WEBVTT - China Rate Changes, Capital One 0:00:00.080 --> 0:00:10.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Daybreak, 0:00:10.760 --> 0:00:14.080 aisha podcast. I'm Doug Prisner. You can join Brian Curtis 0:00:14.080 --> 0:00:16.960 and myself for the stories, making news and moving markets 0:00:16.960 --> 0:00:19.720 in the APAC region. You can subscribe to the show 0:00:19.800 --> 0:00:22.959 anywhere you get your podcast and always on Bloomberg Radio, 0:00:23.200 --> 0:00:26.000 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.720 --> 0:00:29.000 Joining us now in our studios in Hong Kong is 0:00:29.080 --> 0:00:33.800 David Chu, Bloomberg China economist. David We mentioned there that 0:00:33.800 --> 0:00:37.400 that cut in the mortgage reference rate, the five year 0:00:37.440 --> 0:00:39.960 loan prime rate of twenty five basis points, while being 0:00:40.000 --> 0:00:43.600 greater than expected, was met with kind of I don't 0:00:43.600 --> 0:00:45.519 know if it's a yawn or a little bit of 0:00:45.560 --> 0:00:48.760 disdain even in the market. Is that fair? 0:00:50.320 --> 0:00:50.560 Well? 0:00:51.479 --> 0:00:54.360 I have to say that it was not such a 0:00:54.360 --> 0:00:59.080 big surprise to the market because the PBOC has had 0:00:59.080 --> 0:01:02.520 it delivered to some of the indication via some media 0:01:03.160 --> 0:01:07.399 before the reduction in the five year LPR. But actually 0:01:07.720 --> 0:01:10.319 I have to say people didn't expect that it was 0:01:10.400 --> 0:01:15.120 cut so much, because we expected that it could be 0:01:15.160 --> 0:01:18.120 five or ten BIPs, but it turned out to be 0:01:18.400 --> 0:01:22.119 twenty five. Well, I have some reasons for the twenty 0:01:22.160 --> 0:01:26.440 five business point cut. Although the base the policy rate, 0:01:26.480 --> 0:01:30.520 which is the one year MLF rates was steady because 0:01:30.600 --> 0:01:34.400 in last year August, when the people cut the policy 0:01:34.480 --> 0:01:38.639 rate by fifteen bibs, the five year LPR remained steady. 0:01:38.760 --> 0:01:42.440 It didn't change, so that it allowed the five year 0:01:42.520 --> 0:01:47.480 LPR to have at least fifteen business points to cut 0:01:47.560 --> 0:01:52.920 in this year. So another reason, apparently the commercial banks 0:01:53.000 --> 0:01:57.280 had another ten bibs for the reduction, so that it's 0:01:57.360 --> 0:02:00.880 total to be twenty five. So one thing we are 0:02:00.960 --> 0:02:04.880 talking about, we are thinking is that whether this can stimulate, 0:02:05.360 --> 0:02:08.440 try or raise China's housing market. That is the key 0:02:08.520 --> 0:02:11.600 question because as we just decided that the five year 0:02:11.680 --> 0:02:15.480 LPR is the base or the benchmark for the mortgage rate. 0:02:16.000 --> 0:02:20.200 And apparently that it seems that the authorities are trying 0:02:20.240 --> 0:02:24.600 to help the housing market. But to be honest, we 0:02:24.680 --> 0:02:28.440 are not so optimistic on this because if you look 0:02:28.480 --> 0:02:31.000 at the housing market in China, it has been sleeping 0:02:31.560 --> 0:02:35.800 over the past two years, and the sentiment in the 0:02:35.800 --> 0:02:39.679 market is very weak, especially in the lower tier cities 0:02:39.680 --> 0:02:43.000 such as the Tier three and Tier four cities. So 0:02:43.440 --> 0:02:47.680 and also we see the oversupply in the housing market, 0:02:48.160 --> 0:02:50.960 so that putting all this together, we think, yes, it 0:02:51.000 --> 0:02:53.040 will help, but the help should be very limited. 0:02:53.200 --> 0:02:55.840 I'm wondering whether anyone is concerned about the pressure that 0:02:55.880 --> 0:02:58.200 this would put on banks. I mean, obviously when you 0:02:58.240 --> 0:03:00.960 lower interest rates, it puts a little bit of pressure 0:03:01.000 --> 0:03:03.799 on your margins. Is that a chief concern or will 0:03:03.840 --> 0:03:06.760 it be let's call it a sacrifice that has to 0:03:06.760 --> 0:03:11.040 be made as authorities try to rescue or unwine this 0:03:11.160 --> 0:03:12.200 property crisis. 