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This is the Bloomberg Daybreak Europe podcast, available every morning on Apple, Spotify or wherever you listen. It's Tuesday, the twenty ninth of October in London. I'm Stephen Carroll. Coming up today HSBC's profits beat estimates. Is the bank's new CEO an ences a three billion dollars share buy back. In an exclusive interview, Golben Sachs CEO David Solomon reveals he's bullish on the outlook for M and A, plus the UK's energy industry prepares to do battle over free electricity.
We have a special report. Let's start with a roundup of our top stories. HSBC is reported better than estimated earnings and a fresh stock buyback just days after unveiling a major restructuring plan. Third quarter pre tax profit rows by nine point nine percent from a year earlier to just under eight and a half billion dollars. Europe's largest bank says it will now reph heart just shares worth up to three billion dollars. Jamana Versecci breaks down the rest of the numbers.
Third quarter revenue coming in at seventeen billion dollars versus these sixteen billion estimates or thereabouts. CT one ratio sitting quite healthy at fifteen point two percent versus fourteen point nine percent, is still sitting on a ton of capital. In terms of their guidance CT one, they see it within the medium term target range of fourteen to fourteen and a half percent target cost rows of about five
percent for twenty twenty four versus twenty twenty three. A lot of focus, of course on HSBC cost suidence given the restructuring announcent that they came up with.
Jamana Versecci speaking there CEO Jangel Hedri, presiding over his first set of earning since taking up the job, said in a statement the results show the bank's strategy is working. HSBC last week unveiled its biggest revamp and at least a decade, including merging its global commercial and investment banking divisions and making the Hong Kong and UK businesses into
standalone units. One of Europe's other biggest lenders, Santander, also posted better than expected earnings with continued growth and interest income and rising revenue from fees. The Spanish bank posted third quarter net income of three point twenty five billion euros versus estimates of three point one seven billion. Net interest income came in slightly below expectations at eleven point two three billion euros. The bank says it's confident it
will deliver on all targets for the year. A growing number of money managers are watching metrics on social instability in China to try to predict how far President Cheating Ping will go to stimulate growth. In September, Morgan Stanley debuted a new distress gauge that could be used to predict policy swings. The bank says the measure is currently
nearing the low levels reached at two previous junctures. Those are in twenty fifteen, when Beijing took drastic steps to end a seven trillion dollar stock market route, and in twenty twenty two when the country abruptly dropped its COVID control rolls. Goldman Sachs top executive Saturday bullish note on the outlook for deal making, singling out investments in technology is a bright spot. David Solomon has told Bloomberg that AI is likely to power a new wave of deal making.
I think the regulatory environment has been a headwind to some deal making. Obviously, with an election, we could see a change in that context. But there's no question the deal making environment is improving. And when you look at what's going on with technology and the investments, it's necessary, you know the power AI. I think that's a tail one for deal making over a period of time too.
Solomon was speaking to Bloomberg on the sidelines of the Saudi Flagship Future Investment Initiative and readd the Global bank boss was there to open a new office in the capital, deepening its presence in the largest Middle Eastern economy. Volkswagen plans to close at least three factories in Germany. The unprecedented move is part of a wide ranging cost cutting push, which also includes a ten percent across the board paycott at its main VW brand, Boomberg's Oliver Crook is more from Berlin.
This is a company that has never in its history once closed a factory in Europe. We're talking about closing three in its home country right now of Germany, potentially one in Belgium as well, and of course this will mean potentially tens of thousands of job cuts. So again, just to reiterate, Volkswagen talking about closing three German factories for the very first time in his ninety year history in Germany.
That's Binberg's Oliver Krook. He says the announcement kicks off a tough week for Volkswagen. The carmaker is expected to post declining sales and profits when it reports third quarter earnings tomorrow. The European Center Banks vice president sees substantial risks to the inflation outlook for the euro Area despite significant progress, so Leastigindos says policymakers can't declare victory just yet.
