>> the banking bonanza continues. ceo in 45o ubs minutes. in charge in china, he strengthens his grip on power ahead of leadership changes. brexit blues, several the reports show uk household starting to feel the pain of the referendum results.

welcome to bloomberg daybreak europe. earningse a feast of for you this morning. income is coming in at a billion euros. what we are looking at is third quarter revenue coming in at a beat as well. 41%. quarter revenue up >> if you look at -- 50% uplift business-- he stole

from the americans. the banks are front and square. -- they havel -- thed third-quarter market was looking for 4.42 so that is a miss. volume a little bit better than the market had been expecting. they had been estimating a drop of 1.5%. the top line revenue generation, that missed as well. 11.4 is what the market had penciled in for that. they're planning to cut 3% of the workforce.

it is a top line miss for them. was -2%.rowth that is a shocker. let's talk about ubs, the world's biggest wealth management company. that is a slight miss, 827 million swiss francs. 33%,tax level profit up by 877 million. third quarter had a litigation charge, 419 million swiss francs, having to do with mortgage-backed securities. thecomments coming from team over at ubs is that the underlying macro economic uncertainty and geopolitics contributentinue to

to risk aversion. at the capital income ise story, net a slight miss, 827 million swiss francs. the market was looking for a hundred 48. we will be speaking -- 848. in terms of what is really going on. we have the ceo joining us live time, 1:45. u.k. a.m. new york time. ubs.me great commentary on let's get a quick look to see what we are one -- watching in

the markets today. the dollar off slightly. slipping from a seven-month high. 105.15 four dollar-yen. dollar-yen. this has to do with a policy divergence. hikee expecting a rate from the fed before the end of the year. the probability of a december rate hike above 70%. yielde the aussie 10 year . the selloff continuing in asia. wti holding below $50 a barrel. its first weekly drop since september. >> can opec get their act

together? can they put their house in order? >> good morning. amazon shares falling in extended hours after the company said it may not actually make any money over the holiday season. the retail giant says it is still willing to spend lavishly on products. even if it means thinner profit markets. earnings that google parent off about topped estimates after steady internet ad sales made up for heavy spending. japan --prices in despite the best efforts to revise the economy. core inflation sell 7%. household spending slumped again in september.

the communist party has declared xi jinping.-- it is significant in terms of politics. a plane carrying donald trump's idded offate has skat the runway at laguardia airport. pence tweeted -- global news 24 hours a day powered by over 2600 journalists and analysts in more than 120 countries. more stories.

this is bloomberg. >> let's check in on the markets in asia. >> we are seeing a mixed picture for markets across asia. investors not sure where to had ahead of the central bank meetings next week. analysts saying investors will want to stay away as we see these risk events coming up and they do not want to commit. at least one market they did commit to was japan. on the back of a weaker yen, which is trading near a three-month low. we had core cpi data falling in line with data. reporting350 firms this week. china also has tons of earnings

coming out, about 24 companies reporting today. the shanghai composite unchanged at the moment. the hang seng index firmly in negative territory, down 4/10 of 1%. theasx down to tenths of 1%. down to tenths of 1%. kospitalking about the not really getting a boost from the weaker korean won. a weakening for a fourth consecutive session. much.nk you very great market roundup. let's get into some of these numbers we had this morning.

joining us on the phone is chris wheeler of atlantic securities. numbers,t the ubs negative rates are considerable headwinds, unlikely to change in the foreseeable future. it is tough out there being a wealth manager with a lot of fear in the market. themes that sergio impacted byout, lower interest rates and by wealthy clients sitting on their hands. sergio has pulled that out and his growth margins have come down another basis point, the

mid 70's. points before the crisis was the benchmark. >> i will have a conversation with him in just under 30 minutes. , that had growth margins has been flat every quarter since last year, does that raise the possibility of more hiring freeze, digging a bit deeper into cost cuts at the bank? chris: that is the case. they focus much more on the net margins. that went up one basis point. my sense would be you are exactly right.