0:03:13.080 --> 0:03:16.880 Well, I agree with you that that the banks are 0:03:16.919 --> 0:03:20.160 not so happy with this. Actually, in January I had 0:03:20.160 --> 0:03:23.000 a travel in Beijing and Shanghai and to see some 0:03:23.120 --> 0:03:26.040 bankers and they told me that they were worried about 0:03:26.200 --> 0:03:31.360 the narrowing of their interest to margin. But it seems that, 0:03:31.520 --> 0:03:34.600 as you said, that it is a more political decision 0:03:35.040 --> 0:03:40.960 to to to press the interest margin further because I 0:03:40.960 --> 0:03:44.760 think maybe, uh, the leaders think that the bankings actor 0:03:44.800 --> 0:03:47.120 should do something to help the economy as a whole. 0:03:47.400 --> 0:03:50.440 Yeah, it's about affordability, and even you know, pressure is 0:03:50.440 --> 0:03:54.560 building here in Hong Kong for the government to relax 0:03:54.600 --> 0:03:57.120 some of the restrictions on buying homes that we've seen 0:03:57.200 --> 0:03:59.560 for almost a decade now, and we're even seeing that 0:03:59.640 --> 0:04:04.200 pressure coming from pro China parties, and we're talking about 0:04:04.200 --> 0:04:06.960 things like the stamp duties, some of the friction that's 0:04:07.000 --> 0:04:10.400 in there, for instance, also the size of the down payment. 0:04:10.400 --> 0:04:12.760 In some cases you have put fifty percent down, then 0:04:12.800 --> 0:04:15.200 you have to pay a fifteen percent stamp duty, and 0:04:15.240 --> 0:04:17.400 it's on and on and on. Do you think that 0:04:17.440 --> 0:04:20.000 the time is ripe now for both Hong Kong and 0:04:20.120 --> 0:04:22.960 China to think about relaxing some of these restrictions. 0:04:23.640 --> 0:04:27.760 Actually, I think it's not about the timing, because for both, 0:04:28.720 --> 0:04:32.560 especially for mainland China, they have been cutting the down 0:04:32.600 --> 0:04:36.479 payment ratio and also the mortgage rates and also relaxed 0:04:36.680 --> 0:04:38.240 the Home Purchase. 0:04:38.160 --> 0:04:39.400 Act yourself, Is it working? 0:04:40.279 --> 0:04:45.440 Yeah, that is the question whether it works. But honestly, 0:04:45.960 --> 0:04:48.200 it hasn't worked so much in China. 0:04:48.760 --> 0:04:51.080 Do you think things are so desperate now that there's 0:04:51.120 --> 0:04:54.320 going to be a major initiative unveiled at the National 0:04:54.560 --> 0:04:57.279 People's Congress, which I guess is set for early March. 0:04:57.680 --> 0:05:01.159 My authorities wait for that moment in time to unveil 0:05:01.240 --> 0:05:04.240 something that's a little bit more sweeping in scope. I mean, 0:05:04.520 --> 0:05:07.760 clearly there is just declining center it not just as 0:05:07.760 --> 0:05:10.160 it relates to the property market, but the equity market 0:05:10.160 --> 0:05:11.880 as well. 0:05:12.240 --> 0:05:18.320 Yes, I think for both the housing sector or housing 0:05:18.600 --> 0:05:22.400 market and the equity market, people have the same concern. 0:05:22.839 --> 0:05:27.320 It is whether China is still still views the growth 0:05:27.480 --> 0:05:30.960 as the top priority. I think that would be a 0:05:31.000 --> 0:05:36.760 signal that we can see from the the People's Congress 0:05:37.040 --> 0:05:40.880 in the coming months. But to be honest, I don't 0:05:40.960 --> 0:05:45.120 think that even the government or the authorities release the 0:05:45.200 --> 0:05:50.560 signal that we still view it very important. I really 0:05:50.720 --> 0:05:53.160 doubt how much the market can buy it. 0:05:54.720 --> 0:05:56.800 I'm going to going to ask you a question. You're 0:05:56.839 --> 0:05:58.719 an economist, and you're going to say, oh boy, you know, 0:05:58.760 --> 0:06:01.200 that's kind of a political question. But it seems like 0:06:01.680 --> 0:06:04.120 what we have here is an issue that comes down 0:06:04.160 --> 0:06:09.599 to societal considerations versus economic considerations. We understand that a 0:06:09.600 --> 0:06:11.960 lot of what President Chijenping is trying to do is 0:06:12.000 --> 0:06:14.880 good for the common man, but that may not be 0:06:15.000 --> 0:06:17.520 in the shorter term, what's good for the economy. How 0:06:17.520 --> 0:06:18.240 do you decide? 