k. eu governments are refusing to get the u.k. any leeway on the link between immigration and trade. ireland's finance minister tells bloomberg the u.k. cannot have the advantages of the new without carrying out the obligations. global news 24 hours a day powered by more than 2600 journalists and analysts. let's get through the data to get to the professor on banking and economics of europe. the yen is weaker, deutsche bank holds on after two good days. overall, banks like

commerzbank and deutsche bank gaining a touch. indian bonds are dropping after the president said he would extend the state of emergency. tom: we get marcus brown meyer with his wonderful new book, the esteemed herbold. chapter need to know is nine of this is the definitive read on the linkage of finance in europe to the future of euro. everyone will be required to read chapter nine. what a well-timed book. did you know deutsche bank and commerzbank would be coming out? there is always something coming up. tom: but the immediacy of your deutsche bank. when you hit -- when you sit

down with a historian, do you say there are similarities to do -- to 2008? markus: i think the sovereign crisis played out in europe much more severely, especially in 2012 and now you see it spills over to banking. tom: which institution will come to the rescue? institution people or is it an individual institution? markus: it is highly speculative at this moment. what is important is it is hard to imagine germany without deutsche bank. some solution will be found. i doubt it will come from the government side, but probably other solutions where the government in the background will help out. if merkel is the adult in the room and she has a nemesis which is dealing with the refugee crisis and banks,

then she will be significantly weakened going into the election , next year and this is the worst thing that could happen to europe as all. markus: i can see if the other way around. a lot of dimensions may help to solve the crisis. we had a euro crisis that was always germany or france against france or germany. having made the mentions might help to solve all the crises. francine: because the people think it is the end of the world because -- and they come together? if you don't have much commonality, which is what the president was saying, then it is difficult to begin -- to get a group of cats going in the same direction. markus: it is easier to make some package deals.

suddenly, -- when you create bargaining's, you put many things into one package. tom: in your book, you address the cultural differences and the uniqueness of cotton europe versus the anglo-saxon models. when media people say deutsche bank is in search of the courage or the market clearing of an anglo-saxon model, how do you and harold james interpret that? markus: it is two different lenses people look through, a german lens and a financial engines. germany is much more focused on solvency, less on liquidity assets. but describes that. -- the book describes that. tom: congratulations on the timing.

i cannot say enough about the euro and the battle of ideas. speaking of the ideas, we need to clean the new president of the philadelphia fed, and his ideas on chair yellen. michael mckee in dublin. important interviews through the day. next, patrick harker of the philadelphia fed. we are reacting to commerzbank on international relations, news out of india as well. ♪

tom: an interesting morning. in celebration of the new must read on europe, the euro in the battle of ideas. right now, we need to go to michael mckee in dublin. michael: we welcome patrick harker, the president of the philadelphia fed. thank you very much for joining us. i want to start with janet yellen saying that the fed is going to ramp up scrutiny of banks. wells fargo is not directly supervised as the fed, but it is the largest bank in your district. what do you say to its depositors and the american people in general about the state of their banks and the behavior of their banks? is in the 12th district, so we are not directly involved with them.

one thing going on is to make sure we are working with our counterparts that the consumer is protected, and that the banking system is safe. yellensame time, chair brought up and i am in strong support of leaving some of the -- relieving some of the smaller banks from regulatory burdens. michael: i want to get back to that in just a second. the fed was particularly worried about brexit earlier in the year and now it has sort of fallen out. the speakers here have said the data has been good so far, the worst has yet to come. what do you think about >> and

its impact on the u.s. economy and monetary policymaking? patrick: we just don't know yet. there is a risk factor we need to take into account, but what a brexit will look like has not been determined. michael: i assume that means you can't know what impact monetary policy could have an mitigating anything. patrick: not yet. it, butry to plan for we cannot precisely tell you what that path is. michael: you were quite clear when you said monetary policy has reached the limits of what it can do and now it is time for fiscal policies to step up. monetary policy reaching its limits, does that mean you are accommodated but pushing on a string? patrick: we are, and we will continue to be with a path of increases.

that said, if you look at the big issue we face, how do we bring that off of zero? monetary policy will not do that, that has to be fiscal policy, tax policy, you name it. michael: let's go back to the banks. for whatever reasons, they are willing to lend, that people don't want the money. how does monetary policy effect that? patrick: let's to find which people we are talking about. in terms of households, we are continuing to see household or mission. new home purchases, existing comforts -- existing home purchases. we are seeing the housing market continued to firm. business investment, you are right. week,e seen that, quite over the past several quarters.