He added that geopolitical conflicts threatening to push up energy and freight costs, and that extreme weather and sticky wage growth all have the potential to keep price pressures higher for longer. To gain US was just one of a few ECB officials who hadn't commented on the future interest rate path after the Central Bank lowered borrowing costs in
mid October for a third time this year. In a moment, we'll have the latest on all the morning's earnings, plus bring you an exclusive interview with the Gulben Sachs CEO David Solomon, and look at why some companies are against plans for free electricity in the UK. But first, another story that caught my eye this morning. Have we reached peak Kroc? This is an increasing number of schools in the United States are banning the shoes for what they
say is safety reasons. Our colleagues have tracked this in at least twelve states. The head of the CrOx brand, so they're not aware of any data showing that bans have increased, but it could be a key factor when the company reports earnings later today. Sales more than tripled over the past three years, boosted in particular by demand for children's shoes during the pandemic, but that estimate or
that growth has slowed. Bloomberg estimates come piled show that growth expects to slow just to zero point four percent in this quarter, which includes the keyback skill periods. That could be an interesting test for what some consider fashion like on others a fashion menace. Well, let's turn now to some of the complete results we've had out this morning. Our ecuerdy supported Joe Easton is with us for more.
Joe.
Let's start with HSBC. We heard from the earlier this morning, shares in Hong Kong reacting positively.
Yes, a pretty decent game for those shows up around three and a half percent, as you said a moment ago.
Now HSBC doing another big buyback, three billion dollars worth of stock they're going to buy back That've reported at tencent jump in pre text profit from a year earlier to around eight and a half billion dollars in the last quarter, mostly driven by the wealth business benefiting from more money being put into that unit from Asian clients, and also the FX business of the trading business, which is one of the biggest FX trading units in the world,
doing really strong earnings as well for that business. That share price actually risen around twenty percent over the past year already, so it's looking to add on to those games today. We wait to see if they continue in London this morning.
Okay, and staying with banks then Santander also a Bee's not quite as dramatic though, Yeah.
So Santander numbers coming in better and expected now. This is due to mostly their fixed income and also their interest income both rising, so fixed income in terms of the fees they make in that unit and also just the higher lending profits due to the higher rates boosting that stock. But the interesting thing to note is the company saying that they've delayed the UK part of their earnings because of Friday's motor finance ruling, which we covered yesterday.
So this is a ruling where a court said that lenders hadn't been transparent enough when at brokering at these deals for people to take out car loans, and therefore there are expected to be significant compensation pals, one analyst saying Santander could be on the hook for around a billion pound worth of compensation. For Santander saying in a statement that they haven't been able to work out in time for the results how much this is going to cost them, so delaying that part of the report.
Yeah, very interesting. I'll be watching with interest to see what those numbers reveal as well. You've plenty more company results to pick from, Joe, what else are you watching?
Yeah, so I've got my eye on Deutsche Liftanza. Those numbers actually just coming out a few moments ago. Liftanza does look like a beat on the headline profits, but some weakness in some of the EBIT numbers of some specific earning examples that we look at dropping slightly. Passenger numbers seem to have actually dropped a little bit in the last period as well, potentially maybe due to the high affairs that we've seen, though we are expecting fairs
to start coming down, thankfully. The other one I've got my eye on was Novartis now that does look strong. Actually, Novartis over in Switzerland, one of Europe's biggest pharmaceutical companies, do a lot of respiratory drugs, looking like they're beating and all of the top lines in terms of the report that's just hit the wise for that one, So that could be a strong one in the farmer space this morning.
Yeah, indeed, looking at those into the details that have Hansa results it it's inting to see that. In terms of future looking they're talking about passenger demand being above levels seen last year. They're planning to increase capacity in the fourth quarter, and the company expecting to report positive operating profit for the final three months of twenty twenty four as well, and they're expecting air travel demand to remain strong. So some positive signals the future coming out
of that major airline group. Joe Eastern, our equities reporter, thank you very much for joining us, and of course will have plenty more on those throughout the program as well. Let's turn out to one of our top interviews this morning from Saudi Arabia's Future Investment Initiative summ At Bloomberg has been speaking to CEO of Goldblin Sachs, David Solomon. Our Horizon's Middle East Africa anchor, Jimani Brossecci has been
speaking to him. Here is the exclusive interview in full, starting with David Solomon's thoughts on Saudi as an investment destination.
