WEBVTT - Expectations For Airlines As Earnings Take Off 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.360 at Bloomberg dot com slash podcast. Well, we had American 0:00:22.400 --> 0:00:27.080 airlines report numbers today, smaller than expected loss uh. Cautiously 0:00:27.120 --> 0:00:31.160 optimistic about a continued recovery, UH, particularly in domestic That's 0:00:31.200 --> 0:00:33.240 a little bit better than what we heard from Delta 0:00:33.280 --> 0:00:35.760 Airlines and United, and I think offered maybe a little 0:00:35.760 --> 0:00:39.280 bit more caution here about the rebound in the airline business. 0:00:39.360 --> 0:00:42.360 Let's dig a little bit deeper in the airline business. 0:00:42.400 --> 0:00:45.199 We welcome Frank Homes, CEO and Chief Investment Officer of 0:00:45.440 --> 0:00:48.199 US Global Investors. Uh. Frank, I know you have a 0:00:48.240 --> 0:00:52.400 lot of experience with all things aviation aeronautics. You've got 0:00:52.400 --> 0:00:55.640 your E T F J E T S, E T 0:00:55.800 --> 0:00:57.360 F SO a lot of experience there, Frank, What are 0:00:57.400 --> 0:00:59.640 you taking away here from what we've heard from some 0:00:59.680 --> 0:01:03.040 of the big US airlines. Well, talking to you in 0:01:03.080 --> 0:01:05.240 New York is the Jets et f It's not the 0:01:05.319 --> 0:01:10.440 Jets football team, that's right, And uh, I think the 0:01:10.480 --> 0:01:13.760 big part is what happened last year in March the 0:01:13.840 --> 0:01:17.280 t s A started publishing daily and you get on Bloomberg. 0:01:17.360 --> 0:01:20.280 Is a nice functionality of how many people the t 0:01:20.560 --> 0:01:23.679 s A clear and prior to COVID it was two 0:01:23.760 --> 0:01:27.000 point seven million people a day. Two million people a 0:01:27.080 --> 0:01:31.120 day were just domestic travel. Seven hundred thousand were inbound 0:01:31.200 --> 0:01:35.399 from Europe, Asia and Latin America. That number fell down 0:01:35.440 --> 0:01:38.920 to in April mid April last year down to less 0:01:38.920 --> 0:01:43.080 than ninety people a day. Now what we've seen is 0:01:43.120 --> 0:01:47.560 a huge surge over a million, three million, four a 0:01:47.680 --> 0:01:51.320 day now flying and and as that daily published, the 0:01:51.480 --> 0:01:54.920 longer stays up of that number, the faster the airlines 0:01:55.000 --> 0:01:58.920 can get to break even. The business traveler is not 0:01:59.120 --> 0:02:03.240 going to come in great numbers until the until most 0:02:03.280 --> 0:02:07.160 of the population is vaccinated. So the triangulation do you 0:02:07.160 --> 0:02:09.560 want to take a look at it is what is 0:02:09.639 --> 0:02:14.760 the penetration of of the population being vaccinated. Creed's got 0:02:14.840 --> 0:02:18.600 confidence for travel. The first big movement has been tourists 0:02:18.600 --> 0:02:21.960 can wait. The airlines have reinvented where they fly to, 0:02:22.400 --> 0:02:25.320 like San Antonio to Miami and I'm based in San Antonio. 0:02:25.680 --> 0:02:28.760 Used to be NonStop every morning American airlines, it's not 0:02:28.960 --> 0:02:32.760 doing it southwest to Fort Lauderdale. You're seeing all this 0:02:33.080 --> 0:02:37.200 reconfiguration of taking people from north to south, and the 0:02:37.240 --> 0:02:40.160 airlines have been able to move people for tourism. That 0:02:40.360 --> 0:02:43.160 business traveler is going to wait and probably what I 0:02:43.200 --> 0:02:47.680 think is until about six people have had their second 0:02:47.720 --> 0:02:52.200 needle uh for the vaccine process, that conference will then 0:02:52.240 --> 0:02:54.120 see it. I mean, I love that you brought up 0:02:54.160 --> 0:02:56.240 the business travel. Correct me if I'm wrong, But we 0:02:56.320 --> 0:02:59.360 think that the business travel is a higher profitable, better 0:02:59.560 --> 0:03:04.120 margin and traveler than the leisure traveler going on vacation. 