This is Bloomberg Daybreak you up for this Thursday, the fourth of May in London.
Coming up today, PacWest plunges. Shares in the US lender hit a new low as the bank reveals it's in discussions with investors.
Pause for thought. Powell hints that rates have peaked as the FED hikes by a quarter.
Points twenty five or fifty, That is the question. The ECB gets ready to reveal its latest rates decision.
Vodafone dials up a fifteen billion pounds UK mega merger. Pay to Play and spending without Limits both are the stories we're looking at in today's papers.
I'm James Wilcock, Pluss pulling more points. The world's largest brewer, ABMBV, tops estimates as volumes rebound.
That's all straight ahead on Bloomberg Daybreak Europe. The business news you need to start your day in just one fifteen minute podcast on Apple, Spotify, the Bloomberg Business app and everywhere you get your podcasts.
Good morning. I'm Stephen Carroll and.
I'm Caroline Hepger. Here are the stories that we're following today. Only days after JP Morgan's CEO Jamie Diamond said that he believed the regional banking crisis was over. Another US lenders future is in question. PacWest has now confirmed Bloomberg's reporting that it's discussing options, including a possible sale, with investors, but the bank says that it has not experienced out
of the ordinary deposit flows. The initial report drove the lenders share price down as much as sixty percent in after hours trading. Bloomberg's Kenny Lyons says that a sale presents its own challenges for the bank.
What our reporting indicates, according to sources familiar with the matter, is that a sale has been hindered because not a lot of potential buyers are interested in the whole bank. We have seen this pattern emerging with the other bank failures, that the banks who would be buyers know that their in theory, would be a better deal from the FDIC if ultimately receivership was how things ended. So it seems at this time that a sale maybe difficult well to find.
So the bank is also, according to our reporting, looking at potentially a breakup or a capital race.
Bloomberg's Kadie Lyons, highlighting that the news is really ignited market fears about the stability of the sector, and led to shares plunging at a number of regional banks.
Meanwhile, the Chair of the Federal reserved your own poals as the issues in the banking sector are not systemic.
Conditions in that sector have broadly improved since early March, and the US banking system is sound and resilient. We will continue to monitor conditions in the sector. We're committed to learning the right lessons from this episode and will work to prevent events like these from happening again.
There are those who don't share your own pals view, though, Pershing squares Blackmann, tweeting that he believes the regional banking system is at risk, adding that regulator's failure to update and expand the insurance regime has quote hammered more nails in the coffin well.
The growing concern over regional US lenders set the backdrop to the Fed's latest policy meeting. The Central Bank matched expectations with a quarter point hike, while the FED Chair Jero Powell hinted that it could be their last. He stopped short, though, of committing one way or the other.
That's going to be an ongoing assessment. We're going to need data to accumulate on that, not an assessment that we've made that would mean we think we've reached that point, and I just think it's not possible to say that with confidence now.
Paul also said that he believes a soft landing is still possible, but conceded that the US may now enter a mild recession.
We've got a policy decision from the European Central Bank later today. Bloomberg's Max Ramsey has details on what to expect.
A hike has been well telegraphed by members of the ECB's governing council. What's still to be seen is the size of that hike. The ECB has repeatedly said it is data dependent. In the past week, we've seen core inflation easing slightly, while a recent bank lending survey pointed
to credit standards tightening more than expected. I'm leading economists and investors to predict a twenty five basis point move down in pace from the fifty we've seen in recent meetings, as the ECB has gone on an aggressive hiking cycle to try to get inflation back down to its two percent target in Frankfurt, Max Ramsey, Bloomberg Daybreak Europe.
Meanwhile, we will get a policy decision from the ECB that will come at one fifteen London time today. The world's biggest brewer, ab Imbev, has seen that its earnings grew by much more than had been expected in the first quarter. It's adjusted ebit DAR gru by thirteen point six percent versus estimates of just under five percent, but its organic volume growth was slower than analysts had expected
at zero point nine percent. It still does expect full year ebit DAR to grow between four and eight percent, So those results in this morning from ab Imbev.