due to a. of factors including uncertainty , there are also issues of return to the shareholders. there are a couple of ways to providing returns. one is through long-term investment, and the other is through stock buybacks. the board making rational decisions based on the cost may have for capital and debt. thattes rise, we may see that reverses a little bit. michael: you have been on several corporate boards and you have business experience. it has been presented in two ways. one is companies have shifted their short-term. they don't want to look at long-term investments. the other is why invest if you don't see a return in the near future? how do you read it? patrick: it depends on the individual companies. there is no universal truth.

if you think about what companies are facing right now, given the uncertainty in the u.s., if you are an export led country and you don't know what the world is going to look like postelection, you will probably hold off on some of those investments. michael: three dissents at the last meeting, highly unusual for the fed. how divided is this group? patrick: people have different perspectives on the pace of normalization. i tend to be in the camp of normalizing sooner, rather than later. i would say there is great to send other than the speed at which we move accommodate -- we remove accommodation. it will be a shallow path. michael: tell me more about that. how fast and how far? patrick: not clear. that is a function of how the economy responds as we move accommodations. michael: at least one of the

dissenters said he is worried about bubbles developing and financial markets and other members have suggested the same. do you see monetary policy distorting financial markets? patrick: there is potential for some bubbles, particularly from the district that we watch. the other thing i worry about is the possible distorted of affect we are having on corporate decision-making is much easier to do a stock buyback -- a stock buyback to increase your share price and investing. that, we have to reverse overtime. michael: how do you reverse that? patrick: as the cost of debt goes up, slowly, it will naturally reverse. michael: interest rates are so low, when does it start to actually have an impact on corporate decision-making? patrick: we don't know until we start making that transition. the shallow path toward

normalization and then watching and being careful about not reacting too quickly, but let's see as we make those changes. we are speaking with patrick harker, president of the philadelphia federal reserve. you mentioned earlier, uncertainty about the political situation in the united states and around the world. he spent much of your speech defending the merits for free trade and the economy. are you worried about the economy in the political climate we see question mark patrick: i think everybody is -- we see? patrick: i think everybody is. we have an index of how looking at partisan -- of looking at how partisan the conversation is. we can correlate it with economic results. because we have such conflict, it is natural for people to wait

on the sidelines. that is not good for the economy. we need people to take risks. the economy grows because people take prudent risk. is a riskree trade for the worker who does not get to keep his job. how do you defend it to somebody like that? patrick: one of the things we have not done a good job of is deal with the following fact, free trade benefits the economy as a whole, but everybody of a goody the cost going down by a few dollars. but a worker losing his job is disproportionately hurt. we need to help give some of the benefits act of people who are hurt, whether it is through things like wage insurance or returning programs. patrick: let's talk about -- michael: let's talk about you. you are an engineer by background and training. what do you bring to the table that others don't?

patrick: engineers are pragmatic, by definition. i bring a perspective both in terms of thinking through data, but also it comes down to judgment. people learn judgment in a variety of ways. youe are a lot of ways build your capacity for judgment . that is ultimately what everyone in the fomc brings to the table. to the: you go back political question on capitol hill about reining in the fed and arguments that the fed should be rule-based and should answer more to congress about how they make their policy decisions. i presume that's not something you would support. patrick: i know that if you have a model and an equation and you put uncertain data in, you will get uncertain judgments out.

think about things we measure like gdp and inflation. always revised, but those revisions happen after we make decision. we have to make a decision based on what we know, today. a rule not do a good job of that because we base that on q1 gdp numbers and then they get revised and we look back. judgment is very important. to smooth out what we know to be fundamental errors in how we measure because they are inherently hard to measure. michael: the fed's ability to predict the path of the economy has been subject to a lot of criticism, and i wonder from your position as somebody who came from the outside and has been the job for a year and sees what's happening, do you think the central bank has a ,redibility problem communicating with the public and wall street about what it is seeing because you have forecast

a lot of interest rate moves that have not happened. patrick: one of the fundamental the pathwe have had is of the fed funds rate is often taken as some sort of commitment , as opposed to our best guess. that has been a communications issue. it is saying given what we know today, this is our best estimate of where that will be, assuming that proper policy is followed. michael: when you get rid of the dot plot? -- would you get rid of the dot plot? patrick: i think it does provide value and we need to think of ways to communicate and be transparent. not on gdp or inflation, because people understand that is our forecast. the one i worry about is the fed