0:03:04.280 --> 0:03:06.640 What does that mean then for the composition of the 0:03:06.680 --> 0:03:10.360 margin mix of the profitability for these airlines they're looking 0:03:10.400 --> 0:03:15.200 to get back to being profitable. It explodes, you know, 0:03:15.240 --> 0:03:17.880 it's it's massive. And the other big part that the 0:03:17.919 --> 0:03:21.280 real big wind will be Europe when Europe finally gets 0:03:21.280 --> 0:03:24.560 his act together and getting more people vaccinated and travel 0:03:24.600 --> 0:03:27.799 opens up over there. Because jess As is a global 0:03:27.880 --> 0:03:33.280 airlines index um that recalibrates every quarter and picking those 0:03:33.320 --> 0:03:36.680 with the strongest financial stocks. So I think that the 0:03:36.760 --> 0:03:40.640 big opportunities will be business travels. More people vaccinate here 0:03:41.000 --> 0:03:44.840 and Europe opens up this summer. UH, this will busial 0:03:44.960 --> 0:03:48.920 fast track the profitability of the airlines from both business 0:03:48.960 --> 0:03:53.440 travel and international travel. The tickets are much more profitable 0:03:53.800 --> 0:03:58.640 across the pond travel Franks or is there still a 0:03:58.760 --> 0:04:02.440 risk for some of these carriers here. Um, you know, 0:04:02.520 --> 0:04:08.440 they really can't have stained profitability without um, their international travel, 0:04:08.480 --> 0:04:12.120 without their business travel. And again we're seeing some pandemic numbers, 0:04:12.240 --> 0:04:14.480 most notably today out of India that are just really 0:04:14.520 --> 0:04:17.920 going the wrong way. Um. Is there still that cloud 0:04:17.960 --> 0:04:21.120 hanging over whether these companies can survive, particularly those with 0:04:21.480 --> 0:04:26.120 you know, UH more leverage balance sheets. Well, it's a 0:04:26.160 --> 0:04:28.159 great question. But I think what we've seen is the 0:04:28.240 --> 0:04:33.120 capital markets have been so fluid UH and in raising 0:04:33.160 --> 0:04:38.000 capital it's been inexpensive, and there's new mechanisms from UH 0:04:38.040 --> 0:04:40.440 and at the market mechanism a t M, they call 0:04:40.520 --> 0:04:45.800 it ability to raise capital. We've seen price discovery explode 0:04:45.839 --> 0:04:48.560 in the past year with all the robin Hood investors 0:04:48.600 --> 0:04:54.400 that coming in, and and that liquidity attracts other bigger 0:04:54.480 --> 0:04:57.960 fund managers and institutions. So I think the system is 0:04:58.000 --> 0:05:03.159 a Washwood capital and I don't think it's it's it's 0:05:03.279 --> 0:05:07.080 easy to see how fast facts are exploding. Uh And 0:05:07.080 --> 0:05:11.400 and the capital markets are to be very exciting for investors. 0:05:11.440 --> 0:05:13.640 And I think we're going to continue to see more 0:05:13.680 --> 0:05:16.400 capital formation by these airlines be able to tap those 0:05:16.440 --> 0:05:20.239 complo markets. Curveball here, we're going to go from jets 0:05:20.360 --> 0:05:23.560 into bitcoin. What the heck are your clients asking you 0:05:23.640 --> 0:05:29.040 about bitcoin and the shake out below fifty? Well, you know, 0:05:29.080 --> 0:05:32.920 I launched the first public company to mind cryptocurrencies. It's 0:05:32.920 --> 0:05:37.960 called high Blockchain Technology, and uh it minds e theorum 0:05:37.960 --> 0:05:41.520 and bitcoin. I think that the bitcoin is going through, 0:05:41.839 --> 0:05:45.320 uh it's it's sort of normal, big correction. I think 0:05:45.400 --> 0:05:49.840 it's temporary. You're seeing more and more adoption PayPal venmo. 0:05:50.600 --> 0:05:52.839 People can go on and buy a fraction of bitcoin. 0:05:52.880 --> 0:05:55.640 They don't have to worry about fifty five thousand dollars spending. 0:05:55.880 --> 0:05:59.720 They can buy five thousand dollars. Uh And And and 0:05:59.760 --> 0:06:02.240 as you get more and more people adopting to this, 0:06:02.880 --> 0:06:06.400 now thirty five million going to forty million, they call wallets. 