i have to say, in the last three or four years, it has come right back into the fold in terms of being a focus of cutting costs. most banks around the world -- at bnpave been looking paribas this morning. beating estimates, and that's largely on debt trading. a theme we have seen all week with banks in europe and in the u.s. as well. i want to know how sustainable you think these gains are going to be given that we have had an unusual quarter. question.t is the big the good news for debt watchers is that the cfo of morgan octoberlast week said had been as good as q3.

what you have to ask yourself is what is driving this? when you think about what interest rates are doing or not doing, that is a big factor. those two items, the macros, i think that will continue in the foreseeable future. i do not see any certainty around those issues. >> carry-on, volatility. chris wheeler, thank you for joining us. where should we go next? a touch of brexit? >> britain starting to feel the squeeze from the brexit. consumer confidence failing and

a weakening of household spending power. >> that is likely a reaction to inflation, which could reach 3% next year. joining us now, the president of the peterson institute for international economics. thank you so much for joining us. when i read those numbers, the reality of brexit is beginning -- the head of the bank of england being less patient with inflation. faces inhat the u.k. 2017? >> the answer is simply yes. it will not be as bad or painful as the stagflation of the 1970's. inflation goes up and growth goes down. in the consumer

in the u.k., fueled by some nonsense in the political sphere , kept them having faith in the u.k. economy that was not merited in the last few months. they are now waking up to reality. >> we are seeing bets are increasing on a rate hike from the bank of england. will that hurt the bank's credibility? banks are always reluctant to make an about-face but they should never let that interfere with doing the right thing. the issue is assessing how much this inflation shock gets transmitted through to the whole economy. in 2009-2010, we had a large decline in sterling. we looked through it.

i think it is different this time. there is much less faith in the u.k. economic regime. prices are moving down. this is a u.k. specific shock. manus: adam, can you hear me? adam: yes. manus: you referred to a number there which is 5%. appetite tohave the allow inflation to run up to 5%? would that be the tolerance level before he hikes rates? issuei do not think the is so much the level. -- at a time 3.5%

when the government of the u.k. is doing large fiscal spending less and a time when -- fiscal deficit isd the widening, 3.5% inflation would be bad. 5% would be tolerated a few years ago and that is when expectations were anchored in there was plenty of room to do qe. they have to look at it differently. sterling, youut have shown some concern already about how far this has fallen. the impact this would have on inflation and the economy. if we see sterling take another leg lower, what are the wider impacts of that? adam:. quite the right word. sterling has to go down.

if you do not have sterling go down, you have had a negative supply shock, you have to have a huge confession of wages and imports. that is what happened to greece and you do not want that to happen in the u.k.. it has moved too much against the doll unless against the euro. where they need the readjustment is with the euro. manus: our editor-in-chief caught up with james gorman and he asked them if there was anything good about brexit. he said there is nothing good about brexit. those are his words, not mine. good that caning come from brexit? adam: no.

[laughter] manus: you can see james gorman in a game of poker and you can raise him. this, is it just death by a thousand cuts? let's step it back. it can be very unquestionably bad and have no positive aspects but still not be terminal. you have an injury and you get arthritis and you cannot play the sports you used to play and you have to take a bunch of painkillers, but in the end, it is not fatal and does not destroy your life. that is the way to think about brexit. it will be an ongoing source of chronic pain for the u.k. for

the next several years. it will put the u.k. back to where it was in the 1970's and 1980's. in veryo rebalance interventionist ways. will the citynow, have survived it? -- will therage average british person be worse off financially? yes. outside the eu, most of the trade is with the eu. mentioned theu eu. is this going to be more painful

for europe? we get french gdp data later. is this more of a problem for europe? adam: the u.k. takes most of the pain. the most important thing is this was a mutually beneficial relationship. if you pull back from the relationship, the pain is on both sides. pain primarily is going to be through the political aspect of people more worried about fragmentary parties and anti-europe parties in europe than they have been and it will be the uncertainty of scotland and northern ireland. it is bad for the u.k. but has effects on the eu. manus: hold those thoughts. the high court in northern

ireland will rule on the legitimacy of article 50. stay with us. ubs rose 11% in the third quarter as costs decline. climbed beating analyst estimates. the world's biggest manager of money says it will continue to cut costs. we will be speaking live to the a.m. u.k. at 6:45 time. e&p hurray about has -- bnp paribas has reported third-quarter profit..

