Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: There's no one better to talk to than Michael Roberts,
Speaker 2: CEO of HSBC, a bank and CEO of the Corporate
Speaker 2: and Institutional Bank at the Region. I'm just curious, given
Speaker 2: the fact that HSBC and welcome is such a central
Speaker 2: bank in both trade as well as in both China
Speaker 2: and in the West, how significant do you see this
Speaker 2: latest eruption of trade tensions between the US and China.
Speaker 2: Does this feel different?
Speaker 1: Yeah? No, First of all, thank you for having me today. Look,
Speaker 1: I think the world has got used to a lot
Speaker 1: of these tariff changes, although certainly this newest round is
Speaker 1: yet another bit of unpredictability. I think companies have been
Speaker 1: now looking for different ways to manage their supply chains.
Speaker 1: We have a survey that we did right after Liberation
Speaker 1: Day which I think still hold trues today. We surveyed
Speaker 1: five thousand clients, so big survey, and they all said
Speaker 1: why and all of these tariffs are going to cause
Speaker 1: a lot of issues. Prices will go up to Most
Speaker 1: of now are looking at their supply chains. In the word,
Speaker 1: I think supply chain has now come to be one
Speaker 1: of the probably the most discussed terms in e C
Speaker 1: suite today. And thirdly, they're going to change and they
Speaker 1: may even change business models. So this next round, this
Speaker 1: current round, I think, just tells you that they're going
Speaker 1: to have to significantly change what that is because one
Speaker 1: hundred percent tariffs, you can't absorb one hundred percent tariffs,
Speaker 1: So that means there'll be a greater acceleration to where
Speaker 1: those new supply chains will be. However, it is been
Speaker 1: a bit of a whack a mole because you have
Speaker 1: to constantly look at where the next tariffs will come from,
Speaker 1: and that's been a challenge to many companies. They really
Speaker 1: have to figure out what is the least vulnerable place
Speaker 1: they can be or the most tariff proof place they
Speaker 1: can be, and how do they then export into the
Speaker 1: US or freightly anywhere to make sure that they can
Speaker 1: do so as effectively as possible.
Speaker 2: How much of the extra costs from tariff's been realized,
Speaker 2: not just tariffs but also the rejiggering of supply chains.
Speaker 1: Yeah, so rule of thumb, when I've talked to most people,
Speaker 1: probably seventy eighty percent is born by some the producer
Speaker 1: versus the importer. The last twenty percent analysis starting to
Speaker 1: seep into in buyer, the customer. I think most are saying,
Speaker 1: we can't continue to absorb that much additional costs as
Speaker 1: the importer or the distributor. Therefore it will start shifting
Speaker 1: more and more to the end buyer, the client, or
Speaker 1: the customer. So that there's been a I think it's
Speaker 1: strong effort, however, to try to absorb as much as possible.
Speaker 1: So I talked to a retailer, high fashion retailer saying,
Speaker 1: me and distributor or the producer out of the Asia,
Speaker 1: and me as the distributor, are absorbing as much as
Speaker 1: we possibly can. We understand we could do that, but
Speaker 1: it will come to an end.
Speaker 2: So John and Amory we're talking to FED Governor Chris
Speaker 2: Waller and about the balance between inflation and the labor market,
Speaker 2: and there's this feeling that any kind of inflation is
Speaker 2: going to be short lived and the effect on the
Speaker 2: labor market could potentially be initi Are you seeing that
Speaker 2: companies instead of raising prices, laying off workers or trying
Speaker 2: to revert to artificial intelligence to bridge the gaps.
Speaker 1: Not yet, However, there is a lot of cost pressures.
Speaker 1: I think there's a delay, a lot of investments. I mean,
Speaker 1: that's the flip side of that, because I do think
Speaker 1: people want predictability. The companies need to understand where they're
Speaker 1: going to put down a lot of capital, that that
Speaker 1: capital is going to produce good returns because more predictability.