0:06:06.560 --> 0:06:10.920 Uh And, you have a limited supply Metcalf's law suggests 0:06:11.120 --> 0:06:13.799 if it goes to a hundred thousand, So I've always 0:06:13.839 --> 0:06:17.680 advocated a two percent waiting in that asset class is 0:06:17.720 --> 0:06:20.400 an alternative asset class. You can do it through the 0:06:20.440 --> 0:06:23.760 cryptical mining companies, or you could do it directly. You 0:06:23.839 --> 0:06:26.760 can't buy stocks on your Bend Moore account, and you 0:06:26.800 --> 0:06:30.720 can't buy on PayPal, but you can buy bitcoin and 0:06:30.720 --> 0:06:36.279 and that is a very important long term adoption. Frank Holmes, CEO, 0:06:36.400 --> 0:06:39.640 Chief investment officer for US Global Investors, thank you so 0:06:39.720 --> 0:06:43.080 much for joining us today getting the report Paul on 0:06:43.440 --> 0:06:46.960 jets airlines and bitcoin as coin base it ees a 0:06:47.040 --> 0:06:49.440 three hundred level at a three oh six. Yeah, I know. 0:06:49.560 --> 0:06:51.880 It's it's interesting the volatility in bitcoin, which is a 0:06:51.920 --> 0:06:54.760 big driver of coin base, is with us and this 0:06:54.800 --> 0:06:57.880 Franco suggesting maybe that's just a regular form of a 0:06:58.120 --> 0:07:01.240 correction in that currency. So we'll more coming up. This 0:07:01.839 --> 0:07:08.320 is Bloomberg, all right. We got the leading economic indicator 0:07:08.440 --> 0:07:10.440 data point for the month of March came in at 0:07:10.720 --> 0:07:13.239 uh where did it come in at one point three 0:07:13.840 --> 0:07:16.560 uh percent? Um? You know better than a one percent? Look, 0:07:16.640 --> 0:07:20.200 so we had the the actual economic indicator increased one 0:07:20.200 --> 0:07:22.280 point three percent came in and one eleven point six 0:07:22.520 --> 0:07:24.920 that's pretty good. That follows a one zero point one 0:07:24.920 --> 0:07:28.480 percent decrease in February. So pretty strong numbers coming out 0:07:28.560 --> 0:07:30.640 of the month of month of March for the U 0:07:30.680 --> 0:07:32.960 S economy. Let's dig down a little bit deeper. We 0:07:33.000 --> 0:07:36.280 will do that with Ottoman Oldrum, Senior Director Economics and 0:07:36.320 --> 0:07:40.200 Global Research Chair at the Conference Board. So Aduman, thanks 0:07:40.200 --> 0:07:42.200 so much for joining us. Once again, pretty good numbers 0:07:42.200 --> 0:07:43.760 in March. Is that just kind of a catch up 0:07:43.800 --> 0:07:49.120 from what was a tough winter month in February. Good morning, Paul, 0:07:49.160 --> 0:07:53.640 great to be here. Uh, yeah, the Leading Indicators had 0:07:53.760 --> 0:07:58.240 quite a positive report this morning. Um if February was 0:07:58.440 --> 0:08:03.400 slightly uh negative, revised down a little bit. So it 0:08:03.520 --> 0:08:06.760 was a rough sort of winter months in the beginning 0:08:06.880 --> 0:08:09.760 of the year. So part of this is catch up, 0:08:09.800 --> 0:08:13.560 but it really is also the continuation of the positive 0:08:13.840 --> 0:08:19.600 momentum that the leading index had been building since you know, 0:08:19.680 --> 0:08:21.760 say the middle of last year. You know, with the 0:08:21.800 --> 0:08:26.440 reopening of the economy, um and more good news is 0:08:26.520 --> 0:08:30.160 kind of feeding into the economy and the leading indicators 0:08:30.440 --> 0:08:33.440 looking ahead. Now. I think what really stood out to 0:08:33.440 --> 0:08:39.120 me is that all ten components are contributedly contributing positively. 0:08:39.240 --> 0:08:41.400 What are those ten components? What are you seeing that 0:08:41.559 --> 0:08:46.280 is really leading this recovery? Yes, so that is very 0:08:46.320 --> 0:08:51.360 good news. Indeed, so all ten components are contributing positively. 0:08:51.720 --> 0:08:55.199 There are really kind of five areas that are grouped 0:08:55.240 --> 0:08:58.840 together in this leading index. Uh and uh so those 0:08:58.880 --> 0:09:04.560 are you know, labor mark, hits, manufacturing, consumers outlook, construction, 0:09:04.800 --> 0:09:10.600 and financial indicators, and all areas are flashing very positive. Um. 0:09:10.960 --> 0:09:15.080 So you in the program, you mentioned unemployment insurance claims. 0:09:15.160 --> 0:09:17.679 That is one of the components. Uh, and it is 0:09:17.720 --> 0:09:22.280 continuing to drop uh and feeding into those positive contributions. 