00:00:02 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 00:00:11 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Horteern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app and the Savannahs. This morning Escalation with a run. 00:00:40 Speaker 1: They want to settle so badly. They don't like what we're doing, and they do want to settle. We'll find out whether or not we settle, whetherm or we just finish it off. The country is booming and we'll have Iran defeated soon. 00:00:50 Speaker 3: A lot of people thought, well, we go up to three hundred and fifty dollars a barrel. 00:00:53 Speaker 1: It went up a little bit because I had to take tough action. When that settles down, you'll be I think. 00:00:58 Speaker 4: You're going to have fifty five dollars oil. 00:01:00 Speaker 2: So here's the laces this morning, the US striking Iran for a fifth consecutive day and hitting a sanctioned oil tanker sailing towards KRG Island, as Tehran shows no signs of backing down, the possibility, the potential that this could spread from limited action to a bigger use the president's word excursion, that this could be a return to revisiting the kind of things that we were talking about in March April time, which is seasing Kark Island. What kind of military capabilities resources do we need to achieve that, because at this point still seems unclear to me that we have the ability, certainly have the willingness to maintain an open passage through the straightupfor muz given the asymmetric nature of this, the fact that Iran can make that very difficult for both shippers and the US alike with very cheap drones. Have we done enough sufficiently to establish provide any evidence whatsoever the less achievable, Well, I think for. 00:01:52 Speaker 4: It to be more achievable, you would need more troops in the region, amphibious assault ships, and also if you're thinking about trying to take control of an island, need ground troops. 00:02:01 Speaker 2: Absolutely so. 00:02:02 Speaker 4: I guess that's at this moment, that is what the president is weighing. He has given Iran a very long leash to try to come to the negotiating table, and at some point the President might want to escalate because he's left with no other option. 00:02:15 Speaker 2: Here's a tame from Norman rule of CSIS. He says, this is no longer ceas fast suffering violations. It is a limited enforcement war with no apparent diplomatic exit. Norm joins us now for more. Norm always appreciate your time, sir, so please elaborate and tell us what kind of phase you think we're in right now and what is the potential for this to become something bigger, something less limited. 00:02:37 Speaker 1: Good morning. 00:02:38 Speaker 5: So we're looking at the Iranians using attacks as part of their negotiating strategy. These attacks are not saturation strikes. They're limited, but they're sufficient to demonstrate that Iran has the capability to close or to restrict traffic in the Gulf for the Straight and in the Arabian Sea. At the same time, the United States has undertaken a series of expanding and widespread attacks that are both degrading Iran's capability to attack shipping and to demonstrate to the Iranians that there is a material price to be paid for their lack of diplomatic engagement. Now, the diplomatic channel remains narrow, but it is open, and through the release of the American citizen, that is evidence of that. But as a ceasefire, this construct no longer is working. So what the United States is hoping, apparently is that its actions will provoke a debate in a wrong amongst its leadership. Basically, do they want to do they want to take this a lot farther? I think the answer is going to be yes in the near term, but events will dictate the course of this dynamic. 00:03:44 Speaker 4: Can you provide some more contacts on the debate happening right now within the elites of Iran because some individuals are calling the likes of Muhammed Glibah a trader for even having these negotiations with the United States. 00:03:55 Speaker 5: Well, you want to be careful about anyone outside of that dynamic, especially six thousand miles away, talking with great clarity. But it is clear that we have, especially in the wake of the funeral of the previous Supreme leader, a space where individuals in this political world are each trying to outdo each other for a tough position on the United States and the region. Now that is likely going to remain constant for some time. But again in the long term, when the medium term rather, Iran has got to decide do they want the United States to continue to move attacks north, to cut down maybe some of the bridges, to restrict the flow of trade into country which touches their inflation, unemployment. It is a conversation that its leaders are going to have to have to undertake. I think in the short term, the dynamic is going to be for Iran to continue its pressure against the West and the neighbors. 