Speaker 1: I've seen slowing of hiring, but not real firing today,
Speaker 1: and so that's kind of again the flip side of
Speaker 1: that coin. But really it's the capital and the investments
Speaker 1: that you're starting to see slow down quite a lot.
Speaker 2: Meanwhile, we've heard a lot here at the meetings in Washington,
Speaker 2: d C. At a number of themes AI, which we'll
Speaker 2: get to any second, but also this question around credit
Speaker 2: froth and an AI related bubble. How much are you
Speaker 2: getting concerned akin to what JP Morgan's been talking about,
Speaker 2: of a real turn in the credit cycle or some
Speaker 2: sort of later innings that give you pause and make
Speaker 2: you more cautious.
Speaker 1: Yeah. Look, I do think this is not the first
Speaker 1: instance of what is inventory financing fraud, which is essentially
Speaker 1: selling you know, or using the same bit of inventory
Speaker 1: to finance multiple times. We've seen that in Europe a
Speaker 1: couple of times as well in the last say nine months.
Speaker 1: So I am more concerned and something that we're very
Speaker 1: focused on. So in fact, we're using technology we developed
Speaker 1: in our trade business and using it throughout all of
Speaker 1: our lending platforms now to try to go through and
Speaker 1: be very specific that everything we finance is good collateral,
Speaker 1: it doesn't have multiple leans on top of it, which
Speaker 1: is really what happened to First Brands. It's tough to do,
Speaker 1: and I think, you know, the fraustaters are getting better
Speaker 1: at it, so we're going to have to respond to
Speaker 1: being much better on due diligence. You know, we were
Speaker 1: not involved obviously directly in First Brands, so don't know
Speaker 1: how much due diligence was done, but I think these
Speaker 1: type of financing arrangements are going to require much more
Speaker 1: due diligence, much greater technology, much more specific understanding exactly
Speaker 1: what you're financing.
Speaker 2: The other aspect has been just sort of how much
Speaker 2: AI has actually boosted productivity, boosted profitability versus been a
Speaker 2: real call center for the most part. Ken Griffin came
Speaker 2: out of Citadel saying that he's not seeing evidence that
Speaker 2: AI programs can really make an edge in financial markets.
Speaker 2: I know that HSBC has been big and quantum computing
Speaker 2: and has this test. Are you seeing real gains? Are
Speaker 2: you actually deploying quantitative strategies from quantitative computing on your
Speaker 2: trading floors.
Speaker 1: Yeah. So, just for those who don't know, we had
Speaker 1: a partnership still do with IBM. We developed quantum computing
Speaker 1: really for financial markets, focusing on the bond market, and
Speaker 1: we use both quantum computing and more traditional computing, brought
Speaker 1: them together, changed the way we look at data. There's
Speaker 1: a thing called representation data that we actually flipped into
Speaker 1: a more of a quantum computing type of mode. That
Speaker 1: led to a thirty four percent improvement in our ability
Speaker 1: to predict a trade. So if you were going to
Speaker 1: make a trade, we get to understand that trade thirty
Speaker 1: four percent better. To see the matching between buyer and
Speaker 1: seller is really what it comes down to. So that
Speaker 1: was very effective. It's an initial study. We did how
Speaker 1: we we're tested on multiple comtmcuting machines, we did all
Speaker 1: the statistical analysis, so we really do think there's something there.
Speaker 1: It can be used for any traded asset, So any
Speaker 1: asset class. I think the power that that brings is
Speaker 1: going to give an edge. I don't know how it
Speaker 1: wouldn't give it edge, but I think it'll be once
Speaker 1: we roll it out, another's roll it out, they'll be
Speaker 1: quick adoption by I think the industry. I mean, it's
Speaker 1: is the same industry that tries to reduce latency to
Speaker 1: its smallest possible amount. So I do think technology does
Speaker 1: bring a substantial edge.
Speaker 2: Do you think it's going to replace traders that?
