1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,520 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:23,280 Speaker 1: at Bloomberg dot com slash podcast. We've got interest rate rising. 7 00:00:23,320 --> 00:00:26,600 Speaker 1: We know that it's been terrible for the fixed income 8 00:00:26,640 --> 00:00:29,840 Speaker 1: market across the board. Uh, and a big part of 9 00:00:29,840 --> 00:00:31,800 Speaker 1: that some mortgage markets. When we want to talk, you know, 10 00:00:31,800 --> 00:00:34,600 Speaker 1: what's going on in the MBS, that's mortgage backed securities. 11 00:00:34,920 --> 00:00:39,360 Speaker 1: We bring in Eric Heidelberg, MBS strategists for Bloomberg Intelligence. 12 00:00:39,640 --> 00:00:43,960 Speaker 1: What is the super strava biker? I don't know. I 13 00:00:44,040 --> 00:00:47,160 Speaker 1: know that I probably put too much, too many miles 14 00:00:47,200 --> 00:00:51,320 Speaker 1: on my bike. So Paul's a big peloton guy, But 15 00:00:51,400 --> 00:00:54,400 Speaker 1: you actually move on your bicycle. Uh, this time of year, 16 00:00:54,440 --> 00:00:57,360 Speaker 1: I might be on something called Swift, which is inside, 17 00:00:57,400 --> 00:00:59,040 Speaker 1: but we feel like we're moving because it's like in 18 00:00:59,080 --> 00:01:02,560 Speaker 1: a cartoon world with other people. So it's in the 19 00:01:02,560 --> 00:01:08,080 Speaker 1: metaverse alright, Erica, So again, you know we look at 20 00:01:08,120 --> 00:01:10,560 Speaker 1: I n go to give us a snapshot of all 21 00:01:10,600 --> 00:01:14,040 Speaker 1: the indexes out there, and just in fixed and come world, 22 00:01:14,040 --> 00:01:16,360 Speaker 1: like the equity world, just read everywhere. Talk to us 23 00:01:16,400 --> 00:01:23,360 Speaker 1: about how the mortgage backed security market has been behaving. Well, um, 24 00:01:23,520 --> 00:01:26,959 Speaker 1: there there probably aren't enough big words to describe it, 25 00:01:27,040 --> 00:01:30,160 Speaker 1: but basically it's it's having its worst year ever by 26 00:01:30,480 --> 00:01:34,400 Speaker 1: a significant margin, like at minus fourteen at some point 27 00:01:34,480 --> 00:01:37,080 Speaker 1: in the middle of last month, we were approximately ten 28 00:01:37,120 --> 00:01:40,080 Speaker 1: times worse than the mortgage market had ever been year 29 00:01:40,120 --> 00:01:43,120 Speaker 1: to date. Um. And that's what happens when you have 30 00:01:43,160 --> 00:01:46,080 Speaker 1: a bear market because a lot of that is really 31 00:01:46,120 --> 00:01:48,520 Speaker 1: just driven by interest rates, which have turned around a 32 00:01:48,560 --> 00:01:51,800 Speaker 1: little bit recently, but some of that is driven by 33 00:01:51,800 --> 00:01:56,480 Speaker 1: spread widening too, as the FED has stopped buying, and 34 00:01:56,640 --> 00:01:58,880 Speaker 1: you know, there's a lot of volatility in the market's 35 00:01:59,240 --> 00:02:02,200 Speaker 1: not you know, with so much uncertainty around what's going 36 00:02:02,240 --> 00:02:04,640 Speaker 1: to go on with inflation, etcetera. When was the last 37 00:02:04,640 --> 00:02:07,480 Speaker 1: time we had a big bear market in mortgage backed securities? 38 00:02:09,360 --> 00:02:17,200 Speaker 1: Before I was born? So how does the FEDS, I mean, 39 00:02:17,240 --> 00:02:20,080 Speaker 1: how does QT play into this? How do rate rises 40 00:02:20,160 --> 00:02:23,320 Speaker 1: play into this? Because um, didn't your own pali snap 41 00:02:23,360 --> 00:02:24,960 Speaker 1: at somebody who asked if they were going to start 42 00:02:24,960 --> 00:02:28,440 Speaker 1: selling nbs at the last press conference. Yeah, well, he 43 00:02:29,560 --> 00:02:31,880 Speaker 1: they refused to take that off the table, which is 44 00:02:31,919 --> 00:02:36,640 Speaker 1: probably wise, especially with some of his UH colleagues going 45 00:02:36,639 --> 00:02:40,280 Speaker 1: on and saying we really shouldn't have be supporting a 46 00:02:40,320 --> 00:02:43,040 Speaker 1: credit market, which I guess they consider mortgage backed securities 47 00:02:43,080 --> 00:02:46,120 Speaker 1: to be. So, you know, he has some FED other 48 00:02:46,160 --> 00:02:49,680 Speaker 1: other FED members job owning sales, and I think they 49 00:02:49,720 --> 00:02:52,639 Speaker 1: want to leave that on the table because if mortgage 50 00:02:52,680 --> 00:02:56,800 Speaker 1: rates aren't responding to their activity, then you know, they 51 