funds rate. michael: i would be remiss in not asking you about inflation and where the fed is on the curve. your predecessor dissented quite often, worried about higher inflation and the fed falling behind. would you agree with that or do you think the fed has more time? core inflation is moving toward the 2% target. when it comes to headline inflation, related to energy prices and other commodities. as we see those firm or increase, we will see the 2% target obtained. i am convinced we will obtain that, sooner rather than later. decemberif you move in and you suggested you would be in favor of that, then do you catch up? patrick: it's not clear, yet. it depends on the path the economy takes from there. michael: november, the fed is

going to meet. yellen defend janet saying it is a live meeting and that anything could happen? patrick: i think every meeting is a live meeting. you don't know what is going to happen between now and then. to take any meeting of the table is a mistake. michael: the fed has been charged with playing politics, to help one side in this election. how do you respond? patrick: i am a relative newcomer. meetingsd nine fomc and in none of those meetings have i heard anything political. people may disagree, that they disagree because they're looking at the data through different lenses. we interpret that data differently. that is why having those different perspectives is so important.

someonese have i heard state anything political when they tried to justify the position. michael: thank you very much for joining us. we will send it back to you. tom: michael mckee, thank you so much. maybe the most evidence-based interview i have seen out of the fed official. on ia remarkable interview don't know. parker repeatedly said i don't know. harker repeatedly said i don't know. it is always difficult to predict the future, but what i take away from this interview was just took things. -- the other thing is he said we should not wait too long --

tom: when you look at the history of your co-author, kenny central-bank get out in front with hope and faith, or do they have to wait and see the data? always anere is element that the central bank has to communicate some confidence to the public, and this can help the economy to grow out of their problems. is your best case scenario that if they don't hike this year, that the economy will overheat? that is the only reason they would have to increase the interest rates very quickly. markus: you don't want to increase it late or sharply because the economy might overheat. for financial stability, you want to get smoothly out of the

existing low interest rates. tom: thank you so much. i can't say enough about the ,uro and the battle of ideas chapter nine alone on the linkage of finance into the great european experiment. it is an absolute required global read. coming up, we will look at china, disinflation, optimism on deutsche bank. what a good time to catch up with david goldman. ♪

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in the u.k. and one of the most prominent figures in brexit. we are trying to figure out how he sees trade negotiations between the u.k. and u.n. -- u.s. overall he said brexit is a good thing but he told business leaders in manchester to the north of the u.k., it is a alden opportunity, brexit, golden opportunity to forge a new role in the world. we will monitor any headlines from the trade secretary in the u.k. let's get to the bloomberg first word news. turkey's president says the 12 month state of emergency may not be enough for his country. the government is still struggling in the wake of the failed coup and they are trying to eradicate the threat. turkey has demanded the u.s. .xtradite gulen

hillary clinton is trying to work up enthusiasm among the millennial voters, campaigning in new hampshire with her one-time rival bernie sanders. sanders one more than 80% of the youth vote in some democratic primaries. it is the biggest military confrontation between india and pakistan since 1999. india says it attacked terrorist camps inside pakistan last night and heavy casualties. for an attack on indian soldiers earlier this month where 18 indians were killed. pakistan denies there was an indian raid, saying they fired across the border. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: this is a big deal, breaking news.

this is the future for american corporations. pepsico comes out with low forecasts. this is the future. low single-digit realities, corporations managing towards a higher single-digit execution. the case of pepsi is a general statement as they go from 2% growth and make it into a 7% move down the income statement. that is a constructive statement from pepsi and speaks volumes about multinationals in the new economic world. that means it is a good time to speak with david goldman. i want to get to his optimism on deutsche bank in a bit. right now francine and i want to talk about china. i have been guilty of ignoring china.

give me an update on china's 2016. david: china's biggest problem according to the bank is the housing bubble. chinese are enthusiastic about investment opportunities so you have couples getting divorced and shanghai so each can separately get permission to buy an apartment, goes apartment prices have gone up by 50% to 60%. china is the contrarian central bank and are tightening monetary policy, letting rates rise. this is very different from february when we had a threat of a run on the yuan and the cost of hedging went through the ceiling. here the yuan is a non-player the cost of hedging is extremely low. the good news in china is deflation is going away, industrial profits are rising because there is less deflation at the factory gate so they are pretty much a steady-state.

tom: i guess it folds back to janet yellen. bring up the chart, this is a renminbi and is david goldman mentions, we are on trend for a stronger renminbi from the history of 2005, and up we go. weaker renminbi to the steady-state. what is so important about this dynamic is they are doing it within an artificial capitalism. are they going to become more like us or is there going to be an original chinese model out the next three to five years? david: not to be like us means to have less access to instruments with which to deal with these problems and they have blunt instruments. r&b tory they want the be a global currency and their markets to be open but because they are not a democracy, and they probably never will be like they willot think

ever have markets as efficient as ours. we are making a transition from their smokestack economy to a services economy, it is happening. reasonably ine control of the process so i do not think china is one of the great places to buy this year but i do not think china is a threat to the rest of us as it was perceived last february. francine: this is why i am a little bit worried, the stock market is eerily quiet. we know there is speculative buying and that is switching onto the housing market. if our memory serves us well, it was august last year where it was mayhem, january it started again and the fundamentals are still there, high debt and speculation. david: i could not agree with you more and i think tom's point about pepsi is absolutely right.