a team of citigroup traders generated $300 million of revenue this year. people withrding to direct knowledge of the matter who say the windfall -- knowledge of the matter. traders can still make outside after regulators thought to curb risk-taking. that is your bloomberg business flash. >> u.s. third-quarter gdp is released at 1:30 p.m. london time today i had of next week's fed decision -- ahead of next week's fed decision. still with us from frankfurt is president, present -- of the peterson institute.

if you are looking at the u.s. economy, one could argue that you could look at it both ways. the state of the u.s. economy could be in favor of clinton's 's.tform but also trump do you think that is true? adam: reasonable people could argue for a rate hike while most people would argue against one. that is a fair debate and their arguments on both sides. the trump viewed economy is based on falsehoods and mistaken ideas. he was talking yesterday -- all about jobs, jobs, jobs. the unemployment rate is very low, participation is coming back up. ed -- thef jobs creati clinton plans are better and more consistent with reality.

map of theave a electoral swing states. you, if a clinton -- what does it mean for the economics of america because disaffectedry quadrant of america to deal with. adam: it is a very good question. i appreciate you focusing on economics because i am not a politician. the disaffected part of america still controls the house of representatives? if the tea party has total control of the republican majority in the house, which seems likely, it will be very

hard to get a budget through an very hard to make a compromise. even make a deal on infrastructure spending which would help some of those disaffected americans. that would be unfortunate. a second way of thinking about it, if you could get a budget through, what do you spend it on? that is one place secretary clinton would have to rethink her plans. >> adam pozen, thank you so much for joining us on daybreak europe. as abc.asy we will take a closer look at those numbers.

we will break a little bit of french gdp. stay tuned, an exclusive conversation with the ceo of ubs. ♪

londonit is 6:30 a.m. in . that is victoria harbour, looking beautiful. if we take a look at how the hang seng is doing, not too great, down 6/10 of a percent. number comes gdp in at a significant -- below the survey. , theis on the quarter survey has an estimate for .3%. this is a top thing for france. -- tough thing for france. this is probably what the market

will be disconcerted about, 1.1%. that is less than the market had expected. spain is expanding at 3%. germany, 1.8%. tos is about france trying -- we haveup from had french growth rebounding in the third quarter. gdp, plus .2%. it is a little bit better than we saw in the second quarter. nejra: if we stay on france and look at the drugmaker, we have net income, third quarter business income coming in at 2.3 billion euros. 1.89.t estimates,

it will buy back stock by the end of 2017. it will divest its eu generics business within 24 months. repeating its diabetes outlook. in atss net income coming a beat. manus: we have a headline coming in. full year outlook, raising their outlook for the year. higher than 2015. that interest income -- the is the third quarter

number. they are raising their profit outlook for next year. absolutely beating on total income. this is the debate, the interest business versus the fee. outlook.nk raises its those are the breaking headlines. here we go. the sun is setting on the oil glut. nejra: oil set for its first weekly drop since september. $50 a barrel.low this is as an opaque meeting -- opec meeting meets later.

the next story is also well related. .- oil related they will drive the sentiment. he was talking about lowering the overall cap. oil majors, will they get a boost from the slight rally you have seen in oil prices? nejra: daybreak focusing on general electric, not discussing the outright purchase but is in talks about possible partnerships. baker hughes shares jumped.

let's take a look at what is happening in the market. manus: you have dollar-yen on the move, while on the move1. 105.30. the question for the market, is it the dollar strength story? dollar-yen, the biggest monthly loss since may. through intoing the topix. we are focused on the bond markets this morning. nejra: up five basis point. we have seen the 10 year yield go up in new zealand as well. bond selloff continuing.