0:09:22.679 --> 0:09:25.959 The good sign from labor markets and that really is 0:09:26.040 --> 0:09:30.560 kind of the beginning of a virtuous cycle that feeds 0:09:30.559 --> 0:09:35.400 on itself, right, and that's manufacturing orders are rising, Supply 0:09:35.520 --> 0:09:39.959 managers are very positive about the outlook. Consumers outlook is 0:09:40.000 --> 0:09:45.319 also become much more positive about the expectations. Uh and 0:09:45.640 --> 0:09:49.840 we would expect that to translate into more spending. Housing 0:09:49.880 --> 0:09:54.000 permits are increasing after the bad winter months. There's a 0:09:54.000 --> 0:09:58.560 pick up there. Um. And financial indicators are also feeding 0:09:58.600 --> 0:10:02.200 positively in the into the leading index. Autuman. You know 0:10:02.200 --> 0:10:04.680 it's kind of a weird paradox in the labor market. 0:10:04.720 --> 0:10:06.800 You know. What's we still have so many people unemployed, 0:10:06.880 --> 0:10:10.000 much higher than we would like, certainly economists would like. 0:10:10.559 --> 0:10:12.760 Yet what we hear from employers across the board as 0:10:12.800 --> 0:10:16.480 they're having a very difficult time filling positions, particularly on 0:10:16.559 --> 0:10:18.960 the lower end, and they often cite the fact that 0:10:19.000 --> 0:10:21.600 it's tough to compete against some of the government fiscal 0:10:21.600 --> 0:10:26.840 stimulus in terms of UH enhanced unemployment. How's that factoring 0:10:26.840 --> 0:10:28.760 into the economy? Is that a risk at all to 0:10:29.040 --> 0:10:34.080 kind of the reopening of this economy? So it is 0:10:34.120 --> 0:10:38.600 one of the potential risks as the economy kind of 0:10:38.679 --> 0:10:42.760 builds more momentum. UH. There is UH has been a 0:10:42.760 --> 0:10:46.040 lot of labor market disruption and UH. You know, it's 0:10:46.040 --> 0:10:50.080 not just in the macro top level numbers, but when 0:10:50.120 --> 0:10:52.800 you look at the detail of the different sectors that 0:10:52.880 --> 0:10:57.439 laid off workers, there's a lot of UH variety across 0:10:57.480 --> 0:11:03.360 different sectors. You know, some continued along UH and some 0:11:03.480 --> 0:11:06.600 really shed a lot of workers, which they're now trying 0:11:06.640 --> 0:11:09.719 to you know, higher back UH. And that sort of 0:11:10.200 --> 0:11:13.680 kind of perpetuates the disruptions that we've been seeing and 0:11:13.760 --> 0:11:18.640 that could the difficulty of finding and hiring workers could 0:11:18.720 --> 0:11:22.840 lead to you know, wage pressures uh in different sectors 0:11:22.920 --> 0:11:28.000 differentially and create even more disruptions in a way, kind 0:11:28.000 --> 0:11:31.240 of trying to move workers from one sector to another. 0:11:31.280 --> 0:11:33.800 It's not that easy and you'd have to pay them 0:11:33.800 --> 0:11:39.400 even higher and uh, and that difficulty in hiring could continue. 0:11:39.480 --> 0:11:42.560 And um, you know, my colleagues at the Conference Board 0:11:43.040 --> 0:11:47.439 have already started talking about labor shortages, you know, coming back. 0:11:47.800 --> 0:11:50.800 This is not something that we saw over the last year, 0:11:51.200 --> 0:11:53.920 and they may, indeed, you know, come back earlier than 0:11:54.320 --> 0:11:57.600 we might have expected. Yeah, it's a really interesting dynamic 0:11:57.640 --> 0:12:00.520 to what is an improving labor market. Au amount Uzel Drum, 0:12:00.720 --> 0:12:03.360 thank you so much for joining us. Automan is a 0:12:03.440 --> 0:12:06.960 director of Economic Research and Global Research Chair at the 0:12:06.960 --> 0:12:10.320 Conference Board. Again, the March leading Economic indicator came in 0:12:10.360 --> 0:12:12.719 with a growth rate of one point three percent. The 0:12:12.760 --> 0:12:15.679 consensus was one percent, so better than expected and his 0:12:15.760 --> 0:12:19.439 Ottoman was mentioning kind of across the board improvements, a 0:12:19.480 --> 0:12:21.480 little bit of catch up from the week winter months, 0:12:21.480 --> 