00:02:56,840 --> 00:02:59,320 Speaker 1: want to probably dangle that out there is to potentially 52 00:02:59,400 --> 00:03:02,880 Speaker 1: keep spreads relatively wide because they are using mortgage backed 53 00:03:02,880 --> 00:03:06,840 Speaker 1: securities and mortgage rates generally sorry, not really mortgage back securities, 54 00:03:06,840 --> 00:03:10,240 Speaker 1: but mortgages rates as a lever to try to slow 55 00:03:10,280 --> 00:03:12,720 Speaker 1: down the inflation rate by trying to slow on the 56 00:03:12,720 --> 00:03:16,520 Speaker 1: housing market and ali inflationary aspects that a red hot 57 00:03:16,880 --> 00:03:20,320 Speaker 1: housing market. Cause Google shows me seven point three three 58 00:03:20,440 --> 00:03:23,480 Speaker 1: six percent for a thirty year fixed mortgage. I think 59 00:03:23,520 --> 00:03:25,560 Speaker 1: you can shop around and do a little bit better 60 00:03:25,840 --> 00:03:32,000 Speaker 1: if you need to, but yeah, the effect are great. Yeah. Sure. 61 00:03:32,200 --> 00:03:34,360 Speaker 1: The effective rate that came out from the NBA this 62 00:03:34,400 --> 00:03:36,720 Speaker 1: morning was some point oh six, which is the first 63 00:03:36,720 --> 00:03:39,680 Speaker 1: time it's topped seven percent. Other mortgage rates have been 64 00:03:39,680 --> 00:03:42,640 Speaker 1: showing it above seven um, and that is the first 65 00:03:42,680 --> 00:03:45,000 Speaker 1: time we've seen that since two thousand and six, where 66 00:03:45,000 --> 00:03:47,680 Speaker 1: it actually only reached that level. I was looking at 67 00:03:47,960 --> 00:03:50,840 Speaker 1: a minute ago, um briefly in two thousand and six, 68 00:03:50,880 --> 00:03:53,240 Speaker 1: and then before that it's really the early two thousand's 69 00:03:53,240 --> 00:03:56,880 Speaker 1: before sustained there. And the big difference right now is 70 00:03:56,920 --> 00:04:01,800 Speaker 1: just that so many homeowners have three percent mortgage rate, 71 00:04:01,880 --> 00:04:06,240 Speaker 1: whereas at that point, Yeah, you concluded, Matt got it, 72 00:04:06,360 --> 00:04:08,640 Speaker 1: But I will say that I bought at the absolute 73 00:04:08,680 --> 00:04:10,760 Speaker 1: top of the market, so I got a good rate, 74 00:04:10,880 --> 00:04:13,160 Speaker 1: but I paid way too much for my house. Yeah, 75 00:04:13,200 --> 00:04:15,960 Speaker 1: and and maybe you're better off getting a worse rate, 76 00:04:16,080 --> 00:04:18,000 Speaker 1: but you know, wait until the housing market comes down 77 00:04:18,040 --> 00:04:20,119 Speaker 1: a little bit and you can refinance. If if rates 78 00:04:20,279 --> 00:04:22,280 Speaker 1: ever do turn around that this is certainly a big 79 00:04:22,320 --> 00:04:24,920 Speaker 1: trend in the opposite direction. Even the arms cost a 80 00:04:24,960 --> 00:04:27,120 Speaker 1: lot of ten six arms seven point six four four 81 00:04:28,680 --> 00:04:31,120 Speaker 1: huh Yeah, I think again, you can shop around and 82 00:04:31,120 --> 00:04:33,000 Speaker 1: do a little bit better there. But I'm not a 83 00:04:33,120 --> 00:04:36,320 Speaker 1: mortgage originator, so I don't know. So I mean Erica 84 00:04:36,360 --> 00:04:39,080 Speaker 1: Tuto about the I didn't know anything about really the 85 00:04:39,120 --> 00:04:42,440 Speaker 1: mortgage backed securities market until the Great Financial Crisis. Then 86 00:04:42,480 --> 00:04:45,120 Speaker 1: I got like everybody else, I got very smart, very quickly. 87 00:04:45,440 --> 00:04:47,120 Speaker 1: One of the things I learned is you have to 88 00:04:47,560 --> 00:04:49,840 Speaker 1: really pay attention to the credit quality of the mortgages 89 00:04:49,960 --> 00:04:52,920 Speaker 1: in your mbs. Just generally speaking, how do we feel 90 00:04:52,920 --> 00:04:56,160 Speaker 1: about credit quality out there? The credit quality is by 91 00:04:56,200 --> 00:05:00,400 Speaker 1: a large stellar compared to before the Great Financial isis. 92 00:05:01,120 --> 00:05:03,680 Speaker 1: One of the things that triggered that was that there 93 00:05:03,760 --> 00:05:05,599 Speaker 1: was a lot of subprime lending, and a lot of 94 00:05:05,600 --> 00:05:09,160 Speaker 1: that subprime lending was made in the form of mortgages 95 00:05:09,360 --> 00:05:13,000 Speaker 1: that reset upwards when rates went up. They were these 96 00:05:13,000 --> 00:05:15,880 Speaker 1: teaser rates. They were you know, payoups and arms. And 97 00:05:15,920 --> 00:05:17,920 