We are excited to be opening up a new office in the financial district, and I would say we are committed to our presence here in Saudi Arabia. I was reflecting, you know, last night, around the past eight years, seven or eight years that I've been coming to this event and just watching the progress, you know, and the progress has been meaningful, and we've participated in that progress. It's interesting to watch our clients here on the ground participate in that progress and be.
In a position to try to help them. But also as you look at the international.
Community, the international community is more interested in what's going on from an economic development perspective here, and we're delighted to be positioned to help our clients in this region.
Yeah, and it feels like there is so much dealmaking even IPOs last year. It was a great year in terms of activity across all these exchanges. This means also more and more banks are looking to get involved in the action. Are you finding it difficult to retain an attract talent given increasing amount of competition.
We have a very very deep bench of bankers around the globe, including here in the region. We have a number of bankers from the region that base out of London and sometimes move back to this region. We've been able to attract talent were golden Sacks. We've been able to track talent here in this region all other places in the world. I do agree there's more competition here,
but that's positive. Actually, the levels of activity are picking up and I feel very very confident and our ability to have really extraordinary people on the ground here to serve our clients very well.
One of the stories that our Bloomberg News team have been reporting on is the fact that the PIF have been sort of refocusing some of their investment efforts domestically, which means that in terms of the relationship with asset managers in the region, there's been a lot more focus on or questions asked about what some of these asset
managers are delivering on the ground within Saudi Arabia. How do you think that is going to shape up the asset management ambitions within the region and specifically with the science.
It's a very very natural progress and we've been talked about what's going on here in the kingdom, but the level of investment in diversifying the economy here in the kingdom is significant, and of course that's a significant focus
of the PIF. For a firm like Goldman Sachs, where we're well positioned to serve as an investment banker, to serve as a trader, to serve as an asset and wealth manager, I think the firm is incredibly well positioned to help in this part of the world, regardless of the trajectory.
So we're excited about what's going on here.
I'm excited about the opportunities we'll have to help serve our clients here.
I can ask you what your level of concern is. Who's the geopolitical situation in the region right now.
I'm concerned about the geopolitical situation in the region. It's not good for security, it's not good for safety, it's not good for economic growth and I'm hopeful that leaders both in the region and around the world, and important governments around the world will be edible to find a path to settle it down as we move forward. But of course, anytime you have geopolitical uncertainty, that's not good for economic growth and prosperity.
And one of the things I just noticed I.
Spend time with people here on the ground, people want to find a path to a secure, prosperous economically vibrant in Middle least.
Has it impacted business trading in.
The region, You know, it's interesting. People are obviously concerned and very very focused, but it's not had a significant impact on activity up to this point, on activity in this part of the region.
Yeah.
Well, let's just talk more broadly. Your earnings came out very strong, so fascinating expectations. Obviously, the stock has had a good run this year. You must be feeling good. But let me just ask you how you're feeling about the outlook in general.
I feel good about the outlook. I think you know, if you took a tour around the world, the US economy is actually doing quite well. It's been very very resilient.
I'm a little bit more concerned about European growth and also the economic situation in China.
But overall, the engine of the.
US has been quite powerful, and our building our business.
While global, is quite correlated to US growth.
I can give you a list of things to worry about, but generally can tell you also a list of things that I'm quite optimistic about. The progress around technology and AI and the opportunities to increase productivity or real progress that we're seeing around healthcare or medical technology or extraordinary and the impact that they'll have.
So there are a lot of reasons to be optimistic.
About the growth and trajectory of economies around the world, but there's also fragility and things can go wrong.