0:12:26.000 but certainly a strong number. You know, Taylor, back in 0:12:26.040 --> 0:12:27.800 the day, I used to work at Credit Swiss or 0:12:27.800 --> 0:12:30.760 what was then known as Credit Swiss first Boston, so 0:12:30.800 --> 0:12:33.400 I tend to follow the company and for newsflow to 0:12:33.440 --> 0:12:36.120 see what's the latest there, and the boy, they've been 0:12:36.160 --> 0:12:39.400 in the news but for all the wrong reasons. Let's 0:12:39.440 --> 0:12:42.439 get the latest on Credit Swiss. We go to our 0:12:42.559 --> 0:12:47.200 ACE Banks analyst from Bloomberg Intelligence. That would be Alison Williams. 0:12:47.640 --> 0:12:50.200 She's been with Bloomberg Intelligence covering the banks. It's the 0:12:50.240 --> 0:12:52.800 beginning of Bloomberg Intelligence about twelve years ago. Before that, 0:12:52.840 --> 0:12:56.160 she was at Morgan Stanley Investment Management investing in a 0:12:56.160 --> 0:12:58.160 lot of these big banks. Allison, thanks so much for 0:12:58.240 --> 0:13:02.319 joining us here. Boy, it just seems like Credit Swisch 0:13:02.400 --> 0:13:05.040 just goes from minefield to mindfield and they just step 0:13:05.080 --> 0:13:08.160 on these minds all the time. Give us the latest 0:13:08.200 --> 0:13:09.800 on what's going on there and how they're trying to 0:13:09.880 --> 0:13:12.840 kind of get past it. I guess I think that 0:13:13.160 --> 0:13:16.520 the latest today UM a couple of key things. First 0:13:16.559 --> 0:13:19.839 of all, um, they did a convertible offering raising two 0:13:19.880 --> 0:13:23.079 billion of capital. I think that's I think that's a 0:13:23.200 --> 0:13:27.160 good step towards risk management, right because even though they 0:13:27.160 --> 0:13:29.480 had the capital to absorb the loss. I think this 0:13:29.520 --> 0:13:33.280 will help to study the ship it'll stop UM questions 0:13:33.280 --> 0:13:36.120 swirling around the positions, especially since we know that there's 0:13:36.160 --> 0:13:41.360 another UM arts charge related coming in next quarter. We 0:13:41.440 --> 0:13:46.600 know that there's probably a regulatory and legal fallout to come. UM. 0:13:46.760 --> 0:13:51.680 So granted it is dilutive to shareholders, but UM, but 0:13:51.760 --> 0:13:55.560 I think that UM it's it's smart from a risk 0:13:55.760 --> 0:13:59.800 management perspective. And then much of the other changes are 0:14:00.000 --> 0:14:02.600 exactly what you'd expect. They're going to be pulling back 0:14:02.800 --> 0:14:06.280 within the prime brokerage unit UM, cutting that business by 0:14:06.320 --> 0:14:08.680 about a third. They're going to be UM pulling which 0:14:08.720 --> 0:14:11.360 will result in you know, paring down at the investment 0:14:11.360 --> 0:14:16.000 bank balance sheet UM by about ten percent. UM. There's 0:14:16.040 --> 0:14:20.160 obviously been changes in management for the prime brokerage unit. 0:14:20.240 --> 0:14:23.680 The Preston Bank had the chief risk officer. Again UM, 0:14:23.760 --> 0:14:26.520 these are all things you'd expect. They continue to do 0:14:26.560 --> 0:14:30.040 a review UM and they continue to make progress UM 0:14:30.080 --> 0:14:32.360 in the asset management business related to some of the 0:14:32.400 --> 0:14:35.800 green Filly issues. You know, Allison, big picture, it's interesting 0:14:35.840 --> 0:14:38.440 the timing. I'm in a class right now called managing 0:14:38.640 --> 0:14:43.160 financial risk. We're learning how to calculate var and expected shortfall. 