manus: weak japanese data continuing. consumer prices fell for a seventh straight month. lackluster household spending also a cause for concern. nejra: joining us to discuss is our north asia economy editor. what impact will today's data have on what the boj does next week? economists are not expecting any change. >> that is right. economist expect the boj to stand pat on stimulus. today's data is unlikely to change that. the numbers were poor for inflation. the overall inflation picture has not changed in recent months. is boj has signaled it

taking a longer view of things. the policy shift is about sustainability. surveyed were we nearly unanimous in predicting they would not raise stimulus next week. only two out of 43 economist predicted that they would. on the other hand, they will revise their inflation forecast, likely revise them lower for the next couple of years and have to acknowledge they will not meet their 2% price target as projected. manus: are there any bright spots as all? -- at all? what are the bright spots that kuroda can turn to? henry: the labor market data today was a bright spot.

the unemployment rate fell back to 3%, which is the lowest level in two decades. economists were saying this morning that the unemployment figures, likely to drop further and japan is nearing full employment at a level at which we might begin to see some significant wage rises. nejra: when is that going to feed into inflation? thank you, henry, joining us from tokyo. manus: easy as abc. i will not sing to you this morning. google talking about the alphabet. this was for the third quarter numbers. mark has little bit more from san francisco.

alphabet inc. reported third-quarter earnings on thursday, beating both revenue and profit expectation. the ad business continued to grow and google ceo said the company will invest further in the cloud division. >> scaling up partnerships is a big area of focus. we are establishing a learning group so we can take advantage of working with our cloud customers and make machine learning more accessible to all of them. as we head into 2017, i expect cloud to be one of our largest areas of investment. >> the self driving car in fiber internet continue to post losses. investors did not seem to care. this is mark bergen. up, we speak live

to the ubs ceo sergio ermotti. manus: we also get the numbers from rbs. nejra: brexit plane hit households, sending consumer lower.nce this is bloomberg. ♪

manus: it has just gone 6:43 a.m. ubs has delivered its third-quarter numbers. profits rise by 33%. net income rose by 11%. capital, it is about building

capital -- that is the story for all of the banks. wealth management, the key billionithin ubs, 9.4 swiss francs. that is up from 6 billion in the second quarter. the team has been rather discerning in terms of the money they bring into the bank. they want to bring profitability -- profitable money. the investment bank hadn't adjusted pretax -- had an adjusted pretax profit. lowery talk about transaction volumes, lower than anticipated negative rates will still present considerable headwinds in the current market

conditions. when it comes to the investment uplift.very substantial ubs does not have the same exposure as its u.s. peers anymore. joining me live is sergio ermotti on the phone. thank you for joining us. 11%, but its up by looks as if it is a tough quarter to get the clients to trade. addition to all of the macro thinks you just mentioned, if you look at the quarter on quarter, it the very strong results. we have been able to build up on our capital position. very close to our target.

good progress on our target. i am very pleased. the diversification of our business has proven to be a winning proposition in this very challenging environment. manus: can i ask you about the comments you made? negative rates are a considerable headwind. sir, will this mean having to review front office in the wealth management business? does it change your perspective in terms of the future outlook for the bank? i think we have a very comprehensive and ambitious net-reduction target, 2.1 cost. it does not include any

reduction or benefits from exiting businesses. or variable compensation that is .riven by financial performance ours a fairly demanding -- wealth management businesses in the u.s. and internationally has been going through a comprehensive cost-reduction program. you start to see the benefits in wealth management. year.ll effect next continue toave to execute on our ongoing plans. you say the rates in credit business offsetting less of a performance in the fx .

you do not have the same exposure as your peers had in the united states. the numbers you are seeing in the industry in that space, are you concerned -- did you not win market share, why was your performance -- run me through your thinking on the investment bank side. q3 2015, we had a strong performance. the industry had a poor performance. you're on year, performance -- year on year, performance, we had a misleading position. -- a true comparison is a quarter on quarter performance. our businesses have performed very well. of course, we are smaller, but

focused on client related activity. what counts is the bottom line. business is very strong. very strong in 2015 and strong today considering market conditions. manus: did you win any market share? did you win anything with the unsettled market at deutsche bank? sergio: we clearly see some benefit in some areas where clients are looking to diverse diversify or looking for different services. the main advantage we took over the last couple of years was by focusing across the board on what we think our core competencies we can offer.