Speaker 1: as a result, as soon as rates began to rise 98 00:05:17,920 --> 00:05:22,679 Speaker 1: a little bit in the mid two thousands, those homeowners yeah, okay, 99 00:05:22,680 --> 00:05:24,720 Speaker 1: good stuff. Erica started kind forge to get to an 100 00:05:24,720 --> 00:05:29,400 Speaker 1: appointment with a FED president, Eric Heidelberg, NBA strategist for 101 00:05:29,400 --> 00:05:32,640 Speaker 1: Bloomberg Intelligence, giving us a lowdown on the mortgage market here, 102 00:05:33,120 --> 00:05:35,159 Speaker 1: like all the other fixed single markets, really has had 103 00:05:35,279 --> 00:05:44,400 Speaker 1: a very tough I guess this Elon must Twitter deal 104 00:05:44,760 --> 00:05:49,599 Speaker 1: is on. That's the news yesterday. Twenty cents I'll believe 105 00:05:49,640 --> 00:05:52,200 Speaker 1: it when I see on for now. Yeah, the signatures 106 00:05:52,279 --> 00:05:55,120 Speaker 1: on the documents. Let's do a deep dive into how 107 00:05:55,200 --> 00:05:57,160 Speaker 1: this might all play out at the Low West coast 108 00:05:57,160 --> 00:05:59,200 Speaker 1: corresponding for Bloomberg News, he joins us here in our 109 00:05:59,200 --> 00:06:02,280 Speaker 1: Bloomberg Interact broker studio, as does men Deep seeing our 110 00:06:02,320 --> 00:06:05,720 Speaker 1: senior technology annals for Bloomberg Intelligence, and let's start with you. 111 00:06:05,920 --> 00:06:09,040 Speaker 1: Sure well, I guess it's back on, but it is 112 00:06:09,279 --> 00:06:14,120 Speaker 1: pending a resolution or stay of these legal issues. Is 113 00:06:14,160 --> 00:06:15,800 Speaker 1: that going to happen. I haven't heard anything, yes, so 114 00:06:16,080 --> 00:06:19,479 Speaker 1: Must said that he reverts to his original offer fifty 115 00:06:19,520 --> 00:06:22,159 Speaker 1: four dollars twenty cents to share on the exact same 116 00:06:22,320 --> 00:06:25,680 Speaker 1: terms that were signed between the two parties April. In 117 00:06:25,800 --> 00:06:29,000 Speaker 1: his letter to Twitter, he said that it's contingent on 118 00:06:29,080 --> 00:06:32,400 Speaker 1: a stay of legal proceedings, which Twitter has not indicated 119 00:06:32,480 --> 00:06:34,839 Speaker 1: either way what they're going to do. Really, all they've 120 00:06:34,880 --> 00:06:37,240 Speaker 1: said is that they want to close the transaction at 121 00:06:37,279 --> 00:06:40,040 Speaker 1: that fifty four dollar twenty cents price, and you know, 122 00:06:40,120 --> 00:06:42,760 Speaker 1: the timing super interesting, you know. According to one source, 123 00:06:43,200 --> 00:06:46,000 Speaker 1: legal must legal team looked at it, and they looked 124 00:06:46,040 --> 00:06:47,920 Speaker 1: at what the judge in the case, who was due 125 00:06:47,960 --> 00:06:50,880 Speaker 1: to preside had said, and they didn't fancy their chances. 126 00:06:51,279 --> 00:06:54,360 Speaker 1: So that's where we're at. But I mean, so from 127 00:06:54,440 --> 00:06:57,800 Speaker 1: the Twitter perspective, the best thing to do would be 128 00:06:58,000 --> 00:07:02,240 Speaker 1: to go through with the lawsuit and have the courts 129 00:07:02,360 --> 00:07:04,839 Speaker 1: order Musk to buy it, because otherwise, if they agree 130 00:07:04,880 --> 00:07:07,560 Speaker 1: to drop the suit, then he could just back out again. Yeah. 131 00:07:07,680 --> 00:07:10,840 Speaker 1: I mean, Twitter has at least been consistent. They sued 132 00:07:10,960 --> 00:07:15,400 Speaker 1: Musk for specific performance of assigned contract, and they have 133 00:07:15,560 --> 00:07:19,120 Speaker 1: maintained all along that their intent has always been to 134 00:07:19,160 --> 00:07:21,280 Speaker 1: close the deal at fifty four dollars twenty cents. The 135 00:07:21,320 --> 00:07:23,640 Speaker 1: reason I brought all that up is all they said 136 00:07:23,720 --> 00:07:26,640 Speaker 1: last night was a reiteration that they want to close 137 00:07:26,720 --> 00:07:29,280 Speaker 1: at fifty four dollars twenty cents. They didn't say whether 138 00:07:29,360 --> 00:07:32,040 Speaker 1: they dropped legal proceedings. They didn't say whether they accept 139 00:07:32,440 --> 00:07:36,120 Speaker 1: Musk's latest and reversion of the offer. And so I 140 00:07:36,200 --> 00:07:38,000 Speaker 1: think that's a really key point you're waiting for, as 141 00:07:38,040 --> 00:07:39,920 Speaker 1: well as what on earth these Wall Street bankers will 142 00:07:39,920 --> 00:07:42,440 Speaker 1: do with the debt. All right, men, deep, let's say 143 00:07:42,880 --> 00:07:46,080 Speaker 1: that Ellen does buy Twitter. I mean it needs some 144 00:07:46,200 --> 00:07:48,400 Speaker 1: work here. I mean it needs some work in terms 145 00:07:48,440 --> 00:07:51,040 Speaker 1: of engagement and growing the revenue and what does he 146 00:07:52,560 --> 00:07:56,440 Speaker 1: dollar asset forty four billion dollars. Yeah, Well, with any 147 00:07:56,720 --> 00:07:58,400 Speaker 1: large M and A, you have to have some sort 148 00:07:58,440 --> 00:08:00,240 Speaker 1: of premium, right, You're not going to get it at 149 00:08:00,280 --> 00:08:03,560 Speaker 1: market value or fair price. So that's a big, big, 150 00:08:03,680 --> 00:08:08,320 Speaker 1: big premium, big premium. And I think what's uh kind 151 00:08:08,360 --> 00:08:11,880 Speaker 1: of not clear yet is how he plans to monetize it. 152 00:08:12,040 --> 00:08:15,080 Speaker 1: Clearly he has his ideas around you know, coming up 153 00:08:15,120 --> 00:08:18,960 Speaker 1: with a subscription model or just kind of leveraging the 154 00:08:19,080 --> 00:08:22,680 Speaker 1: franchise as you know, a super app, which is what 155 00:08:22,880 --> 00:08:28,080 Speaker 1: he tweeted about yesterday. X So, look, I think with Musk, 156 00:08:28,240 --> 00:08:31,000 Speaker 1: because he's the face of Tesla, and Tesla as a 157 00:08:31,120 --> 00:08:34,000 Speaker 1: company has had a very good ear in terms of 158 00:08:34,120 --> 00:08:37,720 Speaker 1: attracting talent and what they're doing around you know, supercomputer 159 00:08:38,440 --> 00:08:42,240 Speaker 1: and robots and just evis in general. I think what 160 00:08:42,480 --> 00:08:45,440 Speaker 1: he's looking for is not to go through the trial 161 00:08:45,640 --> 00:08:48,800 Speaker 1: because there will be bad PR and it's gonna hurt 162 00:08:48,840 --> 00:08:53,840 Speaker 1: Tesla and then so really it's really care about bad PR. 163 00:08:53,880 --> 00:08:56,040 Speaker 1: I mean, if there's one billionaire out there that's gotten 164 00:08:56,120 --> 00:08:59,160 Speaker 1: bad PR, it is Elon Musk. He's the king of 165 00:08:59,280 --> 00:09:03,160 Speaker 1: bad PR. Well, they had an AI day on Friday, 166 00:09:03,400 --> 00:09:08,360 Speaker 1: where it was really aimed at getting more talent, attracting 167 00:09:08,440 --> 00:09:11,160 Speaker 1: talent around AI and machine learning to help him with 168 00:09:11,280 --> 00:09:13,920 Speaker 1: his supercomputer and you know all the things that tell 169 00:09:13,920 --> 00:09:16,880 Speaker 1: SLA is doing. So they really care about talent right now. 170 00:09:17,040 --> 00:09:19,600 Speaker 1: And I think if he goes through this trial, it's 171 00:09:19,640 --> 00:09:22,720 Speaker 1: going to bring in a lot of negative publicity talking 172 00:09:22,720 --> 00:09:25,000 Speaker 1: about twelve or thirteen billion dollars a debt. I'm looking 173 00:09:25,040 --> 00:09:28,280 Speaker 1: at the f A function on the bloomber terminal consensus 174 00:09:28,400 --> 00:09:31,680 Speaker 1: IBATA is like a billion a billion three. They can't 175 00:09:31,679 --> 00:09:34,920 Speaker 1: have that kind of leverage. What are they thinking? Well, so, 176 00:09:35,360 --> 00:09:37,839 Speaker 1: I mean his plans is to get Twitter to one 177 00:09:37,880 --> 00:09:41,000 Speaker 1: billion in daily active users, which is five times where 178 00:09:41,080 --> 00:09:43,360 Speaker 1: they are now. And uh right, and he wants to 179 00:09:43,400 --> 00:09:46,079 Speaker 1: bring out the cyber truck by last year. That's not 180 00:09:46,160 --> 00:09:49,880 Speaker 1: gonna happen, all right, timing, What's when do we think 181 00:09:49,920 --> 00:09:52,560 Speaker 1: this thing is gonna close? Actually? Is there anybody's venturing? 