0:06:19.400 --> 0:06:22.360 Yeah, that is a kind of it could be a 0:06:22.400 --> 0:06:26.760 trade off, because if you want to make the common prosperity, 0:06:27.000 --> 0:06:30.839 or in other words, you want to help the common people. 0:06:31.080 --> 0:06:33.680 You want to make property more affordable to the average person, 0:06:33.839 --> 0:06:35.760 but then it slows down the economy to the point 0:06:35.800 --> 0:06:37.880 where the average person may not even have a job. 0:06:38.040 --> 0:06:39.279 You know what makes more sense? 0:06:39.960 --> 0:06:43.240 That is the question, you know, because I think what 0:06:43.640 --> 0:06:50.040 caused the pain. It was the timing, because I think personally, 0:06:50.080 --> 0:06:53.039 I think it was a bit late for the government 0:06:53.160 --> 0:06:55.480 to do so. They should have done that ten years 0:06:55.520 --> 0:07:00.680 ago to do it. But if you leave the problem today, 0:07:01.560 --> 0:07:04.279 you must have some price for that, right. 0:07:04.680 --> 0:07:07.520 David, I'm wondering whether or not you could see a 0:07:07.560 --> 0:07:10.280 world where authorities, let's say at the Central Bank, began 0:07:10.360 --> 0:07:14.320 to adopt something that both Japan and the US have used, 0:07:14.400 --> 0:07:16.640 where the Central Bank has used its balance sheet through 0:07:16.720 --> 0:07:20.240 quantitative easing to address the problems that the China is 0:07:20.280 --> 0:07:23.040 facing with so much bad credit right now. Is that 0:07:23.200 --> 0:07:25.520 something that you think they might experiment with. 0:07:26.880 --> 0:07:29.440 Well, I have to say that I have been asked 0:07:29.480 --> 0:07:32.880 about this question at least a dozen of times over 0:07:32.920 --> 0:07:36.760 the past year. But I have to say that for China, 0:07:37.040 --> 0:07:43.840 the PBOC always have some quantitative tools. So when the 0:07:43.840 --> 0:07:48.560 PBOC is doing easing or tightening, it is doing so 0:07:49.040 --> 0:07:52.840 in both the price and the quantitative side. For example, 0:07:52.880 --> 0:07:55.680 the PBOC can raise or cut the triple R, which 0:07:55.760 --> 0:07:59.680 is definitely a quantitative tool. And also the PBOC can 0:07:59.720 --> 0:08:02.920 do something to inject the more money via the MLF 0:08:03.160 --> 0:08:07.720 or the PSL DOT two tools are also qutitative. So 0:08:07.960 --> 0:08:11.720 for the PBOC it is not a quite enough whether 0:08:11.720 --> 0:08:14.280 a quantitative eating or not. They always do that. 0:08:14.640 --> 0:08:17.480 Yeah, all right, David, thanks very much. I enjoyed this 0:08:17.600 --> 0:08:29.000 session quite a lot. David Chu, Bloomberg China economist. Joining 0:08:29.080 --> 0:08:32.040 us now is Shuly your En Bloomberg opinion columnists to 0:08:32.280 --> 0:08:37.000 take a look at market sentiment on Chinese and Japanese markets. 0:08:37.400 --> 0:08:40.840 She wrote a piece citing two articles from Barons and 0:08:40.880 --> 0:08:43.520 one of them talked about how Toyota Motor Company was 0:08:43.559 --> 0:08:46.840 looking like a growth stock, whereas in China it's a 0:08:46.880 --> 0:08:49.640 totally different story. Let's get to Shuley. Thanks very much, 0:08:49.640 --> 0:08:53.280 Shuley for joining us here on the program. Is that 0:08:53.400 --> 0:08:55.880 still the case even after the big run up in 0:08:56.000 --> 0:09:01.160 Japanese shares? And you know, how long can this continue? 