00:04:49 Speaker 3: Normal how much can President Trump escalate without Congress signing off on some sort of resolution of war. 00:04:56 Speaker 5: I think the administration would that it has considerable flexibility with the personnel that are in the region as long as the United States has not engaged in a long term boots on the ground endeavor. The personnel that we have in the region are sufficient to conduct clearing operations that would take some time. 00:05:17 Speaker 1: But this is not a boots on. 00:05:20 Speaker 5: The ground forever war such as a Rock or Afghanistan. 00:05:23 Speaker 3: But that's sort of the issue and the tension here. How much our boots on the ground required to really escalate to the degree that really cripples the current Iranian regime. As Amh was talking about. 00:05:34 Speaker 5: Earlier, Well, the comments that were made earlier are appropriate. I would say that this is no longer the nineteen eighties. We have drones. The Navy has demonstrated some unique and special drone capacity involving sea drones. We don't need to have personnel on the ground as long as we have a capability to strip the Iranians of their offensive punch. Now, we do have personnel out there that they are capable of rating operations, and that's different from occupation. And even when you think occupation, it's a very long coast, So you know, putting personnel on one hundred miles of coast is not going to be reasonable. So you want to really have your personnel go where the offensive punch is. And I'll close by saying we also need to keep in mind that drones and missiles can be fired from a long way from the region, So having personnel ten miles in or twenty miles in doesn't necessarily stop the Iranians from conducting strikes. So this is a recipe that's going to require some complex work, but our scent leadership are really quite capable and experienced in this regard. 00:06:40 Speaker 2: Stay with us. Mul Bloomberg Surveillance coming up after this any season ramping up with results from the major airlines. United boosting it's full of your outlook, citing strong consumer demand even in the face of high fuel prices. The United Aline CEO Scott Kirby saying, quote, United is built to thrive in every environment. Our brand log customers value their traveling United, whether they're in polaris or an economy. The United all and CEO Scott Kirby joins the program for more Scott, welcome to the program, so it's good to see you. Before we get into the results, I just want to take a step back because if we were back in the middle of March and I was sitting here and you were telling me what you were about to do, I'd be like, Scott Kirby's gone nuts. Because energy prices have gone sky high. People are going to stop flying. They just won't pay up. Scott, can you take us behind the scenes how you and the company navigated that energy shock over the past few months. 00:07:39 Speaker 6: You know, thanks for having me this morning. And really it is pretty remarkable. You're kind of at the full year at what happened. Fuel prices are six billion dollars compared to what we thought at the start of the year, and that compares to the best year in history where we made a little under five billion, And the fact that we're sitting here today raising guidance and talking about at least having a shot at growing earnings on a year of a year basis is a remarkable testament to the strength of demand, and the demand and the economy are really strong. But also that United Airlines has had the right brand loyal United next strategy that we had is the right strategy, and the people of United are doing a better job than any airline anywhere in the world at implementing that, at taking care of customers, and we've been able to get contracted enough of those brand loyal customers to United that we've mostly been able to overcome the fuel price bike. So I'm really proud of the team for what they've done in a tough environment to make it feel just normal if you're flying on United or if you're working at United. 00:08:36 Speaker 3: Scott I remember earlier this year we were talking about how you expected demand destruction as prices got higher. 00:08:43 Speaker 1: You didn't see that. 00:08:44 Speaker 3: Neither did other people, and you said you were surprised that you didn't see more demand destruction. Are you starting to see any signs of that or at least customer fatigue in pricing, No. 00:08:54 Speaker 6: We aren't. Demand is incredibly strong for us. In fact, quarter yields are booked fourteen points higher at this point in time than they were at the same point in time for three Q. Corporate demand so far in July is up thirty percent. We really have it, and I think it's you sort of take a step back from it and look at what's really happened. 00:09:15 Speaker 1: It's air travel. 