Goldbyn Sachs is racing to settle one of Wall Street's biggest gender discrimination cases, sources tel Bloomberg. The company has discussed settlements as high as two hundred million dollars with the lawyers representing Christina chen Aster and other plaintiffs in class action lawsuits began back in two thousand and five. A deal would allow Goldman executives to avoid testifying against
allegations of discrimination against women in pay and promotions. Those are some of our top stories this morning.
Okay, thinking about recession fears, I think that's one of the key issues, along with the kind of US banking term or that has returned today the Milken Institute Global Conference that's been taking place in Beverly Hills. I mean it's a great kind of place to take the temperature really of global investors. Idlieu, head of Cities at Global Private Banking, talking about recession at the end of this year.
Jane Fraser that interview we had with her a bit earlier this week, but she's the CEO of City of Course, recession at the back end of this year. I mean, there's just a lot of consensus now on the difficulties that the US is going to face. And Walsh at Gougenheim, the CIO there, says Midsummer, eighteen months after the start of the Fed's hiking cycle, that is when the recession is going to his Yeah.
Look, this is the conversation that we have quite regularly with guests on this program as well. And there isn't a consensus about, I suppose how bad a recession would be, but the opinion it definitely has shifted in recent weeks to more and more of those market participants that we speak to saying that they are expecting recession in the US.
Course.
Drone Power says his forecast is from modest growth and not recession.
Okay, let's turn our attention then to results that we've had out from Alenda Here in the UK. Virgin Money has reported quarterly results. Adjusted pre tax profit for the first half of the year beat average analyst estimates, coming in at three hundred and twelve million pounds versus estimates of three hundred and three Also very interesting, the first half net interest margin was a beat one point nine one percent. The estimate was for one point eight nine percent.
We've had out earlier this week results from Barclays and nat West. They both reported a jump in their net interest incomes in the first quarter, although Lloyd's talked about loan impairments increasing and added that the benefits from rate hikes may have peaked. Well, I'm delighted to say that Virgin Money CFO Clifford Abrams joins us this morning. Clifford, good morning, good morning, Thank you so much for your time. Is this quarter the peak of net interest margins for you?
Well, as you said, we're pleased with our net interest margin and we've actually upgraded our net interest margin outlook for this year to around one ninety so we do expect our net interest margin to be broadly stable for here, but we're feeling good about the drivers of the net interest Margin's what's maintaining it is demand for our attractive savings products, and we've also hedged our balance sheet over the last couple of years and as that on wines
that supports our net interest margin. So while mortgage market conditions are increasingly competitive, we feel we can maintain our net interest margin from here for the next at least for the next few quarters.
The Bank of England's reporting rising numbers of defaults and mortgages and unsecured lending in the UK in the first three months of twenty twenty three. How are you seeing default rates on your loans given the broader economic pressure.
Look, we're happy with the resilience of our balance sheet, so in general our loans credit quality is broadly stable. But we're also seeing some ticking up in early stage rears, particularly in our unsecured our credit card book, but it's really from quite low levels which we've saw during the pandemic. So some of these early signs we think is call it normalization and broadly expected at this part of what you know, what is an economic cycle. You know, it's
possible the economy will miss recession this year. It is possible, but clearly conditions are a bit tougher, particularly for some of our retail borrowers, given the cost of living issues we've seen.
We've spent you know, the last couple of days really focus on regional US lenders banking turmoil. There is big concern around deposit flows. Only this morning we reported pac West statement about that, you know, emphasizing the stability of deposits. It's the focus in the industry. Now, tell us about deposit flows for you that this is such an important issue.
Now, yeah, we've.