0:09:02.640 --> 0:09:05.640 We don't know, but it does seem to be the case, 0:09:05.760 --> 0:09:10.200 especially early this year January and February. Like over the 0:09:10.240 --> 0:09:14.000 last decade, basically a lot of global investors have plowed 0:09:14.040 --> 0:09:16.880 their money into Chinese stocks, a lot of them trading 0:09:16.880 --> 0:09:20.160 in Hong Kong, right, and everyone knows that the China's 0:09:20.200 --> 0:09:23.360 economy has some structural issues that cannot be solved there 0:09:23.360 --> 0:09:27.280 within perhaps even a year or two, So that's why they're. 0:09:27.040 --> 0:09:28.480 Looking everywhere else. 0:09:28.840 --> 0:09:32.560 And India has become very expensive, So of course Japan 0:09:32.720 --> 0:09:36.319 is the other big liquid market that for investors can 0:09:36.360 --> 0:09:36.600 go to. 0:09:36.760 --> 0:09:37.760 That's why they're going. 0:09:38.400 --> 0:09:41.480 What I'm listening to comes to mind is the corporate 0:09:41.520 --> 0:09:45.480 reform that has taken place in Japan, which may be 0:09:45.600 --> 0:09:48.520 underpinning the rally that we have seen in Japanese equities. 0:09:48.720 --> 0:09:52.439 And on the other hand, the situation in China where 0:09:52.480 --> 0:09:56.760 the regulatory regime is so mercurial and shifting, such a 0:09:56.880 --> 0:09:59.920 lack of clarity on what policy is going to be 0:10:00.080 --> 0:10:02.600 for the foreseeable future. Does that come into play in 0:10:02.640 --> 0:10:05.679 any way? Do you think that dichotomy? 0:10:05.760 --> 0:10:06.000 Yes? 0:10:06.080 --> 0:10:09.520 Absolutely, I mean, like in China, like I think investors 0:10:09.559 --> 0:10:11.960 at this point, they're not even looking for stimulus, They're 0:10:12.000 --> 0:10:15.960 just looking for some predicted predictability and the stability. I 0:10:16.000 --> 0:10:19.439 mean with Japan, the corporate reform story is actually quite old. 0:10:19.679 --> 0:10:23.760 It started with has basically a decade ago. And I 0:10:23.800 --> 0:10:26.839 do want to say that the Japan you know that 0:10:27.200 --> 0:10:32.480 the investment narratives that we are seeing Japan, these are 0:10:32.600 --> 0:10:33.679 not news stories. 0:10:33.720 --> 0:10:35.400 They have been around for a decade. 0:10:35.679 --> 0:10:38.800 It's just that the investors being burned by China in 0:10:38.840 --> 0:10:41.720 such a dramatic fashion that they're willing to give Japan 0:10:41.800 --> 0:10:44.360 a second look. And it's not clear to me that 0:10:44.440 --> 0:10:48.040 Japan can finally come out of this deflationary environment. 0:10:49.559 --> 0:10:52.440 I remember you from your days at Barons. It was 0:10:52.520 --> 0:10:57.319 more than a decade ago. And yeah, so this piece 0:10:57.440 --> 0:11:00.960 about about you know, Japan looking like the growth story 0:11:01.000 --> 0:11:04.600 in China looking like a value play. You say that 0:11:04.880 --> 0:11:09.320 it's value trapped, not a value play, particularly I suppose 0:11:09.440 --> 0:11:15.320 because of policy and is it likely to change sometime soon? 0:11:15.360 --> 0:11:18.520 I mean you are starting to see almost daily developments 0:11:18.840 --> 0:11:21.560 with the policy makers in China. Now do they realize it? 0:11:23.280 --> 0:11:26.920 I think there is some good trend. For instance, the 0:11:27.040 --> 0:11:30.640 new security is watchedot he sounds a little bit more humble. 0:11:30.920 --> 0:11:34.559 He's willing to hear opinions from market participants, and that 0:11:34.640 --> 0:11:40.240 could be a good trend. Butruct structurally, China's property sector 0:11:41.320 --> 0:11:44.000 used to account for twenty five percent of the GDP, 0:11:44.440 --> 0:11:48.280 and structurally, this property sector has not found its bottom. 0:11:48.320 --> 0:11:51.040 I mean, let's just compare the home prices right from 0:11:51.160 --> 0:11:54.360 peak to trial to now. Basically, home prices have come 0:11:54.400 --> 0:11:58.560 downly about twenty percent. During the US subprime crisis in 0:11:58.600 --> 0:12:01.400 twenty two thousand and eight, the price came down by 0:12:01.480 --> 0:12:02.160 forty percent. 