00:09:18 Speaker 6: Share of the travel pie got really really small coming out of COVID, and even with fares where they are today, air travel is thirteen prices are thirteen percent lower in real terms than they were pre COVID, while hotels are up significantly, cruise lines and rental cars and everything else is up. And so I think we're just returning to a normal historic share of the travel PI for air travel, so the total cost of the trip is staying consistent with inflation, but after under indexing to airlines, it's now over indexing to airlines, and so the total cost of the trip isn't changing nearly as much as just airfares, returning to the normal historical relationship that we've had to the total travel pie. 00:09:56 Speaker 3: Oil prices have continued to inflect upward as a result of a new resurgence in the conflict in the Middle East, and I'm just wondering, is there more room to go with respect to responding to those extra oil price costs with higher fares going forward? 00:10:12 Speaker 6: Well, you know, like I said, airfares are down thirteen percent from in real terms from pre COVID, so short answers yes, And in fact, there's been another fare increase this week. There were five or six when oil prices first spiked, and then when all came down, you know, they sort of paused, but there was another one this week. And so I demand is strong, the consumer is strong, and it really is like our overall cost base, it's not just airfares, but our cost base with airport fees and maintenance and labored those have actually gone up even more. So it really is just a case of recovering all the inflationary cost increases that have happened, you know, And recovering from the COVID trough in pricing. 00:10:53 Speaker 3: We were joking Scott earlier that the airline industry also is an AI trade for a lot of different reasons, but in part because of the business travel and how much is picked up. How much do you see that being driven by all the capital markets activity that we keep talking about with the big banks, the idea that everyone needs to fly around meet their clients is prepare for these incredible fundraising exercises. 00:11:13 Speaker 6: Well, I think it's probably more translated through and just what it means for the overall economy as opposed to just specific the AI trade. But the economy is strong and part of it is AI and all the build out that's happening with AI. But as I said, thirty percent up in business travel so far in July, business. 00:11:31 Speaker 1: Demand is really strong. 00:11:32 Speaker 6: US economy is really strong, and we're a beneficiary of that. 00:11:37 Speaker 3: One thing that we've seen is increasing creativity when it comes to how you approach different premium offerings, the latest being that in premium economy or economy plus, the middle seat gets blocked out and there's a shared table. I mean, is there something different about the creativity being used recently? Whether it's different types of offerings, different segmentation, more specific offers to differ friend slices of the consumer base. 00:12:02 Speaker 6: We really are trying to build a great, brand, loyal airline nose to tail. We're folks, we're investing heavily in premium, but we're investing just as heavily in the economy cabin. We recognize that today's you know, basic economy customers tomorrow's plais customer, and we're just trying to build a great airline for everyone. And you know, Starlink is an example, the relax Row, which is in economy, I think one of the coolest things we've done in a long time. You know, an extra you know, a blocked middle seat in coach is just another example. And United we really are trying to just try everything that we can to make the experience better for customers and believing that if we do that, we will have a brand, loyal customer base that does really well when times are good. But it's also worth proving how resilient we are in times we're something like you know, this oil price by cap is I mean the fact that we've got oil prices up six billion dollars a year over year, and we have a legitimate show at growing earnings on. 00:13:01 Speaker 1: You over your basis. 00:13:02 Speaker 6: Is just a remarkable testament to what it means to invest for the customer and get customers to want to fly us, to decommoditize this industry. And really proud of the un IT team for what they've done. 00:13:11 Speaker 1: To execute on that strategy, Scott. 00:13:13 Speaker 4: More people in New York might be more willing to fly you when you get back to JFK. Is that still in the works for next year? 00:13:19 Speaker 6: That is, we're very excited about it, looking forward to getting back to JFK. Looking forward to once we're back to JFK will be the only airline with Starlink on the airplanes. 00:13:28 Speaker 1: For those of you that care about true. 00:13:30 Speaker 6: High sea Wi FI, we're the only ones in those markets. 00:13:34 Speaker 1: Looking forward to it. 00:13:35 Speaker 2: I love the ideas of relaxed row. When I was a teenager, young in my twenties flying, when I saw an empty row of three seats and the plane taking off, I'd never been more excited. As soon as you got up to about thirty five thousand feet, I was on it, trying to light down and move the armrest to make this work. Scott if you had that idea for a long time. 00:13:56 Speaker 6: I wanted to do it in fairness Air New Zealand this one that came up with it, and I've wanted to do it ever since they did it, and now we are. I'm excited about it. By the way, I've spent a number of trips when I was young and non doing the same thing. 