0:14:43.640 --> 0:14:46.920 Where were the var where were the risk parameters? Of 0:14:47.000 --> 0:14:52.680 credit suites that allowed this to happen. So UM. I 0:14:52.720 --> 0:14:55.360 think the most important lesson on var which hopefully you're 0:14:55.400 --> 0:14:58.440 also learning, is that it's a flawed measure and it's 0:14:58.520 --> 0:15:01.760 backwards looking. So bar is going to look, you know, 0:15:02.280 --> 0:15:05.880 um pretty ugly for Credit Sweee going forward. Although the 0:15:05.960 --> 0:15:09.360 interesting thing is that you know they this this generally 0:15:09.360 --> 0:15:12.200 would be considered a contra revenue item because but because 0:15:12.200 --> 0:15:14.920 of the size of the item um, they booked it 0:15:14.960 --> 0:15:17.720 as a charge and as a provision, so outside of 0:15:17.720 --> 0:15:20.200 their unit you know, in contrast to Morgan Stanley that 0:15:20.320 --> 0:15:25.440 absorbed it um within their revenue um. You know this 0:15:25.680 --> 0:15:28.040 The second part of it is, you know, tier point 0:15:28.160 --> 0:15:32.280 risk management and in these divisions, you know, there's there's 0:15:32.280 --> 0:15:35.280 generally all different types of tools by product, by client, 0:15:35.360 --> 0:15:37.320 by size of the exposure. And I think it's the 0:15:37.360 --> 0:15:40.800 size of the exposure versus the size of the unit 0:15:41.600 --> 0:15:46.800 um that that really UM was outsized because if you 0:15:46.840 --> 0:15:49.480 think about you know, Credit Sweee probably makes about a 0:15:49.520 --> 0:15:52.120 billion dollars a year for the last couple of years 0:15:52.120 --> 0:15:55.120 from prime BROKERA. It's it's our estimate that a five 0:15:55.160 --> 0:15:59.960 billion dollar UM loss on this client. You know, Morgan Stanley, 0:16:00.280 --> 0:16:03.920 um you know, is probably at least double that. They've 0:16:03.920 --> 0:16:06.880 made forty billion over the last ten years and they 0:16:06.920 --> 0:16:09.840 had a one million dollar loss, and and they're they're 0:16:09.920 --> 0:16:12.280 much bigger in the business and than Credit Suite. So 0:16:13.040 --> 0:16:16.200 it signals that perhaps, you know that this bank was 0:16:16.280 --> 0:16:19.320 taking outside risks. The question is, you know, were they 0:16:19.400 --> 0:16:22.960 were they taking outside risks in terms of the you 0:16:23.000 --> 0:16:25.600 know that just the exposure to this client, just trying 0:16:25.640 --> 0:16:28.880 to get bigger in the business. And then obviously there's 0:16:29.000 --> 0:16:31.880 um as I'm sure you know and has been um 0:16:32.040 --> 0:16:35.320 well discussed. There were specific issues the family office, the 0:16:35.400 --> 0:16:40.200 lack of transparency, etcetera, um that were sort of unique 0:16:40.200 --> 0:16:43.840 to the situation. Alison. You know, again, I've got a 0:16:43.880 --> 0:16:45.400 lot of history with this firm and and it just 0:16:45.400 --> 0:16:48.440 seems like there's there's always some big, big control issues, 0:16:48.520 --> 0:16:52.440 some big bad trades, big bad investments, charges all over 0:16:52.480 --> 0:16:56.400 the place. When did when does the board get held responsible? 0:16:56.400 --> 0:16:58.440 I mean, blowing out your investment banking chief and your 0:16:58.480 --> 0:17:02.240 chief risk officer. Okay, I get it, but what does 0:17:02.280 --> 0:17:04.680 the board take some responsibility here? Because it just seems 0:17:04.720 --> 0:17:08.800 systematic almost to this firm. Well, you know, one of 0:17:08.800 --> 0:17:12.840 the reasons why Credit Sweez was able to offset this 0:17:12.920 --> 0:17:16.639 loss was reduction and compensation. And you know one of 0:17:16.680 --> 0:17:19.920 the things that the bank did um when they had 0:17:19.960 --> 0:17:23.280 sort of flagged the initial or when I guess they 0:17:23.280 --> 0:17:26.399 first sized the four point four billion franc four point 0:17:26.560 --> 0:17:30.560 seven billion charge um turned out to be more, but 0:17:30.800 --> 0:17:34.320 they you know, went back and adjusted um, you know, 0:17:34.440 --> 0:17:38.359 executive compensation um for the years prior. And that's and 0:17:38.440 --> 0:17:41.879 that's something also that that's I guess relatively new to 0:17:41.920 --> 0:17:46.000 the industry, but you know, clawing back um compensation when 0:17:46.000 --> 0:17:50.199 when things like this happen. Yeah, interesting, just extraordinary to 0:17:50.200 --> 0:17:52.399 watch this happen. And again that two billion dollar convert 0:17:52.680 --> 0:17:56.440 offering um perhaps strengthen off that balance sheet. Allison Williams, 0:17:56.600 --> 0:17:58.639 thanks so much for joining us. Always appreciate getting your 