it is time to buy cash flows and not high in the sky stories. at, the flows you look companies that give you a strong brand and strong cash flows are all valued at 20 plus times earnings. it does not mean you should not buy them, it means they are the least bad things to buy and you are buying them because discounted rate equities are cap so low by central banks. we want to buy things because they are at the valuations we like but they have got to be a lot lower than they are now. francine: is the housing market in china in a bubble? if we see the housing market in china in a bubble and bursting, that would spread panic in china. david: i do not think it would necessarily spread panic because chinese households are sitting on such enormous capital gains that unless you had 70% to 80%

decline in housing prices a would still be above water on the trade. i do not see that necessarily as leading to a panic, especially if the people's bank of china is trying to preempt this thing. wavethat could be a cold in other markets but i do not see it as this existential threat that people worried about last february. existential reality is that european banks are front and center. we will talk about deutsche bank , and slice and dice the derivative market with mr. goldman. david gura coming up later in mexico city with the treasury secretary jack lew. ♪

francine: this is bloomberg "surveillance." i am francine lacqua in london, tom keene in new york. here is the bloomberg business flash. taylor: air berlin announced its largest job cuts in almost 40 years of flying. it will cut its fleet in half. 40 planes will go to lufthansa and 35 will go elsewhere. air berlin has lost more than a billion dollars. saudi arabia has made a u-turn on oil. they have agreed to cut production in order to boost prices, the first supply cut in eight years. for the past two years saudi arabia has had a pump at will policy.

will eliminate 9600 jobs and suspend dividends. take charge of about $1.2 billion for restructuring costs. that is your bloomberg business flash. francine: taylor, thank you so much. coming up is bloomberg shortly. banks, german banks and u.s. banks. jonathan: i thought it was stunning the job cuts coming through from commerzbank. we will be talking about that. in the words of president mario problems of the banks are the banks' problems. inasury secretary jack lew mexico city coming up with david gura. tom: thank you so much. is in london and we spoke to him earlier about commerzbank.

, is with us. he is truly definitive on the parsing of risk and instruments. if i bring up the deutsche bank cds chart, it looks like 2008. you are adamant that the spike up we see recently on credit default swaps for deutsche bank does not hearken back to 2008. david: that is mechanical. the most important thing to know about european banks is there are two factors beating up their n ands, and pl's and -- offpl's balance sheet exposure. there are only three banks in large alan cheap

exposure and the rest are relatively low. the banks with the uncontrollable nonperforming loans are the italians. the french banks, and british are in better shape. up because blowing as a stock it is more volatile and the counterparty gets dodgy. they have to buy credit protection to cover the counterparty. tom: and then they get bid up. the great mystery to me is scale and merger. the only outcome i see is merger . from your study of european banking, do they have the cultural system and cultural finance to effect obvious mergers and to get to a better scale to cut costs? david: i think the german government and bundesbank are perfectly happy to let a foreign bank take this dinosaur off their hands. tom: would credit suisse be

taken off? david: i do not know because the swiss are somewhat different but the germans are ready to do it. they are not as bank dependent as they were in the past. i think it would be ideal for a jpmorgan or wells fargo to do it. deutsche is the world's second-largest derivative dealer. their profitability on their derivatives book is terrible so what you want is another bank with better capitalization to take them out and try to run that business better. an american bank would be ideal and i do not think germans will object. francine: the problem with consolidation, we spoke yesterday at length, is that it would need to take someone with a balance sheet that could do it but regulations. there is no clear consolidation phase. how do you justify to your shareholders taking over a deutsche or commerzbank?

michael: especially one of that size. the u.s. banks have gotten to a capital level where they feel relatively comfortable, even in the fed stress test. do you want to put that at risk with a major acquisition like this? the upside several years down the road, is it worth it? that is the big question you face. you have with the u.s. regulators, want something like that, a deal of that size. francine: what do you find most surprising? the stock price was at a record low on tuesday and it bounced back a touch. they are shedding assets and trying to get back on track. then we had commerzbank today. where is the inflection point? michael: at least on the commerzbank retail banking commercial banking side of things you would need to see a change in the interest rate

environment. until that changes i think the revenue pressures continue and there has to be a cost story. tom: we just went through the book of deutsche bank, jpmorgan, and morgan stanley. does stock price talk here or our institutions in germany and the leaders, john cryan and the others, but a blind to the stock rice? blind to there not stock price but in germany where you have a labor shortage you could have an a choir and fire strategy that wipes out a number of jobs. you can do that in germany and make a bank possible by drastically cutting costs. tom: what about deutsche bank and commerzbank? understand how they apply the anglo-saxon. david: that would be two drunks holding themselves up.