00:14:09 Speaker 1: When we get to be our. 00:14:10 Speaker 6: Age, it's a lot harder to do that on those three seats, and so the relaxed row is going to be a lot better and pushing your hang out with your kids, and it's a of all the stuff we've done. I personally think it is one of the coolest things we've done. It's going to be great for kids and families. 00:14:25 Speaker 2: Stay with us. More Bloomberg Surveillance coming up after this. Bank for America the stock sitting up record highs after delivering blockbuster the results, equity trading revenue rising seventy percent in the second quarter, fixed income trading climbing nitty nine, making a record first half of the year for the susand trading division. The Bank of America CEO Brian Monahan saying against the healthy economic bank drop, resilient consumers and businesses are turning to Bank for America to spend, borrow and invest. Brandon place to say, joined us now for more. Bran, good morning, it's great to be here. It's good to see you, sir. What a fantastic start to this year. Now forgive me which journalist we've got to ask, can this really continue at this rate? 00:15:13 Speaker 1: You so? 00:15:14 Speaker 7: Well, you just saw two statistics that I've watched carefully, which is what the activity consumer is and then ultimatelete what the unemployment new claims are. That's people argue it's leading or trailing, but it's actually indicator of the health of the employment market. And a four point two percent unemployment rate with new claims at one point eight on the long term claims and two hundred and eight thousand. Every looks at it says, well, that's, you know, in line with nineteen. Remember the workforce has actually grown a lot since nineteen terms of size, and so you argue about seven one hundred and sixty million workers or something like that. So it's a pretty small number, it and so nominally it's a low number, and percentage wise it's a low number. And that's good news because that means a consumer spend and what we see in our data as a consumer, so spending and we're spending America. That means economy is okay, and that probably means the rest of the markets in the construct and the final demand is there. 00:16:06 Speaker 2: The weather for the banking industry has been shining brightly. The sun is out, the bank drops great, the environment has been good. I want to draw a distinction between the environment and execution, because face are up everywhere. What are you proud of after that quarter? On execution where you get in market. 00:16:21 Speaker 7: Share, Every single business grew, the revenue, grew operating leverage, which is critical because that means your revenue has grown faster expenses and increase the returns. Every single business it grew the customer bases and all those things. 00:16:33 Speaker 1: So what you're seeing us is the power that. 00:16:35 Speaker 7: The engine of Bank America is across all the businesses. So our consumer business made three billion after taxes quarter plus. You know that's that's half as much as well as Fargo made, and you know it's a big number. That's one of our four businesses that we disclose in the in the smallest of which made a billion and a half this quarter. So these are big businesses are scaled. Y're accumulating new clients, accumulating new activity. The market's business had a great quarter, and investment banking had a great year every year of comparison, but at two point one billion for the quarter, we were two billion last quarter two point one. It looks like a huge increase because last year's second quarter we all thought the world was coming in and with Liberation Day this year it's different. But what's really important is the pipeline they have is strong. The deal in discussion are strong, and you're seeing deals announced every day across all those spectrums, m and a strategy financing, all of which is important. 00:17:28 Speaker 2: Just celeborate on that a little bit more. How strong is this pipeline because things just look phenomenal. We've had a record IPO Alphabet came out with a monster equity capital race. We saw es ke Heinis more recently do something similar. We're going to see more of that in the year ahead. 00:17:42 Speaker 7: Yeah, I think so. If you look at we and all our peers are deploying more balance sheets. Our balance sheet to the market's business one of one hundred million dollars for the quarter over what they thought they. 00:17:50 Speaker 1: Were going to be at just to give you a sense. 