182 00:09:52,720 --> 00:09:55,160 Speaker 1: I guess this is what's so fascinating. He wants to 183 00:09:55,240 --> 00:09:57,160 Speaker 1: do the deal at the original terms of April. If 184 00:09:57,160 --> 00:09:59,840 Speaker 1: you look at section two point to the closing se 185 00:10:00,000 --> 00:10:02,520 Speaker 1: and I love that and the articles of closing that 186 00:10:02,640 --> 00:10:05,439 Speaker 1: we're in there. They've all been fulfilled. The Twitter shareholders 187 00:10:05,520 --> 00:10:08,720 Speaker 1: voted for it, the regulatory waiting periods of past. That's 188 00:10:08,720 --> 00:10:11,160 Speaker 1: why I say focus on Twitter and what Twitter does, 189 00:10:11,520 --> 00:10:13,440 Speaker 1: because they seem to be in control here if they 190 00:10:13,480 --> 00:10:16,679 Speaker 1: do stay legal proceedings. I think there's a big portion 191 00:10:16,679 --> 00:10:18,640 Speaker 1: of the market that says it's reasonable to think this 192 00:10:18,760 --> 00:10:22,320 Speaker 1: deal could close in the days rather than weeks. Could 193 00:10:22,360 --> 00:10:25,800 Speaker 1: happen very quickly. But as I said, maybe we still 194 00:10:25,880 --> 00:10:27,839 Speaker 1: do go to some somewhat form of trial. Maybe the 195 00:10:27,880 --> 00:10:32,240 Speaker 1: court has jurisdiction over the closing dynamic and a little 196 00:10:32,280 --> 00:10:34,959 Speaker 1: bit out of Musks control, it seems. I mean, doesn't 197 00:10:35,040 --> 00:10:37,280 Speaker 1: that make sense for them to ask the judge to 198 00:10:37,440 --> 00:10:40,800 Speaker 1: just guarantee the closing because they can say, look, okay, 199 00:10:40,880 --> 00:10:43,440 Speaker 1: he's agreed again. But last time he agreed, he signed 200 00:10:43,440 --> 00:10:46,360 Speaker 1: all the documents, he committed himself legally, he made it 201 00:10:47,200 --> 00:10:50,360 Speaker 1: a binding commitment, and then he backed out. So you 202 00:10:50,440 --> 00:10:52,400 Speaker 1: know what's thet from. You know, there are many voices 203 00:10:52,440 --> 00:10:54,560 Speaker 1: in the market that thinks the judge will keep an 204 00:10:54,559 --> 00:10:56,880 Speaker 1: eye on this. Remember this is a chance recurt case. 205 00:10:57,559 --> 00:10:59,400 Speaker 1: To Paul's point though that I think any of us 206 00:10:59,440 --> 00:11:01,559 Speaker 1: knew what chance three court was before this week. What 207 00:11:01,920 --> 00:11:04,880 Speaker 1: is the It's just corporate m and a court. You know, 208 00:11:05,040 --> 00:11:06,800 Speaker 1: she has the final say. It would have taken her 209 00:11:06,840 --> 00:11:09,199 Speaker 1: months to reach the decision. But the debt, you know, 210 00:11:09,440 --> 00:11:11,719 Speaker 1: the Wall Street bankers that musk Haide have to go 211 00:11:11,840 --> 00:11:13,880 Speaker 1: to the asset managers and sell twelve and a half 212 00:11:13,960 --> 00:11:17,880 Speaker 1: billion dollars of leverage buyout debt. That is much less 213 00:11:17,880 --> 00:11:20,040 Speaker 1: attractive than it was in April when this whole thing 214 00:11:20,200 --> 00:11:22,760 Speaker 1: was hatched. I don't I mean, are you hearing anything 215 00:11:22,920 --> 00:11:27,600 Speaker 1: from Wall Street the men deep about this capital structure here? 216 00:11:27,800 --> 00:11:29,120 Speaker 1: I kind of feel like he's got to go to 217 00:11:29,240 --> 00:11:31,199 Speaker 1: get some more private equity here. Well, the good thing 218 00:11:31,400 --> 00:11:33,760 Speaker 1: is it's still you know, when you compared to the 219 00:11:33,880 --> 00:11:38,040 Speaker 1: deck to equity ratio thirty three billion in equity and 220 00:11:38,160 --> 00:11:40,719 Speaker 1: the remainder twelve point five billion in debt, which is 221 00:11:40,760 --> 00:11:44,920 Speaker 1: still relatively low, typical buyouts like the Citrix buyout, that 222 00:11:45,080 --> 00:11:48,040 Speaker 1: component is much higher. So did anybody want a piece 223 00:11:48,080 --> 00:11:50,160 Speaker 1: of the Citrics buyout? People wouldn't want to touch it 224 00:11:50,200 --> 00:11:53,320 Speaker 1: with a ten foot pole. Are banks lost six hundred 225 00:11:53,360 --> 00:11:56,800 Speaker 1: million dollars on the Citrix But that's gonna be dropping 226 00:11:56,840 --> 00:11:59,120 Speaker 1: a bucket compared to this, I think us can still 227 00:11:59,240 --> 00:12:01,839 Speaker 1: raise the money by selling his stock. He has hundred 228 00:12:01,880 --> 00:12:04,760 Speaker 1: and seventy billion in Tesla stocks, so he can, didn't 229 00:12:04,800 --> 00:12:07,120 Speaker 1: he see from the tweets are from the text messages, 230 00:12:07,160 --> 00:12:08,800 Speaker 1: I should say that there are a lot of very 231 00:12:08,880 --> 00:12:11,160 Speaker 1: rich people that want to help him out with cash. Yeah, 232 00:12:11,320 --> 00:12:14,400 Speaker 1: but again, what does this all come down to? You know? Trust? 