being on the advisory side of focus ision, the paying off. manus: let's play our quarterly game. you have a 50% dividend payout. you said it was a priority for 2016. are we any closer to getting more surety to investors on the payout ratio for this year? sergio: the final determination is in january. there is no change in our capital return policy. isis quite clear our focus to reconfirm our baseline dividend. i will have to stand

on the bridge in the cold for that. reengineeringe themselves. given -- how much volatility has there been? will 2017 be the year of consolidation? see that'm happy to some of the topics we have been , overcapacity in the european banking landscape. you need a regulatory framework that allows you to go through from a practical standpoint. having said that, yes, i think

in 2017, we might start to see some movement in that direction. i do believe there are other ways to extract the energy. combining part of our value chain so that the industry can become more efficient in responding to the high regulatory demands we are facing. manus: i know you get asked this often and you have spoken about brexit. there is more pressure about not -- what level of alarm does that ring to you? how close are you to moving the numbers -- can you clarify that? look, it is impossible

to make decisions today about moving people or not moving people considering what we have in front of us. it would be a very risky decision to take such steps. we are in a wait and see. as time goes by, we will get some clarity. it may well be we are not moving but in or we move people absence of certainty, we will not make any decision. we talk about the future in terms of cost or opportunities. brexit is onlyf being realized now.

it is the first major sign of the cost manus:. thank you very much for joining us. ceo of ubs speaking to daybreak. we have this breaking -- any third quarter adjusted net loss. 72.7.timate was for a bigger loss than expected. planning to carry out initiatives to reduce capital spending. a 20% reduction in spending. let's move from well production to beer. results aregiants the first since completing a takeover of sab miller.

brazil and currency related costs. duncan: the brazilian numbers are the ones that disappointed. the volume decline is a little bit better. still pretty poor given the olympics. on the currency site, they seem devaluedone -- when you that -- manus: they have done the sab miller deal. where are we with higher costs? how are they dealing with costs overall the business? taken: you have to short-term volume hit. looking at what they have given us, that sort of thing is still happening.

you have to take that short-term hit and keep your brands where they should be. you take the cost out from transportation or distribution of her time. you have to take a short-term hit. nejra: with the merger, is it going as expected? i know it is early days. duncan: about 20 days in. maybe when they get to the full year's numbers, we will have a better idea. and exactly what they will do with the business. manus: duncan, thank you for being with us. earnings from iag.

this is bloomberg. ♪

guy: the banking bonanza continues. ubs and bnt both feet on profit expectations. next up, rbs. amazon spooks investors, saying spending plans may mean it doesn't earn a dime on holiday sales. but it's a big for alphabet, whose revenue topped estimates on strong sales. in charge in china. xi strengthens his grip on power ahead of the next year's leadership changes. the communist party says he is at its very core. abrasive blues. several new reports show u.k. households are starting to feel the financial pain of the

referendum. welcome to bloomberg daybreak: europe, our flagship morning program in the city of london. nejra: we have a lot of breaking numbers for you this morning. guy: let's get straight rbs, underlying pretax profit, 1.3 3 billion pounds. the market had tabled 176 million. a considerable beat. what is going on in the business? net interest margin comes in at 2.70%, but this is the line. if you are looking for a buffer of capital, this has it in spades. tier one equity capital at tier up. hitlso says that it won't

for part ofdline the deal that was done for their bailout, part of it was having to offload certain assets. they are not going to hit that target of offloading williams and glenn by 2017. 300 million pound write-down, but the underlying pretax profit is a substantial beat. i'm going to hand it over as i dig i and look for a ppin. nejra: ok, i have total. third-quarter adjusted net coming in at $2.07 billion, a beat on the estimate of $1.93 billion. that beat estimates on cost cuts and asset sales. the ceo says sales are seen to anded $2.7 billion in 2016,

will also pay a third quarter interim dividend of $.61 per share in april. really, this is a beat on that quarterly profit, although it was a 25% drop in third-quarter the deepening cost cuts and the sale of a u.s. solar farm mitigating the impact of the slump. this is different to what we got ., what we sawn.e was a wider than expected lost with low oil prices. guy: absolutely. iag, up, up, and away. nejra's helping them on the numbers. nejra: we have -- we were looking to see if there was any impact from brexit. upe impact in earnings, eps 18.3% before exceptional items. full-year operating profit at 2.5 billion euros. full-year operating profit around 2.5 billion euros.