00:17:52 Speaker 7: And so we had that capital base and that capability just to meet the moment. But if you look at investment banking, the deal when you talk to CEOs, because if you think about last of this time, an amount of things they had to think about. We've added one with the wars, But at that time it was taxes weren't set yet, the immigration policy was people were trying to figure it out, trade and teariff policy, and then deregulation you come to the fall. They felt that that was sort of working its way through, whether the tax and the tariff policy kind of looked at and said, AD's sort of ten to fifteen percent of countries willing to do business in the United States and fifty if they're not. I can figure that out. Let me go figure out how to run my business. That got with a court decision all the work that's going to around in circles a little bit. 00:18:39 Speaker 1: So we added some uncertainty. 00:18:41 Speaker 7: But on top of that, what you added is a year's worth of growth and a year's worth of belief that this year is going to grow at two percent plus, next year is going to grow two percent plus. That's committing people's convincing people that despite higher energy prices, despite inflation, despite the FED having to keep rates higher, despite all that, the economy is growing through it. 00:19:00 Speaker 1: That's the interesting part. And I think CEOs last year. 00:19:04 Speaker 7: Got clarity on taxes, got clarity on deregulation, got clarity immigration, and now are thinking hard about Wait, I can do things I can see a little more distant in the future. Does that mean there's a prey to possibilities to change that's out there every day. 00:19:20 Speaker 3: Let's talk about the prey of possibility. 00:19:21 Speaker 1: Sorry, I'm a journalist, so I have to. 00:19:23 Speaker 3: There's this question about how market dependent some of this capital markets activity will be for the rest of this year. The idea that a lot of people are borrowing money they don't even need right now because the market is so wide. 00:19:34 Speaker 2: Open to them. 00:19:36 Speaker 3: What are the potential thresholds, whether it's in rates or whether it's a selloff in equities. They could potentially style me some of the pipelines. 00:19:43 Speaker 7: So if we're here a year ago, you'd say nobody's ever going to get a mortgage at six and a half percent. Just to give a sense, we are thirty percent up in production mortgages this quarter. So as people get used to environments, they start to behave differently, and so the consumer borrowing is wrong. 00:20:00 Speaker 1: But there's a lot of capacity left. 00:20:03 Speaker 7: But mortgage production being up thirty percent is kind of an interesting statistic in a world where if you said rates, we're going to be a side, they'll be doing mortgage volume. If you go to the commercial side, which is where you were talking about, you know, we're seeing lung, good lung growth high single digits. You over, you're in a core middal market small business area with the largest small business land in the United States. That's good news because that means back to John's question, that's a little bit that if I'm not going to borrow, if I don't need the money, I'm not going to borrow if I don't need to do something. Despite what people talk about, you're not going to issue debt and increasing interest cost and have just sit there because the arbitrage. If you don't issue below treasures, which these guys no borrower does, you're going to pay three four hundred basis points to let money sit there. 00:20:45 Speaker 1: It's just not going to work. 00:20:46 Speaker 7: So people are borrowing because they see opportunity what's the equipment buying, what is hiring, what's building a plant, whether it's inventory build up, and so they're gonna be more worried about can they get the margin on that. That's the question of inflation coming through the system. Later on, there could be more more worried about will the find the demands that that's watching the consumer behavior if they're in consumer side driven or if they're in supply chains, is the demand going to stay there? So I think it's the markets will stay there if the companies see opportunities, whether small, medium or large size, and they'll stay there as long as they have something to do with the money. Nobody borrows money just to have it sit around. 00:21:19 Speaker 1: It's like what. 00:21:20 Speaker 2: People think about s ka heidek. So what just happened? 00:21:22 Speaker 3: I mean just saying, you know, one could say, well. 00:21:24 Speaker 1: You've got to have a viewer, they're going to do something else. 00:21:26 Speaker 7: They just just aid in their profit margins. So whatever they're going to do with it, they're thinking about something. 00:21:31 Speaker 3: Well, one thing that you noted, the mortgage is is something that Tommy Show mentioned earlier, and he was saying that you've seen a lot of the traditional financial institutions gain market share back from alternative asset managers, and that's one of the reasons why the regulatory pullback has been so beneficial. 00:21:48 Speaker 1: Has that been your experience as well? 00:21:50 Speaker 7: Well? I think also, you know, the investor money going into the private capital funds and stuff has been as slowed and there's been with draws and people getting out, and that then slows down the activity. But I think also the questions are raised around how much leverage is too much? And I think if you looked at the average leverage of the different deals, it was different inside the banking system and out. So I think we've seen a little bit of pull back push back. 00:22:13 Speaker 1: To the system. 