Good morning. It's Thursday, the thirty first of August here in London. This is the Bloomberg Daybreak You podcast.
I'm Caroline Hetki and I'm Stephen Carroll. Coming up today, Swiss lander UBS post record profits as its Credit Sweeze takeover looks to be paying off, the.
Chinese mega developer Country Garden posts a record loss and warms of default.
Plus we take a closer look at the fallout from Europe's biggest tax scandal and why the investigation just keeps growing.
Let's start with a roundup of our top stories. UBS has reported record profits in the wake of its emergency takeover of Credit sweet. The bank made again of just under twenty nine billion dollars in the second quarter. CEO Sergio A. Motti has told Bloomberg the size of the integration is unheard of.
This is huge and allow us to really think about how can we now go to the next level. So now we are very focused on integration, on executing our current plans, but we can't forget that the competition on the market is evolving and we need to stay very focused.
And you can get that full interview with the CEO of UBS, Serja Emoti on the Bloomberg Talks podcast all of our key conversations in one place. In terms of the numbers, after stripping out the acquisition costs and negative goodwill from the credit squeeze take of a pretext, profits for UBS were a more modest one point one billion dollars.
We've also had the news about job cuts coming from UBS, saying that they're going to cut an additional two thousand Swiss jobs over the next few years, and a thousand job cuts will result from the Swiss unit integration as well. Turning to some other news, the Chinese developer Country Garden has warned that it made default on its debt and raised concerns about staying in business. The warning came as the property giant posted a record first half loss of
almost seven billion dollars. Shazad Kasim, managing director of China Beige Book, says investors should brace for more negative of news.
I think we get bad property news, more problems with developers at least for the next couple of years, and we really still haven't found the floor and property prices either, so I think investors should breaze for more bad news ahead.
Over here, the deepening real estate slump in China mentioned there bishez Ad Cazin was among a host of negative factors that helped to push down the country's latest economic survey data. China Services PMI dipped to fifty one in August, while the reading above fifty indicated a slight expansion in the sector.
A hedge fund founded by two former Citadel traders so its portfolio dropped by a court up this year. Fifth Delta was the biggest startup of its kind in twenty twenty one, but it has struggled since then to meet expectations. Data from Bloomberg shows that it's peers by an average of over six percent this year.
The year long slump in the UK's private sector is set to continue for at least three months. That's according to new figures from the Confederation of British Industry. Bloomberg's Jack Ryan reports.
This is the latest indicator of a gloomy outlook for the UK economy. Business is surveyed by the CBI say they're cutting back on investment as they suffer from lower demand, cost pressures and higher debt repayments. The report shows manufacturing output falling at the sharpest rate in almost three years, while services continue to slide. The findings suggest that the trend is likely to continue in the coming months, but a separate survey from Lloyd's is more optimistic, with business
confidence surging to an eighteen month high. In August in London, I'm Jack Ryan Bloomberg Daybreak Europe.
In the US Senate, Republican leader Mitch McConnell froze in public for the second time in as many months. The eighty one year old political veteran and struggled to answer a reporter's question about his re election plans.
I'm sorry, I had heard out hearlier.
That's okay.
What are your thoughts on running for reelection.
In twenty twenty six?
I thought about what.
Running for re election in twenty four says?
Did you hear the question? Senator running for reelection in twenty twenty six? All right, I'm sorry, you are were going to need a minute.
The episode raises further health concerns for Mitch McConnell, who is a major fundraiser and force in the Republican Party. His spokesman said the senator felt momentarily lightheaded and pause during his press conference and plans to consult a.
Doctor, so it's this tel Bloomberg, Apple is testing the use of three D printers to produce the steel cases for some of its upcoming smart watches. The story from Bloomberg's Charlie Pallas.
It would herald a major change to how the company manufactures products. The technique would do away with the need to cut large slabs of metal into the product shape. Sources say that would reduce the time it takes to build devices, while also helping the environment by using less material. The new approach has the potential to streamline Apple's supply chain and kickoff a broader shift in New York. Charlie Power, Bloomberg, Daybreak, Europe.