0:17:58.640 --> 0:18:03.399 perspective on these global investment banks. Allison leads our banks 0:18:03.520 --> 0:18:07.879 coverage for Bloomberg Intelligence, the research arm of Bloomberg, and 0:18:08.119 --> 0:18:10.800 Boy Taylor just seems they can't get out of their 0:18:10.800 --> 0:18:12.439 own way. Sometimes I just need her to do my 0:18:12.520 --> 0:18:16.520 bar homework, Paul, That's the only thing I need exactly. Yeah, 0:18:16.560 --> 0:18:18.560 I mean she's had a lot of experience again, you know, 0:18:18.600 --> 0:18:21.320 investing in these banks. She knows all the management teams, 0:18:21.359 --> 0:18:23.679 she knows all the strategies, she knows where all the 0:18:23.680 --> 0:18:26.639 bodies are are buried in when you're looking at Credit 0:18:26.680 --> 0:18:30.159 Swiss again, just so many things to be wary of 0:18:30.320 --> 0:18:32.320 if you are investing in that company. But we'll have 0:18:32.359 --> 0:18:38.560 to see how it plays out. This is Bloomberg time 0:18:38.640 --> 0:18:42.000 for Bloomberg Opinion. Today we have Carl Smith. He's Bloomberg 0:18:42.000 --> 0:18:44.840 Opinion columnist for Bloomberg Opinion. He's kind of fascinating column 0:18:44.840 --> 0:18:49.720 here entitled repealing salt cap would be wrong move for Democrats. 0:18:49.760 --> 0:18:51.480 And then someone lives in the Metro New York area, 0:18:51.480 --> 0:18:54.600 one of those high tax areas that cap on the 0:18:54.760 --> 0:18:57.439 state and local taxes. Really hit home when you have 0:18:57.520 --> 0:19:00.280 followed the taxes, and uh, it's not just the Metro 0:19:00.320 --> 0:19:03.399 newerk areas, other high tax areas Taylor where that was 0:19:03.400 --> 0:19:06.040 a big issue. Paul. It's the only thing municipal bond 0:19:06.040 --> 0:19:08.440 investors care about right now. That's the only reason we're 0:19:08.440 --> 0:19:10.240 doing this story. They knew I was going to be 0:19:10.280 --> 0:19:12.560 on radio. They pushed Matt Miller out. No one in 0:19:12.600 --> 0:19:16.440 Berlin even knows what this is. Municipal bond investors only 0:19:16.480 --> 0:19:20.480 care about the salt repeal if it gets repealed or not. 0:19:20.640 --> 0:19:23.040 That cap deduction, Paul, I know it's big, it's big. 0:19:23.040 --> 0:19:24.760 It's something I bring up all the type. Carl, thanks 0:19:24.800 --> 0:19:27.200 so much for joining us here. I'd like to see 0:19:27.200 --> 0:19:32.800 the saltcap repealed. Why should Democrats not pursue that? Well, 0:19:32.840 --> 0:19:35.440 so it's understandable why a lot of people in you know, Mentro, 0:19:35.520 --> 0:19:38.879 New York and California high cost areas, UM took a 0:19:38.880 --> 0:19:40.879 big bite on that. But if we look at so 0:19:41.040 --> 0:19:45.520 the economics of the repeal, UM, it's it's pretty it's 0:19:45.520 --> 0:19:48.040 pretty regressive. So I think there's been some analysis that 0:19:48.160 --> 0:19:52.320 like on net, it's more regressive than the tax cuts 0:19:52.320 --> 0:19:54.680 and Jobs Acts work. That is, more of the benefits 0:19:54.680 --> 0:19:58.920 from salt cap repeal would go to UM top five 0:19:58.920 --> 0:20:01.639 per st of owners, top one sin of earners then 0:20:01.920 --> 0:20:06.600 went to that group during the TCJ altogether. So it's 0:20:06.600 --> 0:20:09.200 it's unusual for Democrats. And then it's a little bit 0:20:09.240 --> 0:20:13.399 more skewed towards UM higher earners and even sort of 0:20:13.400 --> 0:20:16.440 Republican tax policies. UM. So that's why I think it's 0:20:16.480 --> 0:20:18.840 kind of a kind of a bad fit for you know, 0:20:19.000 --> 0:20:23.119 where Democrats at least say their priorities are. UM. It 0:20:23.119 --> 0:20:25.919 also does take revenue, and we're in a we're in 0:20:25.960 --> 0:20:28.080 a place now where you know, the government has spent 0:20:28.119 --> 0:20:30.600 a lot of money, much of that was borrowed UM. 0:20:30.680 --> 0:20:33.120 The President Joe Biden, has indicated that he doesn't want 0:20:33.119 --> 0:20:35.480 to continue that, that he wants to fund most of 0:20:35.520 --> 0:20:38.399 the new initiatives, and