Well, I was going to pick up on that because it's been really difficult to sort of track the narrative around the US economy the last few months, because we've gone from hard landing to soft lanning. I'll people are talking about no lanning. I'm not going to ask you for a descriptor of the US economy, but what I will ask you is, where are some areas of concern that you're seeing right now?
Well, the base case in the US is certainly at this point for a soft landing. That doesn't mean that at some point there can't be, you know, some sort of a slow down in economic growth. But what I would say is the US economy is proving.
To be incredibly resilient.
We do have an election in the US, and there'll be policy decisions that come out of that election, and so you know, certainly those will have an impact of a trajectory in twenty twenty five and twenty twenty six. With respect to you know, European growth, European growth is.
More sluggish at the moment.
And I'm concerned about the same thing that many people I know are talking to you about at this event, geopolitics, US China relationship, the situation in Ukraine, the situation we just touched on in the Middle East. Also concerned, you know, broadly about inflation in the world. Concerned about energy policy, which is obviously a significant issue. I'm concerned about immigration and migration, which is an issue in different parts of the world. So these are all issues that require leadership.
And policy direction.
And I'm hopeful as we get past the election in the US and we continue to move forward, we'll see a clear direction of travel on some of these significant policy issues.
Well, I mean the other big development is obviously the said have started cutting interest rates. And I think you were asked about what your expectations were for the said the last I already said a thirty percent chance of a fifty basis one cup. So we'll give you that one for the fifty. But what matter is more as you think for financial markets, how quickly they go or where they end up.
And then I think there's an awful lot of attention on short term rates. I'd actually be focused over time on longer term rates. And you know, I you know, I continue to be concerned about the level of spending and.
Deficits in the United States.
I don't think that's a short term you know, crisis factor. But unless we have policy change and get our spending and our debt under control, you know, ultimately that's kind of a bigger impact on long term rates. And I think people are anticipating today with respect to the short end of the curve. I think it's going to be very data dependent, and that data will be driven in part by what kind of policy we see coming out of the election. Yeah, and so I think it's I
think it's important to watch carefully. It seems like the FED has been relatively transparent that we'll get another interest rate cut before the end of the year, But after that, I think it will be very data dependent on what kind of policy implementation. What happens to growth. Are the inflation numbers actually improving further? You know, those are all things.
I think the FED we'll be watching carefully.
Can I just circle back to your first point these a v spending, the tenure treasuries trading around four point three percent, So you think that is adequately pricing in the fiscal premium in the years to come to us?
The market's the market, and so it is absolutely pricing in the premium.
That the market perceives today.
What I would just say, if you look at the trajectory of our spending and our debt and the interest burden that we have, I think over time and over time is through the rest of the decade, et cetera, we'll have to bring new buyers into US treasuries and that will potentially have a risk of putting pressure on longer rates unless we want to finance the whole treasury stack at the front under the curve, which will be a very very significant policy shift.
Yeah, I want to ask you a little bit more about your trading numbers, as they came in very stronger than expectations, and earlier on you had guided that fixed income trading was a gonnessee'sa clients, but overall for the quarter, you ended up posting quite strong trading results, namely on back of your equity trading business. Was this sort of a one off because there was so much volatility and equities this quarter, or can we expect that momentum to continue.
Our equity franchise is performing very, very well. We have the leading equity franchise of the big banks. It's something we've invested in, it built over a long period of time. I can't tell you quarter to quarter what the market environment will put up for that franchise, but we were our positioned very well to serve our clients that have
a leading share position in that business. When I commented about our trading revenues in early September, at the very beginning of September at a conference in New York, the business was softer. It had been softer in August, particularly in fixed income. We had a very very strong comp from the third quarter in twenty twenty three and ultimately our fixed income business.
Was softer year over year.
But I did say when I made that comment that it would be very very dependent on what happened in September, and we actually had a more robust September than we expected.
Yeah, I love well to Marcus said, do you think you can continue to gain market share of the trading side.