00:22:14 Speaker 7: And I think we also had to come with competitive responses. So we put together pools that we could we in our peers and are you know it's two different pools where we could when the opportunity was there, hit the bid. For The core difference is if we do a five billion dollar transaction, we tend to syndicate it and get five banks, and that takes time and effort and creates a little bit under certainty. The other players are saying, I'll give you all five billion, I'll bring you the a quick plus will bring you out debt. We build a practice where we can do more of that for our good metal market companies. It still will be laid off, it's just when you laid off up front or behind. 00:22:47 Speaker 1: And so we built a couple of things. I think between that. 00:22:49 Speaker 7: And the efforts the industry and the efforts our company, you're seeing some of the market share come back in. So it's a lot of factors. But we grew eight commercial mods and eight percent. That's a pretty good growth rate. 00:22:57 Speaker 4: Brian. You continually measure mentioned if we were this time last year Liberation Day. I'm sure about tax policy, where the deregulation was going, where immigration policy was going. Are you more focused on Washington now than you have been in the past because of how pronounced this administration has been on policy. 00:23:14 Speaker 7: Well, I think we're the company's been around for two hundred and forty two years, so we've been around through every administration that you can name pretty much. So it so it affects the economy. When it affects the economy affects CEO. Is the use of what they want to do all that that affects us. But I think you know so an interesting question is right now is that you know, if you there's this, saye do paradoxes as high as ever been. If you read the consumer surveys, it says I'm worried about in a listed out look what you just saw in retail sales. In the month of June, the money moving out of the Bank America customer accounts was seven percent high sixes and in July it was the same strength. That's a strong that was in May and April, in March. That is counterintuitive to what the people are So people are upset about high gas prices, are upset about affordability. That's a fact that that's a fact that may change your behavior. 00:24:13 Speaker 1: Right now, the behavior hasn't changed. 00:24:14 Speaker 7: And I think that's sort of a parallel to all the things about policy. 00:24:19 Speaker 1: People talk about it and think. 00:24:20 Speaker 7: About it, but if the underline business conditions are fine, they just go to work and get through it, and so the questions one doesn't affect their things. When supply chains become uncertain because for pricing, because of terras, they had to slow down and wait it out. Now they've got to kind of figure it out and they can pass it through. When the immigration policy meant they might not get workers. They had to think that through. They're used to that now and a lot less immigration. They've rearranged their work supply. You still hear that from our small businesses at workforce availability is a big issue for especially for the construction and things like that, and so I think. 00:24:52 Speaker 1: We've got to get that rational at some point. But right now there's enough momentum behind it that we're growing through it. 00:24:57 Speaker 2: I've always given you credit to really unders than where your research team is out with regards to their outlook, to know what they're thinking about with regards to rights. Other banks don't really do that. You do their view on interest rates right now, just share that with us and if you can build on that, what does it mean for the business if they're right that trajectory for interest rates turns out to be right later this year. 00:25:16 Speaker 7: Well, No, Number one, they're a great team and that's why I listened to them, because they know how a lot more about this than I do. Number two is it's a big investment, so I better get you better to take advantage. 00:25:26 Speaker 1: Of that investment. 00:25:27 Speaker 7: On an ad basis, they'll I have to say I have this Friday. 00:25:32 Speaker 1: They re up their things. 00:25:33 Speaker 7: They had three rate rises this year, and I think that was an outlier, and with some of these numbers. 