All followed those developments in the US. It tends to happen at weekends, that uncertainty. But it's really clear that in the US the regular vironment is a bit different to hear in the UK. So a number of those US lenders didn't mark to market some of their portfolios, they didn't need to mark to market, and that caused some of the some of the deposits to get nervous. And so those banks, particularly with larger deposits, you know,
those customers sort of spread out their deposits. Now Here in the UK we operate in a different environment and In fact, deposits are pretty stable generally in the UK and for us in particular, we've seen growth in our deposits of around three percent during this period. So some of our larger players have talked about, you know, their customers paying down taxes or increasingly drawing on their current accounts. What we've seen is customers shopping around for decent rates
because we've all seen you know, rates ticking up. You can get four percent plus on your savings these days, so why leave it in a current account, you know, earning nothing. For us, even our current at customers do earn interest and we have really attractive savings accounts, especially for current account customers, but also fixed rate bonds and we've seen good demand for that and that's why we've perhaps broken the trend by growing deposits during this period.
How high do you see those saving of rates going. We know that there has been criticism from politicians that banks aren't passing on and off of the higher interest rates in the Bank of England to say, is there further growth there?
Do you think?
Look, we do expect deposit rates to move further. What you see is for customers prepared to lock in their money for a little time. There's some really good rates available, so we offer four percent plus if you're prepared to give us your funds for one or two years, and customers increasingly doing that, and that means other banks are responding by putting up their rates. So it's the natural
act of you know, competition. We live in competitive markets, which means we need to offer our customers good products. Now for Virgin Money, we've done that right the way through the period when rates are quite low. So we're keen to offer our customers good propositions because we want to grow our customer base. And I'm pleased to say that's what we've seen in the last six months.
Talk to me about the mortgage business. Approvals are falling. How much pressure is that part of the business. And I know that you're focused on trying to expand the credit card business as opposed to mortgagees. You know the talk of a ten or even twenty percent real term drop in home values in the UK. Have mortgage approvals ground to a hold? How would you characterize them?
Yeah, we've seen across the industry mortgage approvals down by nearly a half sob around forty percent, So it's clear that the housing market slowed, particularly from last September around the time in the mini budget when rates spiked. It obviously caused concerns across the market. So we're seeing that in our business and you can see our mortgage book is down a little bit over the last six months,
down around one percent, reflecting that. Now, what we saw at the end of last year was really a sharp decline reflecting that shop pick up in rates and nervousness around the housing market. It's really encouraging to see some return to stability in the last month or two, I would say since jan this year what we've seen as rates have stabilized. You know, the government is clearly keen to ensure things are sort of strong and stable here
in the UK. Rates have stabilized, we've seen some confidence returning, so a pick up perhaps from some of those lows last year. But we still expect the mortgage market to be down year on year and certainly down from the peak times during COVID. And what we've seen is margins, so as banks compete for a smaller pool of customers, we've seen margins continuing under pressure and in the same way,
the mortgage market is picked up a little bit. We've seen actually spreads returning a little bit over the last month or two, and we factored all those developments in the guidance we've given today.
What are you doing to control costs in a situation where you're having to pay higher rates to savers and also, as you say, starting to see early stage arrears tacking up for your credit cards.
Well, we have long term cost targets. So little over a year ago we set out our cost target. We wanted to be below fifty percent cost income ratio, so that costs around half of our total income. We're a little above that this period at fifty one percent, and our costs are absolutely costs have actually gone up over the last year, so they've gone up around five percent. We've clearly seen inflation, and we've awarded you know, wage riders to our to our staff, which is important to
retain and attract the best staff. We've also invested in it. We've put more staff into our contact centers because we've seen customers in volatile times increasingly want to speak to someone and and that's you know, we've been pleased to do that, and that's cost money, and that's behind the rise in our expenses of five percent, and what we've seen because income has gone up, our cost income ratios
have gone down. Now going forward we do expect to deliver on that cost income ratio below fifty and that's likely to be because costs are actually coming down in normal terms, and that reflects a few things. Really. One, we do expect to inflation to be sustained at least
for a little while. But what we're seeing all that investment in digitization enables us to be more efficient and those cost savings will earn through and in particular as our as the volume through our contact center starts to stabilize, which we've seen already, then we can we can wind down some of the investment that we put in over the last six nine months or so. So we've reconfirmed our outlook and our for this year and in particular,
you know our commitment for our targets next year. You know we're on track.