And finally, Elon Musk's social media network X is planning to gather more data from users than ever before. The network, formerly known as Twitter, says that it will collect biometric data, which can include account holders, retina pattern and thumbprint. X also updated its privacy policy to collect information on account holders employment and education history. We often like to talk a little bit about lifestyle and what you spend your cash on. Do you buy expensive handbags, watches, coats?
The most expensive thing I think I carry on with myself as my wirelast and that I've had for about ten years. It says a lot about me.
Probably.
Well.
Apparently now some of the big luxury houses you know that have been obviously trying to grapple with fakes for so long the trade in fakes, now they're using blockchain to try to prove the origin of their most kind of coveted items. And this was discovered by one of our own reporters, Anna Irrera. She'd bought a handbag and when she pulled out on the little card inside it talked about how it was blockchain tracked.
I think this is really interesting because I feel as if the promise of blockchain has been touted so much and yet we're not seeing that many real world applications of it. And this is, okay, granted, not exactly mass market, but it is an indication of how you can use something like the blockchain to validate the authenticity of something that is so rare and treasured by many. I'm sure perhaps it might be a little bit longer before we see it in greater use in other parts of the world.
I mean, there's a lot of lot to talk about how regulation has made it quite difficult to the employment blockchain in the finance industry, for example, a good example of a real world application of the blockchain.
Yeah, it was a Mew Mew handbag apparently film Frada and they're using Aura blockchain. So if you wanted the details on it. Anyway, there's more on that store on the bloombig tuminal.
Well, let's bring you more now. Our top story in the news that UBS posting its biggest ever quarterly profit for a bank in the second quarter. The CEO of UBS, Sergy or Muti, has been speaking to Bloomberg's editor at large, Francine Lacqua, almost three months since the deal to acquire Credit Suite was unveiled. Or Mutti says that combining the firms will lead to job losses across their global workforce.
Well, of course, in our industry, is very difficult to do restructuring the deep restructurally necessary a credit suits and extract the synergies without going through people and account having say that there is a big element of the cost that is driven by real estate planning, by rationalizing legal entities, and by it platforms shutdowns on the account front. First of all, we are counting a lot on natural attrition on retirements and internal mobility and shifting all so our
permanent to external account ratio. Having say that, of course we're going to have to take some paractic actions in redundancies in the years to come, mainly in Switzerland, no, I think this is something that will affect, of course, our entire workforce as much as you know. In Switzerland, we expect from a proactive standpoint of view, we will have around three thousand jobs that will be made redundant over the next years. One thousand are in relation to
our decision to integrate the Swiss Bank. If we would have chosen to spin off the Swiss Bank, we would have had to reduce it by six hundreds, So the delta is four hundred people. Then we have another two thousand people that needs to be that will go through our redundancy because of the need of the restructuring. Now it's good and we are lucky that we have a
very healthy labor market in Switzerland. You know, according to the the Swiss the Association of the employers in the banking industry, there are more than six thousand jobs open. Open jobs in Switzerland is not one for one the profile, but is a healthy market, and and so we are also helping our the people affected with financial retraining riskilling UH and UH and and and so we try to mitigate this issue, but of course it's the painful part of the job is to go through this exercise.
Overall, thirty five thousand jobs. Too soon to say what your final headcount will look like in two years.
We will. We are not talking about it counts. So other than this is a specific Swiss situation because of course the size of the country, the relevance of the both organization to the country, we want to be specific about giving clarity on this issue. But broadly speaking, you will see as the quarter goes by how the workforce is changing. What I can tell you is that since the beginning of the year at Credit Suizz we already had eight thousand reduction in workforce between internal and external.
This is a consequence of the cost measures that Credit Squiz has initiated itself, recognizing the need of our restructuring, and we have been accelerating that in the second quarter.
That was the CEO of UBS, Sergio or Maati, speaking to Boomberg's editor at large, Francine Laque.
And Fancine joins us now to discuss the interview with the man of the moment, Matty. Good morning, Fancine, Thanks so much for taking the time to speak to us on Bloomberg Radio. Just listening to that interview, good morning, and Marti seems really quite confident about the combination. It's been well received by vesus A share price is up today. Having said that, talk of job cuts on the way.