that's it. third quarter 1.2 one billion euros, bang in line with estimates. guy: let's have a look at futures. a softer opening around the european equity market, off in london, off in paris. frankford down by .2%. this comes through -- it's an interesting risk radar, because when we look at what's actually driving the market place, oil is virtually unchanged. dollar-yen is where the real big move is. we have dollar-yen oil under the bond market,. it's set for its biggest monthly loss, although it has given up some losses. although itr trade, is carrying through on to the topix. the whole momentum shift as to

what happens with the fed. you have some earnings numbers come through in asia, really on the back of that yen weakness. nejra: let's get the bloomberg first word news with rosalind chin. rosalind: thanks. french output grew less than expected in the third quarter with gdp expanding in the two -- to september. it leaves europe's second-largest economy lagging its neighbors. with for your growth expected to be a 1.2%, it is growing at less than half the rate of germany and the u.k.. amazon shares have fallen in extended trading after the company said it may not actually make any money over the holiday season. the online retail giant says it is still waiting to spend lavishly on products or areas that could be the next big thing, even if it means thinner profit margins and a weaker stock price. but earnings at alphabet topped

estimates after steady internet ad sales made up for heavy spending on its unprofitable experimental unit. japan refusees in to rise despite shinzo abe and haruhiko kuroda's best efforts to revive the economy. core inflation fell .5%, its seventh decline since september. the boj policy board may revise its inflation outlook for hitting its target next week. china's communist party has declared president xi jingping as its core, according to the newsagency.e it strengthens his hand ahead of the power reshuffle next year. it's also significant in chinese politics, which has for decades tried to avoid a mauser

dong-style personality cult. and a plane carrying donald trump's running mate skidded off the runway after landing in a heavy rainstorm. allassengers and crew were a vacuum it from the plane unhurt. pence tweeted, "so thankful everyone on the plane is safe, grateful for the first responders and the concern and care of so many. back on the trail tomorrow." global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. you can find more stories on the bloomberg at top . i'm rosalind chin. this is bloomberg. guy: thank you. the dollar-yanis on the mood; shery ahn is standing by to give us a fuller briefing. shery: good morning. the dollar-yanis on the move, we getting trading near a three-month low, giving a boost

to exporters in japan. higher,kei closed .6% the only solid gains today. the asian markets have been mixed throughout the session. investors are cautious ahead of central bank meetings next week, not to mention that we have dozens of earnings coming out of the region. we haveple, in japan, more than 350 forms on the topix reporting this week, and core cpi data in line with estimates. we're seeing the shanghai composite unchanged at the moment, turning slightly green. it was losing ground throughout the session after two days of losses. hang seng down .7% for the fourth consecutive session of loss. it's now trading at the lowest level since august. remember, we have two dozen chinese companies reporting out of china. the asx 200 losing ground

again, closing .2% higher, very close to that moving average. if it touches that level we could see a balance of 5% as we had back in come september. the korean won weekend for its fourth consecutive session and sank to a three-month low, down .2% against the dollar. the japanese yen strengthening slightly, but of course still very close to that. weakening right now, but still at low levels, 105.35 against the dollar. manus: thank you very much. nejra: third-quarter numbers from rbs, we have just had them coming from. let's speak to stephen morris from our banking team. give us the main takeaways. >> as manus told us, there was a huge beat on their adjusted profits against estimates.