We do believe there are opportunities for us to continue to take share, although we're operating in a leading share position, so those gains will not be as pronounced as they've been over the last five years. But we think we have a very very powerful ecosystem in our Global Banking and Markets franchise. Our one GS operating ethos is helping us serve our clients in a very very forward and
exceptional way. And if you are patient, you take a long term view, you earn trust, you show up for your clients, and good times and bad over time, you gain share.
In these businesses. And we're very focused on it.
The outlooks like right now for deal making, yeah, look for deal makings improving. You know, I talked I talked on earnings on our earnings call about the fact that our.
M and a backlog had improved.
I talked about some ahead wins, particularly on the regulatory side. I think the regulatory environment has been ahead wind to some deal making. Obviously, with an election we could see a change in that context, but there's no question the deal making environment is improving. And when you look at what's going on with technology and the investment that's necessary to power AI, I think that's a tailwind for deal
making over a period of time too. A lot of change, a lot of opportunity, and when there's change, leaders are constantly looking to make sure that their positions strategically to have a leadership position as the world of.
Offs well, I know you've also been making a big push into your alternatives business. Private credits is an area of focus. What is the opportunity that you see there, because it really feels like that has become the major focus of the market. Many many of different players are looking to get involved in US.
But we've been in the private credit business for over thirty years. We have one hundred and forty million dollars in private credit assets. We've been a leading private credit player since the nineteen nineties. What I would say is there continues to be secular growth around the opportunity set for additional private credit formation, and we're very very world positioned giving way the firm sits to be a very very.
Unique player in that. Obviously, in our asset management.
Business, we manage significant private credit assets, but we also have one of the leading syndication franchises. We have an ability to originate and distribute in addition to be an investor through asset management business.
That's a very unique combination.
I think it positions our firm very well, and you will see, in my opinion, continued secular growth in private credit formation. I still think we're early on that cycle.
What do you think lower interest rates do for the private credit landscape? Do you have so much of this?
I think that private credit it's not immune to lower interest rates, but there are different ways that we can finance activity, and private credit is a very important part of that. People use private credit as a very very broad term. Are we talking about insurance companies financing investment grade companies? Are we talking about investment grade financing? Are
we talking about below investment grade corporate financing? Are we talking about direct lending to small and medium sized enterprises? These are all different forms of private credit and The reality of it is, regardless of what the interest rate environment is, people need to finance, and so of course, in the short term movement to interest rates have an impact in short term activity, but we're talking about the engines of finance that drive capital structure in a whole
variety of ways. This is not something that's cyclically tied to short term interst rates.
Yeah, can I just in an updates on how you see newer consumer finance business and the pathway ahead from Gorman.
We've been very clear over the last few years that we're narrowing our consumer focus and we've taken active steps to do that. We continue to have a very very powerful deposit platform under Marcus, but we continue to take steps to narrow our consumer activity. We're focused on our two big businesses, global banking and markets and asset and wealth management, and we feel good about the way we're positioned.
Well, We've been speaking for I guess like fifteen minutes and I still haven't brought off the big US election coming off next week. Let me just ask you this, because as a bank, I'm sure you would have run scenario analysis on what will happen either way. What would you say is the biggest risk for your business for either outcome, a Harris win or.
A Trump win.
We're we're watching the election like everybody else. The good news is it's coming up, you know, next week, and you know, my hope would be, you know, shortly after election night we have a clear, uh direction of travel in terms of what the next administration will be. Goldman Sachs is set up in position to help and support either administration, either outcome, and to support our clients at either of those outcomes. And so we're watching like everybody else.
It's going to be a close election and we'll see in the next couple of weeks what the direction of travel is.
So you think it might have a knock on it knock on effect on a regulation and some of the regulatory stunts have.
Taken there is there's there's no question that the regulatory pendulum this swung, you know, pretty significantly over the last few years, and my hope would be an either administration there'll be a fresh look at how we can ensure regulation is important to keep guardrails in the economy and to keep our economy moving in.