233 00:12:14,559 --> 00:12:16,480 Speaker 1: This has been a bit of a roller coaster and 234 00:12:16,960 --> 00:12:19,480 Speaker 1: what we don't know from the court filings and disclosures 235 00:12:19,480 --> 00:12:21,760 Speaker 1: as part of the discoveries, what do all those rich 236 00:12:21,840 --> 00:12:25,800 Speaker 1: people think today? October five, Levan, a Eastern Are they 237 00:12:25,880 --> 00:12:28,680 Speaker 1: willing to get on board? Who knows? Alright, guys, great stuff. 238 00:12:28,679 --> 00:12:31,400 Speaker 1: Appreciate you coming in here. Ed Ludlow, West Coast correspondent 239 00:12:31,640 --> 00:12:33,599 Speaker 1: for Bloomberg News. He's been trolling around New York for 240 00:12:33,640 --> 00:12:35,360 Speaker 1: the past few weeks. We have no idea what's going on, 241 00:12:36,160 --> 00:12:40,760 Speaker 1: but we got Mandeep Sing. He's a Bloomberg in bloom 242 00:12:40,800 --> 00:12:43,640 Speaker 1: b I industry. Uh. He covers all things technology and 243 00:12:43,679 --> 00:12:45,560 Speaker 1: he's in the office quite off. Yeah, he's in your 244 00:12:45,559 --> 00:12:47,360 Speaker 1: office quite often. He's one of these proud of him 245 00:12:47,440 --> 00:12:49,640 Speaker 1: we are, so we always appreciate getting that round table. 246 00:12:49,720 --> 00:12:52,240 Speaker 1: So looks. We'll keep our eyes on this Twitter. Will 247 00:12:52,280 --> 00:12:58,400 Speaker 1: they close? Boy? Talk about it in public markets? Two 248 00:12:58,600 --> 00:13:04,000 Speaker 1: just Marketer on everywhere and deals. You don't see I 249 00:13:04,160 --> 00:13:06,800 Speaker 1: p O s. You see E t F launches, But 250 00:13:06,840 --> 00:13:10,240 Speaker 1: that's pretty much it. I mean, so if here's you 251 00:13:10,280 --> 00:13:13,280 Speaker 1: should have a television show about that on Monday Steam. 252 00:13:13,760 --> 00:13:15,800 Speaker 1: So people go into the private market, we hear more 253 00:13:15,840 --> 00:13:18,920 Speaker 1: and more about this private equity, private debt. We're going 254 00:13:18,960 --> 00:13:20,920 Speaker 1: to dive deeper into that biz. And we can do 255 00:13:21,040 --> 00:13:23,000 Speaker 1: that with Randy Schumer. He's co had of Senior Lending 256 00:13:23,040 --> 00:13:26,120 Speaker 1: and senior managing director Churchill Asset Management. He joined us 257 00:13:26,200 --> 00:13:29,160 Speaker 1: live here in our Bloomberg Interactive Broker studio. So, Randy, 258 00:13:29,520 --> 00:13:32,280 Speaker 1: it's been tough everywhere out there for investors. Talk to 259 00:13:32,360 --> 00:13:35,400 Speaker 1: us about the private capital business that you've been so 260 00:13:35,520 --> 00:13:38,520 Speaker 1: involved in. How two been for you guys, Well, for 261 00:13:38,600 --> 00:13:40,520 Speaker 1: somebody who's been in it for a long long time, 262 00:13:40,800 --> 00:13:44,040 Speaker 1: it's interesting to actually see it coming into its own 263 00:13:44,080 --> 00:13:45,720 Speaker 1: And part of the reason is because, as you guys 264 00:13:45,760 --> 00:13:49,560 Speaker 1: have described, what the FED is doing with quantitative tightening 265 00:13:49,760 --> 00:13:52,679 Speaker 1: and interest rate hikes is creating a vacuum in the 266 00:13:52,760 --> 00:13:56,160 Speaker 1: public markets. So there's no clearing price for public bonds 267 00:13:56,240 --> 00:13:58,360 Speaker 1: right now, and the loans are both loans and bond 268 00:13:58,400 --> 00:14:01,360 Speaker 1: market are kind of offline because nobody knows how much 269 00:14:01,400 --> 00:14:03,000 Speaker 1: if you're an issuer, how much is that going to 270 00:14:03,120 --> 00:14:05,400 Speaker 1: cost me? So what they're doing is they're going to 271 00:14:05,480 --> 00:14:08,560 Speaker 1: the private markets, in large part because it's long term 272 00:14:08,640 --> 00:14:10,959 Speaker 1: capital that's been locked up for us to invest in 273 00:14:11,080 --> 00:14:14,040 Speaker 1: companies and other peers of ours, and we can go 274 00:14:14,200 --> 00:14:17,000 Speaker 1: out with those companies and say we actually can give 275 00:14:17,040 --> 00:14:20,120 Speaker 1: you capital that's not volatile, that's not that is going 276 00:14:20,200 --> 00:14:23,680 Speaker 1: to be positive in terms of for investors interest rates 277 00:14:23,760 --> 00:14:25,760 Speaker 1: going forward because it's a floating rate asset class and 278 00:14:25,920 --> 00:14:29,040 Speaker 1: for senior debt. So that's why it's getting attention. And 279 00:14:29,360 --> 00:14:32,200 Speaker 1: the other thing for investors is that because you've got 280 00:14:32,360 --> 00:14:37,040 Speaker 1: a somewhat risk off environment, leverages