Bloomberg Audio Studios podcasts radio news. This is the Bloomberg Daybreak Europe podcast, available every morning on Apple, Spotify, or wherever you listen. It's Tuesday the 29th of October in London. I'm Steven Carroll. Coming up today: HSBC's profits beat estimates as the bank's new CEO announces a $3 billion share buyback. In an exclusive interview, Goldman Sachs CEO David Solomon reveals he's bullish on the outlook for M&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 has reported better than estimated earnings and a fresh stock buyback just days after unveiling a major restructuring plan. Third quarter pre-tax profit rose by 99.9% from a year earlier to just under $8.5 billion. Europe's largest bank says it will now repurchase shares worth up to $3 billion. Bloomberg's Jumana Besheir breaks down the rest of the numbers.
Third quarter revenue coming in at $17 billion versus the $16 billion estimates, or thereabouts. CET1 ratio sitting quite healthy at 15.2% versus 14.9%, so still sitting on a ton of capital. In terms of their guidance, CET1 they see it within the medium-term target range of 14 to 14.5%. Target cost growth of about 5% for 2024 versus 2023. A lot of focus, of course, on HSBC's cost guidance given the restructuring announcement that they came up with.
Jumana Besheir speaking there. CEO Georges Elhedery, presiding over his first set of earnings 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 in 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 in interest income and rising revenue from fees. The Spanish bank posted third quarter net income of 3.25 billion euros versus estimates of 3.17 billion. Net interest income came in slightly below expectations at 11.23 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 Xi Jinping 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 2015 when Beijing took drastic steps to end a $7 trillion stock market rout, and in 2022 when the country abruptly dropped its COVID controls.
Goldman Sachs' top executive has set a bullish note on the outlook for dealmaking, singling out investments in technology as a bright spot. David Solomon has told Bloomberg that AI is likely to power a new wave of dealmaking.
I think the regulatory environment has been a headwind to some dealmaking. Obviously, with an election, we could see a change in that context. But there's no question the dealmaking 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 dealmaking over a period of time too.
Solomon was speaking to Bloomberg on the sidelines of the Saudi flagship Future Investment Initiative in Riyadh. 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 10% across-the-board pay cut at its main VW brand. Bloomberg'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 its 90-year history in Germany.
That's Bloomberg's Oliver Crook. 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 Central Bank's vice president sees substantial risks to the inflation outlook for the Euro area despite significant progress. Luis de Guindos 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 high for longer. De Guindos was just one of a few ECB officials who 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 Goldman 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 Croc? An increasing number of schools in the United States are banning the shoes for what they say are safety reasons. Our colleagues have tracked this in at least 12 states. The head of the Crocs brand say 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 growth has slowed. Bloomberg estimates compiled show that growth expected to slow just to 0.4% in this quarter, which includes the key back-to-school period. That could be an interesting test for what some consider a fashion icon, others a fashion menace.
Well, let's turn now to some of the company results we've had out this morning. Our equities reporter Joe Easton is with us for more. Joe, let's start with HSBC. We heard from that earlier this morning. Shares in Hong Kong reacting positively.
Yes, a pretty decent gain for those shares, up around 3.5%. As you said a moment ago, now HSBC doing another big buyback, $3 billion worth of stock they're going to buy back. They've reported a 10% jump in pre-tax profit from a year earlier to around $8.5 billion 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, 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 has actually risen around 20% over the past year already, so it's looking to add onto those gains today. We'll wait to see if they continue in London this morning.
Okay, and staying with banks then, Santander also a beat, not quite as dramatic though.
Yeah, so Santander numbers coming in better than 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 the ruling where the court said that lenders hadn't been transparent enough when brokering these deals for people to take out car loans, and therefore there are expected to be significant compensations. One analyst saying Santander could be on the hook for around a billion pounds worth of compensation. So 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?
Yes, I've got my eye on Ryanair. Those numbers actually just coming out a few moments ago. Ryanair does look like a beat on the headline profits, but some weakness in some of the EBIT numbers, some specific earnings numbers 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 higher fares that we've seen, though we are expecting fares to start coming down thankfully. And 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 all of the top lines in terms of the report that's just hit the wires for that one. So that could be a strong one in the pharma space this morning.
Yeah, indeed. Looking into the details of the Ryanair results, it is interesting 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 2024 as well. And they're expecting air travel demand to remain strong. So some positive signals for the future coming out of that major airline group. Joe Easton, our equities reporter, thank you very much for joining us. And of course, we'll have plenty more on those throughout the program as well.
Let's turn now to one of our top interviews this morning from Saudi Arabia's Future Investment Initiative Summit. Bloomberg has been speaking to CEO of Goldman Sachs David Solomon. Our Horizons Middle East & Africa anchor Jumana Besheir has been speaking to him. Here is the exclusive interview in full, starting with David Solomon's thoughts on Saudi Arabia 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 last night around the past eight years, seven or eight years that I've been coming to this event, and just watching the progress here. 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 being 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 was a great year in terms of activity across all these exchanges, which means also more and more banks are looking to get involved in the action. Are you finding it difficult to retain and 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. We're Goldman Sachs. We've been able to attract talent here in this region, other places in the world. I do agree there's more competition here, but that's positive actually, the levels of activity you're picking up. And I feel very, very confident in 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 within Saudi?
It's a very, very natural progress, and we've been talking 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 and excited about the opportunities we'll have to help serve our clients here.
Can I ask you what your level of concern is vis-a-vis 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 able 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 noted as I spend time with people here on the ground, people want to find a path to a secure, prosperous, economically vibrant Middle East.
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, surpassing 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 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 we're building our business while global is quite correlated to US growth. I can give you a list of things to worry about, but generally, I 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 are real. Progress that we're seeing around healthcare and medical technology are 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.
Yeah, 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 landing, now people are talking about no landing. 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 some sort of a slowdown 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 certainly those will have an impact on the trajectory in 2025 and 2026. With respect to European growth, European growth is more sluggish at the moment. And I'm concerned about the same things 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 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 Fed have started cutting interest rates. And I think you were asked about what your expectations were for the Fed. The last time you said a 30% chance of a 50 basis point cut, so we'll give you that. They went for the 50. But what matters more as you think for financial markets, how quickly they go or where they end up eventually?