Speaker 1: I don't know. I mean, I think they always be
Speaker 1: humans involved, But I think it'll help traders quite a lot.
Speaker 1: And I think it'll change really the way traders think
Speaker 1: about it because when you have that much compute power
Speaker 1: and you could really use it. I think today, you know,
Speaker 1: we use a lot ai as you said, through algo
Speaker 1: rhythmic trading. This will just be one more substantial boost
Speaker 1: to the power of a rhythmic trading that we see today.
Speaker 1: So will it be less traders? Don't know? But are
Speaker 1: they going to have powerful machines? Definitely.
Speaker 2: So the other theme here, and this is something that
Speaker 2: comes up in pretty much every conversation, is the debasement
Speaker 2: of the dollar and this question of how much the
Speaker 2: dollar is losing its heft as a reserve currency internationally.
Speaker 2: Do you see any signs that people truly are moving
Speaker 2: away from the green back.
Speaker 1: Yeah, that's great question. So I happen to be traveling
Speaker 1: to Asia right after Liberation Day, and I would say
Speaker 1: that was probably the number one conversation that I was
Speaker 1: having by very big, very sophisticated large holders of dollars,
Speaker 1: and they were quite focused on this idea of dedollarization
Speaker 1: or debasement of the dollars of reserve currency. And the
Speaker 1: mere fact that they're talking about it and the terms
Speaker 1: they were tells you something is different. Now. If you
Speaker 1: look at where the dollar is today, trade flows reserves
Speaker 1: the primary currency of invoicing for most commercial flows, the
Speaker 1: markets flows, it's all well more than fifty percent, it's
Speaker 1: you know, sixty seventy eighty percent in all those various metrics.
Speaker 1: It will take a long time to find another reserve currency.
Speaker 1: And the other biggest question is if you're going to
Speaker 1: go away from dollars, what are you going to do?
Speaker 1: And you know what will be that reserve currency that
Speaker 1: replaces it? There is no other alternative today. And so
Speaker 1: that's the twin issues that you have. The conundrum, maybe
Speaker 1: go away from dollars, but what are we going to
Speaker 1: go to instead?
Speaker 2: To wrap it all up, there is this feeling that
Speaker 2: the center of finance has shifted, and it's not so
Speaker 2: clearly in the United States, and something that you've been
Speaker 2: focusing a lot. How do you see the sort of
Speaker 2: tentacles of finance in terms of where they are flowing
Speaker 2: from transforming really over the past.
Speaker 1: Couple of years. Yeah, No, I think there's significant transformation
Speaker 1: going on. And if you think there was a unipolar
Speaker 1: world with the US right in the middle of it,
Speaker 1: still is. And you know, the US capital market is
Speaker 1: the most liquid of the world, still the dominant place
Speaker 1: to trade. However, you need to look at where trade
Speaker 1: and commercial flows are going, where financial flows are going.
Speaker 1: I would look between the Middle East and Asia as example,
Speaker 1: substantial increase of flows between those two regions. And they're
Speaker 1: not flows that are necessarily coming from the West just
Speaker 1: being transhipped through those reasons. They're actually wealth and that
Speaker 1: is being rechanneled in that region assel. I think you'll
Speaker 1: see that more and more. I think you'll see Asia
Speaker 1: Middle East coming together more and more, and I think
Speaker 1: you'll have a much more balanced equation. I don't think
Speaker 1: there'll be as a dominant source of financial flows that
Speaker 1: you've seen before, and you know, great for us because
Speaker 1: we have to be very strong in those two regions.
Speaker 1: But I do think people need to understand that there's
Speaker 1: a significant change going on and those flows will not
Speaker 1: just go through New York as they used to in
Speaker 1: the past.
Speaker 2: Michael Roberts, thank you so much for taking the time.
Speaker 2: Really wonderful to speak with you and John. That was
Speaker 2: Michael Roberts of HSBC, and some of the key topics
Speaker 2: here in the idea of how much that financial center
Speaker 2: has shifted