coming down, covenants are tighter, 281 00:14:37,440 --> 00:14:39,440 Speaker 1: and even more important, yields are higher right now for 282 00:14:39,520 --> 00:14:44,200 Speaker 1: private credit? Are they do these borrowers continue to agree 283 00:14:44,240 --> 00:14:46,480 Speaker 1: to floating rates? I mean, I guess now you want it, 284 00:14:46,600 --> 00:14:48,520 Speaker 1: right because as we're starting to get to what feels 285 00:14:48,560 --> 00:14:50,760 Speaker 1: like the top, you want to get into a floating rate. Well, 286 00:14:50,800 --> 00:14:53,320 Speaker 1: they want it because it's available capital. So they're willing 287 00:14:53,360 --> 00:14:57,360 Speaker 1: to pay the price. Secondly, the unitrunch financings that were 288 00:14:57,560 --> 00:15:01,080 Speaker 1: higher leverage, so six and seven times cash flows are 289 00:15:01,120 --> 00:15:03,520 Speaker 1: no longer in the market, and so from an investor perspective, 290 00:15:03,840 --> 00:15:07,440 Speaker 1: at five times and even less, that's very attractive. Junior 291 00:15:07,520 --> 00:15:11,160 Speaker 1: capital now is being put into these capital structures to 292 00:15:11,320 --> 00:15:14,880 Speaker 1: provide the issue where the little bit more flexibility. Now 293 00:15:15,000 --> 00:15:18,600 Speaker 1: junior capital is a fixed rate instrument, so it's good 294 00:15:18,640 --> 00:15:20,960 Speaker 1: for the issue where because they lock in their cost, 295 00:15:21,320 --> 00:15:22,960 Speaker 1: and it's good for an investor because the fixed rate 296 00:15:23,040 --> 00:15:25,440 Speaker 1: cost is it's higher, it's you know, ten to twelve percent. 297 00:15:25,880 --> 00:15:28,240 Speaker 1: Even senior debt today is close to ten percent. So 298 00:15:28,320 --> 00:15:30,840 Speaker 1: it's very attractive from an investor perspective. It's been so hot. 299 00:15:30,920 --> 00:15:33,360 Speaker 1: I mean, Paul and I talked to so many UM 300 00:15:33,680 --> 00:15:37,760 Speaker 1: fund managers who are starting to get into private markets 301 00:15:37,920 --> 00:15:41,760 Speaker 1: and more and more we talked to private capital managers. 302 00:15:42,760 --> 00:15:44,800 Speaker 1: What if we have a big recession? What you know, 303 00:15:44,960 --> 00:15:48,360 Speaker 1: the the narrative has been short, shallow recession until recently, 304 00:15:48,560 --> 00:15:50,320 Speaker 1: and now I think people are starting to worry about 305 00:15:50,320 --> 00:15:53,840 Speaker 1: a longer term, deeper recession. Is that a problem, Well, 306 00:15:53,880 --> 00:15:56,320 Speaker 1: it is a problem for the overall markets because we 307 00:15:56,440 --> 00:15:58,840 Speaker 1: don't know how that recession is going to unfold. It's 308 00:15:58,880 --> 00:16:00,680 Speaker 1: going to be like a no way do none seems 309 00:16:00,760 --> 00:16:04,840 Speaker 1: unlikely because the bank capital balance sheets are pretty strong 310 00:16:04,960 --> 00:16:07,600 Speaker 1: right now. It doesn't feel like it's going to be 311 00:16:07,680 --> 00:16:11,080 Speaker 1: an industry focus because we've had rolling recessions like that 312 00:16:11,200 --> 00:16:14,920 Speaker 1: over time in retail and so forth. Um, what probably 313 00:16:15,000 --> 00:16:16,400 Speaker 1: is going to happen is it's going to be an 314 00:16:16,480 --> 00:16:21,800 Speaker 1: interest expense UH coverage issue because as interest rates go up, 315 00:16:22,480 --> 00:16:25,320 Speaker 1: companies that were highly leveled, too highly leveled in our view, 316 00:16:25,640 --> 00:16:27,280 Speaker 1: are going to suffer because they're not gonna be able 317 00:16:27,320 --> 00:16:29,360 Speaker 1: to pay their interests. Because think about it, Treasury rates 318 00:16:29,400 --> 00:16:32,520 Speaker 1: were zero a year ago. There four percent today that 319 00:16:33,280 --> 00:16:35,240 Speaker 1: described and that's not changing. By the way, the Fed 320 00:16:35,360 --> 00:16:37,840 Speaker 1: fight against inflation is going to be continuing this year 321 00:16:37,880 --> 00:16:40,040 Speaker 1: and next year, and so you're gonna see interest rates 322 00:16:40,080 --> 00:16:44,040 Speaker 1: pretty high. So we think active management is critical. If 323 00:16:44,080 --> 00:16:46,120 Speaker 1: you are in industries the way Churchill is that are 324 00:16:46,160 --> 00:16:50,960 Speaker 1: more defensive, like healthcare and technology and software, those businesses 325 00:16:51,000 --> 00:16:54,320 Speaker 1: are going to do well typically through all cycles. But 326 00:16:54,400 --> 00:16:59,960 Speaker 1: if you're in chemicals, gaming, energy, housing, those businesses are 327 00:17:00,040 --> 00:17:01,640 Speaker 1: going to get hurt. And that's where you're going to 328 00:17:01,720 --> 00:17:06,160 Speaker 1: see in a recession um tighter interest and potentially default. 