investors will like looking at that. but with rbs there are still a lot of questions on the table. one good thing was that they didn't take a ppi charge. barclays took 600 million but rbs had enough to compensate con customers through 2019. another bright spot, as you pointed out, was capital. barclays reported yesterday that it's 11.6 -- there's a bit of a gap. but they have to answer questions about williams and glenn, why they will miss the eu deadline and how far they are through that sales process. they also still have this huge potential in the u.s. for their mortgage backed securities operation, back before the crisis. some analysts estimate it could cost $10 billion, and that still rumbles on. nejra: we are looking at the

worst-performing large u.k. banks this year. still not really closer to returning profit. at what point do shareholders really start to lose patience? >> they already have. they're sort of obliged to have patience, but at this point, ross mcewen really isn't in control. the wheels were put in motion for before. most investors seem to think he is doing an ok job. he looks the part in public, he is not brash, he is very contrite in front of politicians. but what they need to do is get rid of these litigation clouds and fulfill their units. then we may be able to see what is left. manus: let's bring in our guest, the head of research. thank you for staying through that sweep of numbers. ross mcewan, in many ways, has

many extraneous things to deal with. holyost-cutting is the grail within banks, isn't it? >> yes, it is. no doubt that cost-cutting has been a big part of management's agenda ever since the financial crisis, and there is still more to do. but on the revenue side, we are also seeing quite a decent season for earnings. as is always the pattern, you see downgrades into earnings season, but the upside has been pretty good. but the longevity of that, one has to question. we are seeing something in the bond markets that might come through later. that is positive for banks margins, but how far can that run? that regulatory issues bank analysts keep telling us -- we are near the end, but yet again something else crops up.

the challenge is balance sheets. nejra: yeah. you painted it in terms of why you're uninspired by the european banking sector. a lot of people are saying, look, valuations are attractive, it's a great story on the bloomberg today about one fund manager really seeing opportunity in the u.k. banking sector. but you are still uninspired. >> i agree, the valuation opportunity seems compelling. they haveadwinds -- the banking resolution directive, it's telling us that it is difficult for sovereigns and one mustanks, apply a greater risk premium or discount into the price you are willing to pay for a bank. and what's more, the man at the helm of the ecb has been forced into a position where he is delaying on what he wants to do, extended quantitative easing.

i think the inflationary pressures are so a dormant, that he feels there is nothing else to do to extend quantitative easing, and this net interest margin story is one that seems so distant. manus: if i can bring you back in, stephen -- the that loss, the full story -- the net loss of 469 million pounds a year pretax is thehe big blockbuster but there are two questions that will start rattling. one is about the government's stake. we saw a lot of chat yesterday about lloyds. and dividends -- how far are those two mirages? >> i still think quite far away, to be honest. the news yesterday was that the

government shareholding dipped below 10% for the first time, which is psychologically up it is a barrier. you drop below that and you look like you are on the final stretch. but for rbs, they have said until they spin off this unit, until they settle their u.s. and u.k. regulatory investigations, they aren't going to be allowed to pay a dividend, because they do not know how much they will have to set aside to cover the cost. i wouldn't see anything, at least for the next couple years, but there are still loads of headwinds. if rbs is able to achieve what i'd say itng to do, is a more prosaic banking operation. eventually, investors may think, well, we have a sound business, and as long as they can stay away from any type of consumer misconduct, it should be ok. nejra: is this quarter pretty much the best it gets for banks, given how unusual it has been with the volatility and things

like brexit in the u.s. elections fueling debt trading? >> well, given those headwinds, in has given a pretty decent performance. some of the headwinds should drop out. q4 could be another decent earnings spell, given some of the headwinds that will drop out. in the short-term, it's very difficult to call, but we like the momentum. 's gotms like it traction, but to quote myself again, it seems uninspiring into the future. manus: there you go, uninspired. the head of fund research. stephen morris. great stories, great news flow. nejra: ben stays with us. next, feeling the squeeze. brexit pain hits households,

sending u.k. consumer confidence tumbling to a 2013 low. this is bloomberg. ♪

manus: it's just gone to: 19. ,963.ang seng is down, 22 a bit of a hangover on some of these stocks. a beautiful day in hong kong. 7:20 in london. let's get a look at your business with shery ahn. shery: thank you. ubs says pretax profit rose 11% in the third quarter as costs declined, upsetting a drop in wealth management and investment banking. pretext profit climbs to 877 million swiss francs, beating analyst estimates. the world's biggest manager of money for the wealthy continues to cut costs. bnp paribas has recorded profits that the estimates.