i think a streamlined, more profitable deutsche bank with a derivatives operation that would be and the tage is to a strongly capitalized american bank that does not have one. tom: who would that be? david: wells fargo. tom: you heard it from david goldman. francine: i do not know why you are obsessed with consolidation. two drunks do not make one person who is sober. you cannot put together two week thanks, you need a bank -- week banks. you need a bank that is strong enough. david: the mask in gradient is cost-cutting. best ingredient is cost-cutting. francine: they are doing that and they need more. they need a stop to negative rates and an economy that is working. david: you want to buy when the

equity price is extremely cheap before the reversal of negative rates makes banks more profitable. tom: you lived this. we are talking about it, you lived it. turn on a dime when the news changes, don't they? david: consultant and boards live in a different world than i used to inhabit because they have their mothers-in-law and sisters-in-law and 10 regulators living with them, watching their every move. exactly as francine said the regulators will have a major vote. if you are asking what's makes economic sense, a cross-border merger of some kind. tom: fascinating. francine: a cross-border merger that will probably never happen. how many questions are there about the business models and business plans? one thing we hear over and over

again is there are too many are not going to consolidate them, at least make it clear what investors are buying into. michael: i think you have seen the european banks try to simplify those business models. they mention the interest and portfolio of deutsche bank. they are selling those two u.s. banks so you are seeing some of that shift happen but not with the giant acquisition. tom: michael moore, thank you so much. the humor of the show can sometimes be a little dry, david goldman mentioning wells fargo and deutsche bank. mr. stumpf is a little bit busy this morning. we have 41 reasons to listen to him. .e is distracted at wells fargo his testimony at 10:00 a.m. this morning and washington. -- in washington. ♪

tom: let's look at the litmus paper of the system. francine lacqua in london, tom keene in new york. weaker, 101.46.

dollar mexico showing the debate outcome, stronger mexico over the last three days. francine: they have made a u-turn on cutting oil. opec continues to cut oil production to boost prices, the first in eight years. javier blassts -- joins us. does it tell you the saudi's are desperate? do they want opec to have a bigger influence or do they think prices can rise? higher definitely want oil prices and they need higher revenues. the second thing it tells you is the saudi's, by cutting the

relatively low prices of oil can make prices higher. tom: is it a sea or just a migration to november and the opec of 2017? david: i think it is -- javier: i think it is an important change because saudi arabia is typical policy has been to try to get higher prices. the big change was in november 2014 when they dropped their traditional policy. this is going back to the traditional opec we have seen. still we need to see the details later when opec meets again in november. tom: i did a thing yesterday with invesco and they asked me a question what was my biggest mystery. i said commodities and oil. are we at a commodity autumn? -- bottom? david: it is been driven by

asian demand. the construction which buys this ,eal, that -- buys the steel that simply has to attenuate. the chinese have built their infrastructure and now they are going into services, not brick and mortar so the commodity cycle is not going to come back in a big way. do not have a global demand and we have an aging population and low economic growth in the west. instruction in the west is mainly determined by the greater family in nation. francine: then you look at india and china, the emerging markets could pick up a lot of that so even if we do not grow at 3% or two and a half percent it boosts the demand for commodities. javier: david is right about china. china was a big factor and

driver of the commodity super cycle, the oil boom when the chinese were demanding several -- every year, and that is not coming back. india has gas and indonesia also at the special factor is no longer there. tom: thank you so much. thank you for your report at bloomberg.com. going to continue our discussion with david goldman on bloomberg radio. the secretary of treasury has a conversation with our david gura in the 9:00 a.m. hour ♪.

jonathan: germany's

second-largest bank feels the pain. ceo is suspending its dividend and cutting 9600 jobs. david: wells fargo's ceo heads joshto take -- theyces could raise prices up to $10 a barrel. jonathan: i am jonathan ferro alongside alix steel and david weston. german banks back in the spotlight, commerzbank suspending dividends and cutting 9600 jobs. david: that is painful. jonathan: this is like maneuvering a supertanker. and they want to simplify the business. david: and keep the underlying business going. alix: this is on