00:25:37 Speaker 1: They may change that. 00:25:38 Speaker 7: But the principle they're saying is inflation will be here longer. It'll take us into twenty eight to squeeze it out. That's probably a year later than they thought six months a year ago, but they've raised their know If you think about the travel of the last twelve months, two and a half two percent GDP growth of twenty six down to one and a half back up to two two three, that's showing that they're believing that they're ai build out the consumer spending consistency. The employment consistency overweights this and that's why rates will stay higher because the economy is strong enough inflation and then you've got to wait through the second wave of inflation for gas prices. First it comes to the fast terned stuff and it comes to slow turned stuff. And what I mean by that is this keyboard is produced with patrolling related products to produce the plastic. It just takes time to get through the supply chain. So we'll see their views. Three rate rises this year. I can't speak for them, but I think the new numbers may change that. A little bit, but we'll see that they're independent, they make their decisions. But the principle was inflation is going to be sticky, and we think it's a year sticker a few months ago. 00:26:42 Speaker 2: AI is a piece of that, and maybe you can speak to what's happening, can tell me at the bank right now. We've seen plenty of examples of certain companies, certain firms maybe back and around spend telling the staff internally not to do this, maybe to focus on that instead. How have you approached this moment just on a cost basis. 00:26:56 Speaker 7: We realized that was a risk from the start, so we built We built optimization models on top of the models for lack of better term, and then we also negotiated for lack of better term, sort of fixed based pricing, so subscription model pricing. So like with your firm, we pay your subscription and inside you have the Bloomberg ask Bloomberg or whatever the AI capability. With other firms we did the same thing and so well that whole forever I don't know, but for right now we're not seeing a big cost increase and so we expect to spend more on it, but it's more about implementation and then if we look across I think of two big differences in the accelerated We've had Erica for almost a decade now, and we can talk about that and what we've learned from that. But if you think about the implementation since the chat GBT moment type of thing, you've had one implementation where we're just spending money to get people really used this, and that was to roll out across two hundred thousand people the ability to have AI and use it and do things with it. Everything else we have had, and that's a very modest cost when you think about a seventy two billion dollar expense based frankly and with Microsoft and Island and all that stuff. 00:28:01 Speaker 1: We already had a big license fee. 00:28:02 Speaker 7: It increases some, but that we said it would be hard to measure the incremental return everything else. One hundred and ten business cases, the thirty seven they are implemented, all have a business case. 00:28:11 Speaker 1: It says, here's the cost, here's a. 00:28:13 Speaker 7: Benefits, revenue expense, whatever it is, it makes sense, let's make the investments. Thirty seven are implemented. We implement about one a week. One hundred and ten are approved. It's just a matter of getting the work done, and they've had a profound impact on the company. 00:28:27 Speaker 1: Now, the reality is it's slower than people might think. 00:28:30 Speaker 7: It has to be done much more carefully because the three billion dollars we spend on data over the last decade allows us to have these models operate in our company. Otherwise it'd be a problem because they'd be picking up wrong stuff and it'd be in problems. So you had to have your data right, you had to have your infrastructureright, you had to have your security right. Yeah, isolate your data so it doesn't taken into the world, so to speak. 00:28:51 Speaker 1: And so there's a lot of. 00:28:52 Speaker 7: Pre work that the team got right now that that allows us to go faster once a product, once the idea comes up. 00:28:58 Speaker 3: About a year ago, maybe a little bit more, you said that you thought that the effect on the overall employment picture for Bank of America was it you'd be able to do more with the same volume of staff. Is your view the same today? 00:29:11 Speaker 7: We effectively just grew the earnings thirty percent and we have a little less people you had last year, and so that's but meanwhile in that is a very subtle exchange. So eighteen thousand programmers using technique AI coding. We didn't cut the programs. We just are doing more coding. We're just doing more activity. The relationship managers picking up agent force and that's going to the system right now. We didn't change the number relationship We were adding relationship managers all time. So but if you had a one hundred percent, you know, the one hundred we had in an example, one hundred we have today, it could get ten percent more efficient. They can do ten percent will work. It doesn't mean we're not going to go to one hundred and five because we want to have more production capacity. So it really is a very subtle answer. Depending on the activity. Our job is to handle it well and redeploy people. Last year we redeployed fourteen thousand people. We just hired two thousand kids that will start next week from school. 