so that's gonna take revenue. So 0:20:38.400 --> 0:20:40.520 if you want to do the big things on infrastructure, 0:20:40.760 --> 0:20:44.000 that's gonna take revenue. Saltcaps, so it takes away from that. 0:20:44.000 --> 0:20:46.080 I mean, few of those things can be done, and 0:20:46.119 --> 0:20:49.240 so it's kind of a policy that just doesn't fit 0:20:49.320 --> 0:20:52.000 with where the Democrats want to go and what they 0:20:52.000 --> 0:20:54.560 say their priorities are. I also think that it's it's 0:20:54.560 --> 0:20:57.480 not really popular with UM a lot of Republicans either, 0:20:57.480 --> 0:20:59.840 so it's kind of a loser on that side as well. 0:20:59.880 --> 0:21:01.880 I love that you bring up the fight between Democrats 0:21:01.920 --> 0:21:04.480 and Republicans, but then really and maybe more importantly, the 0:21:04.520 --> 0:21:06.600 fight within the Democratic Party. I mean, you think of 0:21:06.640 --> 0:21:08.639 the ao c s who say, no way, this is 0:21:09.000 --> 0:21:11.600 a loophole for the rich, and then you have maybe 0:21:11.600 --> 0:21:13.960 more moderates you're thinking the chuck humor saying we really 0:21:14.000 --> 0:21:16.399 need this to be included this repeal if we're going 0:21:16.440 --> 0:21:19.600 to get through this broader tax plan. What are the 0:21:19.680 --> 0:21:23.439 conversations within the Democratic Party about how they're going to 0:21:23.480 --> 0:21:28.280 get this done or not? Is this all just cultural politics? Yes? 0:21:28.359 --> 0:21:29.800 So I think that one of the one of the 0:21:29.840 --> 0:21:32.800 things that's made that's really complicated is that UM during 0:21:32.840 --> 0:21:36.480 tc J A, Republicans are looking for ways to fund 0:21:36.480 --> 0:21:40.160 the corporate tax cut UH, and something that economists really 0:21:40.160 --> 0:21:42.720 have pushed for a long time is capping or get 0:21:42.800 --> 0:21:44.760 rid of getting rid of the state and local tax 0:21:44.800 --> 0:21:49.920 deduction UM. We think that it's it basically subsidizes UH 0:21:50.040 --> 0:21:53.000 states that have high levels of taxation, and there's no 0:21:53.040 --> 0:21:56.240 particular reason to do that or increasing efficiency. But anyway, 0:21:56.359 --> 0:21:59.080 so the Republicans went towards that, but they had this 0:21:59.200 --> 0:22:02.159 problem and that it's a tax increase. So how do 0:22:02.200 --> 0:22:06.359 they justify this tax increase? And some of the some 0:22:06.400 --> 0:22:09.359 of the President Trump's allies got on the idea that 0:22:09.400 --> 0:22:12.240 we'll call it the blue state tax increase. Wool emphasize 0:22:12.280 --> 0:22:15.040 that only like blue states are gonna pay. And in particular, 0:22:15.080 --> 0:22:17.399 they didn't get rid of the whole thing, They only 0:22:17.480 --> 0:22:20.600 captain it ten because that would sort of like maximize 0:22:21.240 --> 0:22:24.879 damage the blue states while leaving some wealthy people in 0:22:25.560 --> 0:22:27.800 a red states still able to deduct into that limit. 0:22:28.920 --> 0:22:32.399 Yeah really big, Yeah, yeah, Carl, So that that kind 0:22:32.400 --> 0:22:33.960 of goes to where I wanted to go. You know, 0:22:33.960 --> 0:22:36.320 a lot of folks that are supporting the repealing the 0:22:36.359 --> 0:22:39.480 soft cap said, hey, this was just a political uh 0:22:39.720 --> 0:22:43.200 dig by President Trump against those areas of the country 0:22:43.200 --> 0:22:45.160 that did not support them in the election. It had 0:22:45.200 --> 0:22:48.919 nothing to do with fair taxation or economics. It was 0:22:48.960 --> 0:22:53.520 simply all political. As a result, it deserves to be repealed. 0:22:53.600 --> 0:22:55.280 So it's become kind of, I guess, more of a 0:22:55.280 --> 0:22:57.960 political issue than an economic issue. If anything else, is 0:22:57.960 --> 0:23:01.119 that how it's being played out in Washington. That is 0:23:01.119 --> 0:23:02.320 a big part of it. And I mean, I think 0:23:02.400 --> 0:23:05.679 that's what's making that's just making the split among Democrats harder. 0:23:05.720 --> 0:23:09.480