0:12:02.320 --> 0:12:05.040 So we just feel that there is no bottom yet. 0:12:05.600 --> 0:12:10.160 So regardless of how the Chinese government changes, it's tom 0:12:10.720 --> 0:12:13.640 economy is economy, right, it's the fundamentals. 0:12:13.720 --> 0:12:13.920 Yeah. 0:12:13.920 --> 0:12:16.840 The other thing that's interesting is to after thirty years, 0:12:16.880 --> 0:12:20.600 we're getting an indication that Japan is leaving a deflationary trap, 0:12:20.640 --> 0:12:24.960 and it seems like Chinese is now firmly you know, 0:12:25.120 --> 0:12:28.560 under one or one is firmly underway in China right now. 0:12:29.960 --> 0:12:32.520 Yes, but I do want to say that it looks 0:12:32.520 --> 0:12:35.200 like Japan is coming out of the deflationary trap, but 0:12:35.280 --> 0:12:41.439 not quite right, Like if this inflation is ongoing globally, 0:12:41.640 --> 0:12:46.880 I mean Japan's it's unclear how much inflation Japan can have. 0:12:47.120 --> 0:12:50.960 And also global investors are not expecting Japan to Japan's 0:12:50.960 --> 0:12:54.400 economy to grow slowly but not so fast that the 0:12:54.760 --> 0:12:58.840 Bank of Japan changes is quantity easy, and that is 0:12:58.840 --> 0:13:00.560 a very blue sky scenario. 0:13:02.480 --> 0:13:06.480 The policy makers in China are hinting that deflation is 0:13:06.600 --> 0:13:09.120 just about run its course. Do you believe them? 0:13:10.840 --> 0:13:11.080 No? 0:13:11.840 --> 0:13:15.400 I mean at this point, like China has a statistics 0:13:15.520 --> 0:13:18.640 is all very opaque, right, Like we don't know what's 0:13:18.720 --> 0:13:25.719 in the like a CPI basket, but just from anecdotal experiences, 0:13:26.400 --> 0:13:29.320 everything is kind of un sale in China, Like if 0:13:29.400 --> 0:13:32.640 you go to restaurants, there are always discount steals, you know, 0:13:33.080 --> 0:13:38.000 home prices, secondary home sales that there are always you know, 0:13:38.520 --> 0:13:42.080 some kind of under the table coupunsen et cetera. 0:13:42.200 --> 0:13:44.920 So we don't believe that. No Chinese believes that. 0:13:45.320 --> 0:13:47.600 So before you were barons, you were here in the 0:13:47.720 --> 0:13:51.040 US working for a major investment bank whose name I 0:13:51.080 --> 0:13:54.680 will not mention. So you have some familiarity with the 0:13:54.720 --> 0:13:57.960 banking industry overall. And I'm wondering, is there a way 0:13:58.000 --> 0:14:01.599 to compare and contrast what is likely to happen for 0:14:01.800 --> 0:14:05.560 Japanese banks versus Chinese banks, given the situation that you've 0:14:05.600 --> 0:14:07.079 been kind of laying out for US. 0:14:08.600 --> 0:14:12.840 I think with Japanese banks there their biggest obstacle is 0:14:12.960 --> 0:14:17.040 uh uh. I mean there has been no interest rate 0:14:17.080 --> 0:14:20.000 margin for Japanese banks because it's zero percent for the 0:14:20.040 --> 0:14:23.120 longest time, right, So, so their their problem is that 0:14:23.280 --> 0:14:26.040 some of them have gone overseas, like you know, more 0:14:26.040 --> 0:14:29.080 brokerages as well, no moral et cetera, and then they 0:14:29.120 --> 0:14:35.120 could have exposure to to the weakening global commercial real estate. 0:14:35.240 --> 0:14:38.960 With Chinese banks, their problem is that their interest rate 0:14:39.040 --> 0:14:43.040 margins have are also compressing because the Chinese government wants 0:14:43.080 --> 0:14:46.840 the banks to give our loans very cheaply. But you 0:14:46.880 --> 0:14:51.160 know that that really contracts the Chinese banks profit margins 0:14:51.200 --> 0:14:54.640 and that that could hurt their capitalization ratios as well. 0:14:56.360 --> 0:14:58.720 So if we look at China and try to figure 0:14:58.760 --> 0:15:01.000 out a way of getting out of this, you think 0:15:01.000 --> 0:15:04.480 that deflation is still pretty well entrenched and that households 0:15:04.480 --> 0:15:08.560 are you know, they're saving, they're not spending. Is there 0:15:08.560 --> 0:15:11.920 a way to transfer some of that wealth to households 0:15:11.920 --> 0:15:14.080 so that they can feel more comfortable? You know, we 0:15:14.160 --> 0:15:17.360 often think of tax cuts, that's not often considered in China. 