00:29:59 Speaker 1: We are thousand summer interns. We agreed to hire ten thousand military veterans. We are hiring a lot of people. 00:30:04 Speaker 7: We have to hire thirteen hundred people a month to have neutral headcount. 00:30:08 Speaker 3: How concerned are you and how much oxygen has been sucked out of the room from mythos and some of the cybersecurity concerns from earlier this year, we heard some of your peers talking about that, and anecdotally we hear a lot of fundamental concern about the risk to the financial system. 00:30:23 Speaker 7: I think the government, the administration looked at it quickly. Secretary Treasure and others said way second, and so we all got started on this, and we've all been working a long time, and yet it just speeds up the pace of the work you have to do to patch the systems and do the things. So it's a serious concern. I think the so called AI industry and industry r at large have worked together, but it's you can't think that we're ever going to be able to control this because there's. 00:30:53 Speaker 1: Foreign models that people use. 00:30:55 Speaker 7: Not everybody's going to have the same thought process that our country has. But our countries tried to handle and try to be purely systematic about it. But it's a big change and the amount of work that will have to go on in a pace at which uh, these tools will affect your vulnerabilities in your system, and how fast you have to take care of that. That's the core work that's going on. And then you've got you know, proprietary software, open source software, open source supported software. Third party software, and it's you know, we're making sure the third parties are doing the work and working. 00:31:25 Speaker 1: Cooperatively with the team. We have a great team there. 00:31:27 Speaker 7: We have three thousand plus people that work in that area, a billion dollars plus a year and spending. And they do a tremendous job on their fellow name Chris Vader, under Harve's leadership, and they do a tremendous job for us, and they work very cooperly with their peers. And so you should rest as your world working hard on it. You should rest sure. It's a serious issue. 00:31:46 Speaker 2: I've been saving the most important question you ready. Yeah, how many World Cup games have you been to? 00:31:52 Speaker 1: I've only gone to one, but I'm going to something weekend. 00:31:54 Speaker 2: I knew it. It's right, it's one game. 00:31:57 Speaker 1: There's one hundred and two of them at the World. 00:32:01 Speaker 7: We share the we share the fund, so we have teammates, we have it's been an unbelievable experience, and so we got my fan band on and we could have out about a million and. 00:32:09 Speaker 1: Three of these. 00:32:09 Speaker 7: So far this year we've had one hundred and two one hundred and two games under two. 00:32:15 Speaker 1: Games left to left. 00:32:16 Speaker 2: Which game did you watch? 00:32:18 Speaker 1: It was in the quarterfinal Boston, okay and. 00:32:22 Speaker 7: Uh and look, you know it has been something that has been very interested for our company. But the way we the way the team went after, you know, with the military tickets or the soccer fields. We this is part of our Sports with US complex which the Golf of Us as the Masters and the and the Golf of Us program kids getting on muties for five bucks, the running. 00:32:44 Speaker 2: So the Master's outcompaign, it was fantastic. 00:32:47 Speaker 1: The running campaign, the lots of people they went. 00:32:51 Speaker 2: Back to, like legendary golf shops in the case replicated them. 00:32:53 Speaker 7: It was very cool and so now the companion's starting to see now is around the World Cup is sort of the the you can do it, you know, with David talking to the young lady named Keli who's working with street Kids United, which is a UK based charity which runs a street Kids World Cup that we had the commercials filmed at with with David and in Bono and the U two and the new song. 00:33:17 Speaker 1: So it was kind of fun. 00:33:18 Speaker 7: But the idea is what we're trying to do is say fields in places, we're trying to soccer in schools. We're trying to help increase the availability of the game that is massively played in the United. 00:33:27 Speaker 1: States, but just the availability on a on an access basis without having to spend for travel, teams and stuff like that. 00:33:34 Speaker 2: Go to pick at Spine Argentina. 00:33:37 Speaker 1: I don't pick teams. David's a good David is a good friend, and unfortunately that was. 00:33:44 Speaker 7: That was a tough result. So and look, I ever played the game. I have no merit to talk about the quality of any decision or anything that went on to refereeing or anything. I played football and rugby. I have no idea how soccer's played. 00:33:55 Speaker 2: But you can collect now in his opinion. 00:33:58 Speaker 1: He might have an opinion. 00:33:59 Speaker 2: As This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. 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