Yes, and we always knew that A good morning to both of you, that a lot of job cuts were coming. He was very careful, and I think this is out of respect to employees that must be feeling very uncertain about their future. Again, this was a shock to many that this craty sweet, huge bank got taken over. So he did talk for the first time about job cuts,
but he really kept it very specific to the Swiss Bank. Again, this is a political hot potato in a country that will also go to the polls in two three months, so I think he wanted to put that to bed and make sure that everyone knew where they were standing. When you look at the profit, it's a huge number reported a twenty nine billion dollar profit, but again the boost came primarily from this accounting concept item called goodwill, So I don't know if it's a huge, wonderful profit.
Certainly the share prices up five percent because this was probably a good deal, and we've been speaking to a lot of investors. They say, look, they bought pretty sweez. They're going to integrate it. As long as they execute and do the execution. Well, this is a positive because
they didn't overpay for it. And at the end of the day, what we were worried about back then, remember it was only five months ago that this combination or takeover happened, was that they would find something very ugly in the Credit Slaase investment bank unit, which they haven't, and so they seem to be in a good place, making good pace. But then it's all about the execution and you could always see surprises down the line.
Yeah, and on that point, Francine, what is the biggest complexity facing UBS now as they try to continue that integration.
I mean, they're huge complexity. First of all, the global wealth management new money is sixteen point two billion dollars. That's great. Can they continue We also spoke with Surgiromodi about how much time does he spend on focusing on the integration, But also the future of the bank. Remember he's basically building a plane, which is this megabank, whilst at the same time trying to keep UBS on the road,
trying to keep clients happy. So this is complex. He did say twice in our interview that look, this is a competitive market landscape, but it's really not the concern about risky businesses. It's more about the complexity of it. So they just had to make it right in terms of what they sell off, how they do that they go to the market in the right way, so it's not like they're less of some kind of bombshell that
they don't know what to do with. I think the complexity is making sure that they get everything right that it fits without culture clashes or people wanting to leave.
Yeah, and I mean obviously Sergia and MOSTI having been the CEO formally, is also extremely knowledgeable about the UBS business. So how do you think success is going to be measured going forwards?
Well, this is probably the billion dollar question. A lot of it will be on execution, when what he's trying to do is saying, look, this is what we've done at UBS that worked, so we're going to replicate that for credit suitese to we also at the same time integrating it. We've covered many many banking and then a huge deals and at the end of the day, culture, if you don't change the culture of the company that you've bought, or if there's a massive shift in that,
that's when it becomes really difficult. And remody so far has said that they've seen some formidable momentum when it comes to winning back client money. Does that continue? Also, you know how big are the losses that UBS expects from the one down of some of the non strategic assets. For the moment, everything could you know, seems okay, but it could turn and how fast can it make this energy from integrating credit suite. So I think timeline is important.
I think how he measured success is where he'll probably be in January and February. At the moment. Central bank action also makes it easier for banks to make money. But if there's a fun and downturn, if there's a recession, we don't one hundred percent know what this large uber bank, how they'll deal with those kinds of tests stresses.
It was big news fan scene when Sergio Ramarti came back to lead this bank through this takeover. What was your gauge of how he is feeling his mood now this far in.
Well, he was very respected chief executive. Is there's one person that has both the confidence of politicians because Swiss, but also understands ubs deeply. It was probably him. I think he likes the challenge. We've spoken a couple of times, you know, since this happened, and then again today. He's one that doesn't shy away from something difficult. He did highlight many times a strong brand of the client relationship
that he's had. It was also the first time that he was a bit punchy, and I thought that was interesting just in his state of mind and saying, look, you know the question that they have now because the share prices up five percent because they have this twenty nine billion dollar negative goodwill is well, was it a fair deal for the eighty one? Is that last everything? Should they have had actually a better deal, because if you're a landholder at the time and you were in
eighty one, you were completely wiped out. And that he really pushed back against and saying, look, this was not only a liquidity problem. You know, pretty sweet had concerned on how it was managed and I thought that was nite bunche. It was the first time I.
Heard him say it.
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