0:15:17.760 --> 0:15:21.160 What about some other measures that would you know, move 0:15:21.200 --> 0:15:22.760 capital into the household sector. 0:15:24.560 --> 0:15:28.680 I think at this point it's the sentiments, and I'm 0:15:28.720 --> 0:15:31.560 not sure about this because China has no opinion polls. 0:15:31.680 --> 0:15:34.600 But I have a feeling that the households are just 0:15:35.280 --> 0:15:39.200 doing this revenge non consumption because they were burned quite 0:15:39.240 --> 0:15:42.480 badly during the three years of COVID lockdowns, right and lot. 0:15:42.800 --> 0:15:47.480 Like just anecdotally, some people that I know who have 0:15:47.600 --> 0:15:50.560 no financial issues, they're still not willing to spend. They 0:15:50.680 --> 0:15:53.680 just think, why am I contributing to the economy, Like 0:15:53.760 --> 0:15:56.520 the government can can take care of everything. Like it's 0:15:56.560 --> 0:16:02.600 almost kind of a revenge what the lockdowns. So if 0:16:02.640 --> 0:16:06.320 that is indeed the case, I mean, like we have 0:16:06.440 --> 0:16:07.840 to talk about psychology. 0:16:08.040 --> 0:16:10.840 Oh yeah, great, measures. 0:16:10.600 --> 0:16:13.440 Absolutely, that's a fascinating point. Surely, thank you. 0:16:21.040 --> 0:16:23.200 One of our big stories in the past twenty four 0:16:23.200 --> 0:16:26.760 hours capital One Financial agreeing to buy Discover in a 0:16:26.840 --> 0:16:30.240 thirty five billion dollar all stock deal. The deal would 0:16:30.280 --> 0:16:34.160 create the largest US credit card company by loan volume. 0:16:34.760 --> 0:16:37.320 But there is a catch and joining us now is 0:16:37.360 --> 0:16:40.800 Adam Hag, Bloomberg Finance editor, to discuss more on this story. 0:16:41.160 --> 0:16:44.760 I find this a fascinating story because it goes to 0:16:44.840 --> 0:16:47.440 a lot of things business model. It could help capital 0:16:47.480 --> 0:16:50.760 One compete with amex here and lower its cost by 0:16:50.800 --> 0:16:54.120 not having a process through MasterCard. And Visa, extra competition 0:16:54.200 --> 0:16:56.600 for MasterCard and Visa. You just go on and on. 0:16:56.640 --> 0:17:00.000 Of course, there's the ANI trust concerns as well. Maybe 0:17:00.160 --> 0:17:03.440 we can deal with that first. Is this the type 0:17:03.480 --> 0:17:06.680 of story, Adam, that you think ultimately gets blocked by 0:17:06.800 --> 0:17:12.880 a Biden administration, this sort of anti mega merger. Yeah. 0:17:12.920 --> 0:17:16.200 Well, the thing to watch, of course is the timing 0:17:16.280 --> 0:17:20.120 of when any block would would take place. Obviously we're 0:17:20.119 --> 0:17:23.159 in an election year in the US, and there's a 0:17:23.200 --> 0:17:26.639 lot of political capital now going to go into scrutinizing 0:17:26.880 --> 0:17:31.720 this deal. And we've seen already Senator Elizabeth Warren of 0:17:31.760 --> 0:17:35.639 course come out quite quickly and make some quite clear 0:17:35.680 --> 0:17:41.320 comments on Twitter to raise the argument about how this 0:17:41.480 --> 0:17:46.320 not only threatens financial stability and reduces competition, she said, 0:17:46.359 --> 0:17:51.639 but raises costs for Americans. Is a is a typical 0:17:52.680 --> 0:17:56.000 kind of language that you would expect to get this 0:17:56.119 --> 0:17:59.359 into the political discourse to try and examine some of 0:17:59.359 --> 0:18:02.560 the issues that we have. So the next few months 0:18:02.560 --> 0:18:06.000 will be will be crucial. But the timing whether this 0:18:06.119 --> 0:18:10.200 ends up getting postponed and is a post election decision 0:18:10.280 --> 0:18:12.800 or not, I think is crucial. There's obviously so many 0:18:12.840 --> 0:18:15.760 hurdles still to get through, so this could still drag 0:18:15.800 --> 0:18:16.960 on