to 1.8 9 billion euros. france's largest lender benefited from a surgeon fixed income trading that has lifted bank earnings in europe and the u.s. a team of citigroup derivative traders generated about $300 million of revenue this year, from surging companies and investors trying to anticipate central-bank decisions, according to people with knowledge of the matter, who say the windfall came from the bank's u.s. dollar interest rate swap. traders cantes that still make outside profits, even after regulators curb risktaking in the wake of the financial crisis. a citigroup spokesman declined to comment. general electric says it is now discussing the outright purchase of baker hughes, but is in talks about a partnerships.

shares jumped as much as 19% in extended trading on a report that it was going to buy the oil provider. baker hughes is still trading higher. and that is your bloomberg business flash. nejra: thank you very much. britain is starting to feel the squeeze from brexit. reports from jfk and others all consumer confidence falling at a weakening of household spending power. manus: that is likely a reaction to the jump in inflation which some economists see could reach 3%. earlier, we spoke to adam pozen, the president of the peterson institute for international economics. he painted a gloomy picture about britain's prospects. >> i think that is the way to think about brexit. it will be an ongoing source of chronic pain for the u.k. for the next several years, and it's going to put the u.k., in many

ways, back to where it was in the 1970's and early 1980's. people have less faith and stability in the regime, and having to rebalance in very interventionist ways. nejra: that guthridge -- ben guthridge is still with us. for themments put pain people who were initially celebrating on better-than-expected data. i want to get your view on this. you think we are heading for a harder brexit. >> well, i'm just echoing what we are hearing from the government. there is potentially could be tripped up by a need for parliamentary approval, but as it stands the government is telling us that our immigration policy needs to be changed and they will try to get the best deal they can thereafter. but if that means the line in the sand is immigration, we have to assume we are coming out of the single market or losing tariff free access.

that doesn't promote good or the u.k.ut fdi economic prospects. as a result, in the medium-term, i can understand why consumer confidence is starting to come unraveled. manus: inflation expectations. i don't know which word i prefer more. this is inflation expectations -- do he like that chart? -- did you like that chart? i found the chart nejra likes. 43.31, inflation expectations -- it is on a rocket. how do you begin to position for that in your clause i bond positions -- your quasi-bond positions? that will change the dynamics. >> tone of the misconceptions is that we must hedge

against this rising inflation but long data inflation has even more interest rate risk, and our best inflation hedges are very short duration bonds that are exclusively linked to inflation, but a decent hedge against u.k. inflation is overseas assets . for u.k. investors, getting overseas currency exposure, and those companies that are better placed to be able to pass on those prices to the consumer. equities are a decent hedge against inflation also. nejra: we have seen over the past few days and continued in the asian session, the bonds falling off. if you look at the w.a.r. p, more than 7 -- the wirp, you don't see a bubble bursting. >> no, i don't.

although we probably missed it. we didn't -- bonds are likely overbought, and there were also brexit, andutwe wasn't going to precipitate some systemic crisis -- and that hasn't been the case, but you are right, there is clear intention from the federal reserve to reverse monetary policy, or start normalization. the ecb was hearing leaks that they're feeling less enthusiastic about monetary policy. manus: i think we draw a line under it to their. ben guthridge, thank you for joining us. it's going to be a tough day on equity markets. nejra: looks like it. if we look at what's happening with the bond markets at the moment, we're seeing the 10 year german yield slightly higher, along with friends. as you say, looking at what's happening, lower. manus: that is what we've got.

that's it from nejra and i on daybreak europe. the european opens up next with guy johnson and caroline hyde. this is bloomberg. ♪

guy: welcome to bloomberg markets: european open. i'm guy johnson alongside caroline hyde, back in berlin. what are we watching this morning? thanking beats. -- banking beats. three banks outperforming. are the banks back? deflation firmly in focus. bonds selloff, stimulus doubts, and cash holding. europe?pect a rise in how far will the hot air leave this market? and salafi