Clifford, thank you so much for your time this morning. That is Virgin Money is Chief financial Officer Clifford Abram speaking to us after the bank reported their results this morning.
Up next, Votaphone dials up a fifteen billion pounds UK mega merger, pay to play and spending without limits.
Now The Paper review on blue Bird Daybreak Europe. The news you need to know from today's papers.
I'm joining us this morning to discuss this Bllloonbag's James Wilcock. The Times has a story about the London Stock Exchange chief Julia Hoggart commenting on executive pay. I mean, this is a hornet's nest, isn't it.
Well, it is Carolina and this is kind of the problem for the UK, and that it is a hornet's nest. Cost of living crisis is up and people are very worried about sort of how they're going to get paid. They don't really mind what executives are paid, but they don't want it going up. But on the other hand, the NC chief Julia Hogget is saying, if we don't try and have a competitive pay for CEOs, we're going
to lose out. I went and pulled the numbers. The average FOOTZY one hundred chief executive is paid three point nine million pounds at least in the years twenty twenty one to twenty two. So comparison the average S and P five hundred CEO, that was fourteen point ninety four
million pounds in the same year. And if you look at say that number compared to the median employee, the TUC figures and the high PA figures, say that is about one hundred and nine times the medium full time worker versus the SMP, where that's one hundred and ninety three times greater. So there is a big mismatch there in terms of if you want sort of the larger capital inflows, you may need to put up with higher inequality or high exec pay.
Okay, I mean, it's a really interesting conversation and to draw those comparisons there as well. Let's go to Finatal Times next though, James reporting on a potential big murderer in the mobile sector.
Yes, so, Vodafone and Seeker Hutchinson are reportedly close to agreeing a combination of their UK telecoms businesses. It would create the country's largest mobile operator, Steven, with twenty eight million customers. According to the FT, the deal is set to value the equity of the combined group at roughly nine billion pounds. And a big problem here is that, obviously we've been talking about the Microsoft Activision deal getting
blocked in the UK earlier this week. There is absolutely no guarantee that the deal would be allowed to go ahead for these two The UK Competition and Regulation Authority has already intervened previously when it felt like there would only be three telecoms companies in the UK, and there are also big national security concerns. This deal is by no means completed, but the FET's reporting is saying it may be close.
Yeah, I mean twenty eight million customers. That would be the biggest provider in the country that will be closely watched. Wente the Guardian, who also writing about UK government spending and the Treasury in particular. This is so interesting, it.
Really is, Caroline. So since the David CAMERONIRA, there's been a big focus on government spending and government departments are required to tell the public and they're closed any cost that was more than twenty five k and anything that officials put on the government credit card that has more than five hundred pounds for a single spend. They are
supposed to do that every month. The Treasury's last release is for December twenty twenty one, which they put out in March twenty twenty two, so it has been over a year and since they have updated those figures. They are by far the worse for doing this in terms
of transparency of departments. And it goes without saying, but the Treasury are the ones who are holding all the other departments to account and spending when there is big pressure on some of these governments spending targets, be they sort of on strikes, on business investing, on all these
kind of big pushies for the government perth. It is fascinating that they have fallen behind in this way and something that I imagine this guard your report will kick up a lot of stir about and as a journalist it stops me from having a look into them. I went to look at the December figures and I found quite fascinatingly one of the big headline numbers is the Telegraph subscription that the Treasury we're putting on the credit card for about one hundred pounds at the time, so
it is interesting. Now the Treasury, for its worth, have said internal staffing changes have led to a delay in publication, but says they will publish all required data in due course.
This is Bloomberg Daybreak Europe. You're a morning brief on the stories making news from London to Wall streets and beyond.
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I'm Stephen Carol. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak Europe