for quite some time. 0:18:17.080 --> 0:18:19.720 I think the strategy is also interesting. If you're Capital One. 0:18:19.920 --> 0:18:22.080 Up until this point, you've been catering to a lot 0:18:22.080 --> 0:18:26.040 of some subprime borrowers. This is an opportunity because Discover 0:18:26.200 --> 0:18:30.119 is traditionally kind of gone after those of kind of 0:18:30.160 --> 0:18:32.840 a higher credit quality. But one of the things that 0:18:32.840 --> 0:18:35.720 I think is equally as interesting here is that Discover 0:18:35.880 --> 0:18:39.000 has kind of put itself in a very weak situation. 0:18:39.080 --> 0:18:42.320 I mean, I think the stock has been decimated over 0:18:42.359 --> 0:18:44.840 a period of time. There were a lot of concerns 0:18:44.880 --> 0:18:49.920 here about management, and I'm wondering whether or not Capital 0:18:49.920 --> 0:18:53.920 one is basically capitalizing on another company's weakness. 0:18:55.160 --> 0:18:59.000 Well that could that could be a lot of truth 0:18:59.000 --> 0:19:02.199 in that, and you see that often with with M 0:19:02.240 --> 0:19:06.879 and A transactions, where you know the company being acquired 0:19:06.960 --> 0:19:09.040 has been through quite some turmoil. 0:19:09.240 --> 0:19:12.760 And so the advertised kind of premium on this deal is, 0:19:12.800 --> 0:19:16.040 you know, about thirty percent of that closing price on 0:19:16.080 --> 0:19:18.680 February sixteen, But of course you look at what's been 0:19:18.680 --> 0:19:21.240 happening to that stock and it's it's pretty clear the 0:19:21.280 --> 0:19:25.760 position that they are in. So so yes, I think 0:19:25.800 --> 0:19:29.760 there's a large degree of truth in that analysis that 0:19:29.800 --> 0:19:32.040 they are. You know, Capter one is coming in at 0:19:32.040 --> 0:19:36.919 at a time of real weakness for the company that 0:19:36.920 --> 0:19:41.240 they're buying. But of course there may still be you know, 0:19:41.240 --> 0:19:44.160 a number of synergies, a number of kind of things 0:19:44.160 --> 0:19:47.080 that they can do to to for a long term 0:19:47.200 --> 0:19:49.680 shareholder for that still to be very very rewarding. 0:19:50.440 --> 0:19:53.560 Discoverer has struggled in trying to compete with Visa, mag 0:19:53.640 --> 0:19:57.639 to card Let alone someone like American Express. So this 0:19:58.040 --> 0:20:00.880 would seem to be you know, almost stroke of genius 0:20:00.920 --> 0:20:04.720 in the sense that the two together could be a 0:20:04.760 --> 0:20:08.320 formidable competitor to the other two. And I wonder whether 0:20:08.400 --> 0:20:11.240 that runs a little counter to the kind of knee 0:20:11.320 --> 0:20:14.520 jerk reaction that we saw from Shert Brown and Elizabeth Warren. 0:20:14.960 --> 0:20:19.240 They couldn't possibly have had time to analyze, you know, 0:20:19.280 --> 0:20:22.000 the impact on the marketplace. You have a duopoly, a 0:20:22.080 --> 0:20:25.359 virtual duopoly now with Master Garden Visa on the processing 0:20:25.520 --> 0:20:28.600 it even Capital One has to run its processing through them, 0:20:30.240 --> 0:20:33.320 Like you said, maybe some time, maybe some cooler heads. 0:20:34.160 --> 0:20:36.520 Well indeed, and I think there that goes to the 0:20:36.560 --> 0:20:38.800 heart of this. There's a lot of nuance in the 0:20:39.080 --> 0:20:43.199 analysis of the competition here. So there's a number of 0:20:43.200 --> 0:20:45.760 different things at play, and of course the distribution element 0:20:45.920 --> 0:20:51.159 for discovery is key. But how this addresses or changes 0:20:51.200 --> 0:20:55.600 the competitive landscape in the different sectors of the economy 0:20:55.600 --> 0:20:57.840 in which these companies operate, I think is key. It's 0:20:58.000 --> 0:21:01.440 a it's not kind of a one size fits all 0:21:01.560 --> 0:21:04.320 competition argument. There's lots of nuance and there's lots of 0:21:04.400 --> 0:21:08.359 kind of detail in there. And indeed, the quick response 0:21:08.400 --> 0:21:11.919 that we saw from some of these politicians speaks to 0:21:11.960 --> 0:21:15.040 that idea that you raise that perhaps maybe we haven't 0:21:15.080 --> 0:21:17.200 gone through the detail. Let's just take a step back, 0:21:17.440 --> 0:21:20.639 let's analyze really what this could do to the competitive 0:21:20.680 --> 0:21:24.560 landscape before reaching a conclusion whether this is anti competitive 0:21:24.640 --> 0:21:24.879 or not. 0:21:25.160 --> 0:21:27.880 I think that's very interesting also because Dick Durbin, i think, 0:21:28.000 --> 0:21:30.240 is trying to move forward the legislation on the Senate 0:21:30.320 --> 0:21:35.280 side to foster competition among credit card networks. To Bryan's point, 0:21:35.359 --> 0:21:37.720 right now, right that is pretty much controlled by Visa 0:21:37.760 --> 0:21:38.480 and MasterCard. 0:21:38.640 --> 0:21:39.840 Yeah, it's a very good point. 0:21:41.000 --> 0:21:43.920 Yeah, absolutely, Yeah, And you know, there there's a long 0:21:44.040 --> 0:21:47.360 term these are things that will have long term impact 0:21:47.400 --> 0:21:51.280 on this sector. So we shouldn't jump too quick conclusions. 0:21:51.320 --> 0:21:54.480 We should really look at the detail and examine just 0:21:54.640 --> 0:21:58.080 how this will impact the sector and how this will 0:21:58.080 --> 0:22:02.480 play out, because ultimately, consumers need to feel that they 0:22:02.520 --> 0:22:06.400 would benefit from this long term, that that they need, 0:22:06.440 --> 0:22:08.879 they need that kind of sense of comfort for this 0:22:08.960 --> 0:22:09.720 deal to get done. 0:22:10.680 --> 0:22:13.479 I guess the response in the marketplace, and you know, 0:22:13.520 --> 0:22:17.320 you have investors really running through the numbers, and it does. 0:22:17.400 --> 0:22:20.560 It does inform a little master guard down three and 0:22:20.600 --> 0:22:24.680 a half percent, Visa down as well, Discover up. So obviously, 0:22:24.760 --> 0:22:27.840 you know, it looks like it's almost like a Knight 0:22:27.880 --> 0:22:30.359 in shining armor coming to the rescue. A Discover gained 0:22:30.640 --> 0:22:34.720 twelve point six percent and for Capital one, well little changed. 0:22:35.200 --> 0:22:37.639 So what do you read into some of these stock 0:22:37.720 --> 0:22:39.679 price movements, Adam Well, I. 0:22:39.640 --> 0:22:41.560 Think some of those moves are bigger than others. Right, 0:22:41.600 --> 0:22:45.440 So the Discovery twelve thirteen percent or so moves is 0:22:45.480 --> 0:22:47.720 pretty clear. We probably don't need to say that much 0:22:47.760 --> 0:22:50.960 about that. But the you know, some of the Visa 0:22:50.960 --> 0:22:55.120 one you mentioned that there's small moves really that they're 0:22:55.160 --> 0:22:59.680 not they're not. They don't appear to me to suggest 0:22:59.720 --> 0:23:02.720 that this is an investor base that has decided that 0:23:02.800 --> 0:23:06.359 this is definitely a net negative for MasterCard in any 0:23:06.359 --> 0:23:10.320 meaningful way. So I think you should just pause for 0:23:10.400 --> 0:23:14.400 thoughts slightly and just understand what these stocks do over 0:23:14.440 --> 0:23:16.639 the coming days earning it's all been decided in the 0:23:16.640 --> 0:23:17.440 most recent trait. 0:23:17.680 --> 0:23:20.720 Hi, Adam, thanks so much. Adam, Hey, Bloomberg Finance. 0:23:20.440 --> 0:23:21.280 Editor with US Live. 0:23:21.840 --> 0:23:24.760 This has been the Bloomberg Daybreak Asia podcast, bringing you 0:23:24.840 --> 0:23:27.960 the stories making news and moving markets in the Asia Pacific. 0:23:28.440 --> 0:23:31.560 Visit the Bloomberg Podcast channel on YouTube to get more 0:23:31.600 --> 0:23:35.199 episodes of this and other shows from Bloomberg. Subscribe to 0:23:35.240 --> 0:23:39.040 the podcast on Apple, Spotify, or anywhere else you listen 0:23:39.119 --> 0:23:42.200 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:23:42.240 --> 0:23:43.320 Bloomberg Business app.