An appropriate way.
But at the same point, that pendulum can swing too far and then it can become a headwind to growth. And I'm hopeful, you know, on both sides of the aisle, there'll be a fresh look after the election to make sure we get that balance correct.
As that was the CEO of Goldman Sacks, David Solid and they're speaking to Bloomberg's Gumani Verseacci at the Future Investment Initiative summit in Saudi Arabia. Now, a proposal to divide up the UK power market and provide free electricity and the windiest parts of the country is turning into a bitter fight with the biggest energy companies. Whether to keep Britain's electricity system is one national market or break it into regions with different prices is one of the
consequential decisions looming for the Prime Minister care Starmer. Our Energy report of Will Mathis joins us now for more on this story. Well, why does this question matter whether the UK is one national market or lots of little ones.
Yeah, this matters because the way the system is designed now puts a tremendous cost onto all of our bills. Right now, generators and consumers of power, you know, trade with each other irrespective of whether the power generated can actually be delivered to where it's needed. And so what happens is you have all these you know, wind farms up in Scotland that sell power, and then when it comes time to actually use that power, they can't provide
it because the grid is insufficient. So the grid and operator in the middle steps in and you know, pays some people to turn off and pays other people to turn on. And what happens is you have wind farms shut off, paid to shut off, and then you have gas fire plants paid to shut on, and that to
turn on, and that has a huge cost. During the energy crisis it was you know, over two billion pounds just for that, you know, and it's expected according to some government studies, that could reach eight billion by that, you know, from the end of this decade. So you have a real problem baked into the system, and this is one this is one of the only proposals to address that problem and bring down this rising cost for consumer energy business.
I mean, it seems like politically quite an easy sell, right consumers could potentially end up paying less as a result of this change. But what's the kinds of arguments?
Well, there's two counter arguments one is it's an easy sell to people you know up at Scotland or parson of the North of England that will see very cheap
power or even you know, free it sometimes. But if you're you know, like me and you living in London, and you know that's where most of the population is and where most of the media outlets are, then you know the price of power will rise because right now we're essentially getting you know, the bill bos are being leveled out, whereas like the market price of electricity in the South of England for most of the demands should
be higher. And components of this would say, you know, have done modeling that shows that overall, if you get rid of those costs balancing the system, not just power price, that overall it will be cheaper to make this change. But still you will see power prices rise in the south of the country. And it's a complicated argument for a politician to make, and it's tough to make this argument based on, you know, comparison to a counterfactual that has yet happened.
What could this change though, mean for investment in green energy, which we know is a key priority for the government.
Yeah, well, most of the companies that are doing that investment say that this is a really stupid idea. They say that, you know, if you make this kind of
fundamental change, then they're going to pause investment. You know, they're going to have to reconsider the business case for these multi billion pound investments in wind farms and grid infrastructure, because you know, if you've built a wind farm in the windiest part of the country in Scotland, or you have planned to and then all of a sudden, you know, the power price is completely different what you thought it was before, then yeah, they say, we're going to have
to pause to consider that, and some of the investments aren't going to happen and it would just be disruptive at a time the government is saying we need to build faster than we've ever built.
Talk us through the timeline of this decision process, because it's something that was put off by the previous government. But what are we expecting in terms of the next steps.
Yeah, so this is we're kind of waiting for a final decision. How there was there had been two propose us on the table. One was to do a it's called a nodal system, which would be many many different hyper local prices, or to do what's called a zonal system, which divided the country up into zones. Previous government said no to zonal they said that that would be too disruptive, but sort of like left it open to deciding on
a zonal system. They said that they saw benefits for doing that and they were going to wait till a later date to decide. And people in the industry had expected that decision this year, but then there was an election. So now the expectation is that we should get a
final decision on this early next year. But it's really fundamental to the you know, the Governman's twenty thirty goal to decarbonize the grid, which is going to require huge investments, and whether what they do with this decision really dicted where those investments go.
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