329 00:17:06,520 --> 00:17:09,680 Speaker 1: We're already seeing some kickups in large cap defaults just 330 00:17:09,840 --> 00:17:12,359 Speaker 1: because of that. All right, Let's just assume I'm a 331 00:17:12,480 --> 00:17:14,840 Speaker 1: super wealthy person out there and I want I just 332 00:17:14,920 --> 00:17:17,280 Speaker 1: bought a social media company and I need twelve or 333 00:17:17,320 --> 00:17:20,200 Speaker 1: thirteen billion dollars in debt. Is there even a market 334 00:17:20,280 --> 00:17:24,240 Speaker 1: out there for me? Well, I think there's there's probably 335 00:17:24,400 --> 00:17:27,399 Speaker 1: a market. But the question is what's the price right now? 336 00:17:27,520 --> 00:17:30,040 Speaker 1: And if you look at the public markets, and you're 337 00:17:30,040 --> 00:17:32,359 Speaker 1: seeing it in spades over the last several days in 338 00:17:32,480 --> 00:17:34,480 Speaker 1: the public equity markets, but we're seeing it all the 339 00:17:34,520 --> 00:17:37,000 Speaker 1: time in the credit markets, what is the clearing price? 340 00:17:37,400 --> 00:17:39,680 Speaker 1: And the clearing price is determined by the value. What 341 00:17:39,840 --> 00:17:43,280 Speaker 1: is the value of the business and or the or 342 00:17:43,400 --> 00:17:46,000 Speaker 1: the assets, And that's going to be driven a lot 343 00:17:46,119 --> 00:17:49,320 Speaker 1: by what is the expectation for the cycle going forward. 344 00:17:49,800 --> 00:17:52,160 Speaker 1: You tell me where we're going to be with rates 345 00:17:52,280 --> 00:17:55,240 Speaker 1: next year, and and somebody who's asking me whether we're 346 00:17:55,240 --> 00:17:57,800 Speaker 1: gonna have a hard landing. We're a barely a one 347 00:17:57,880 --> 00:18:00,399 Speaker 1: percent growth rate right now. We had negative growth in 348 00:18:00,440 --> 00:18:03,359 Speaker 1: the first and second quarters. Some folks, you know in 349 00:18:03,400 --> 00:18:06,280 Speaker 1: Bloomberg including you're saying kind of a one percent It's 350 00:18:06,320 --> 00:18:08,440 Speaker 1: hard to have a hard landing when you're going along 351 00:18:08,520 --> 00:18:11,280 Speaker 1: at one percent growth, right, So, what I think we 352 00:18:11,440 --> 00:18:14,399 Speaker 1: see as sort of a sloppy sideways where companies are 353 00:18:14,520 --> 00:18:17,520 Speaker 1: are going to be continually trying to figure out, Okay, 354 00:18:17,640 --> 00:18:20,879 Speaker 1: where do I maneuver through these supply chain shortages? How 355 00:18:20,920 --> 00:18:24,520 Speaker 1: do I keep my costs down? In an era of inflation, 356 00:18:24,800 --> 00:18:28,040 Speaker 1: food prices, energy prices continue to go up. And again, 357 00:18:28,080 --> 00:18:31,760 Speaker 1: if you're if you're in an active management scenario where um, 358 00:18:31,920 --> 00:18:35,840 Speaker 1: you're having a manager look very carefully at the free 359 00:18:35,880 --> 00:18:39,400 Speaker 1: cash flows of these businesses. Are retail investors gonna say, Okay, 360 00:18:39,400 --> 00:18:42,680 Speaker 1: I'm comfortable with this manager because they've been through a 361 00:18:42,760 --> 00:18:45,240 Speaker 1: downturn before. We've been around for twenty years, We've seen 362 00:18:45,320 --> 00:18:48,040 Speaker 1: these ups and downs. You're dealing with though much more 363 00:18:48,560 --> 00:18:51,520 Speaker 1: institutional investors. I mean, you're dealing with big numbers, right, 364 00:18:51,520 --> 00:18:54,000 Speaker 1: Do you have big assets under management? Um? Is there 365 00:18:54,320 --> 00:18:58,520 Speaker 1: room for a smaller player in private capital? Is there 366 00:18:58,600 --> 00:19:01,360 Speaker 1: room for retail investors really get into it? Well, there's 367 00:19:01,400 --> 00:19:04,680 Speaker 1: definitely room for retail investors. And in that case, it's 368 00:19:04,720 --> 00:19:07,399 Speaker 1: really a question of education. What is private credit how 369 00:19:07,440 --> 00:19:11,560 Speaker 1: does it help defining it as an uncorrelated asset class, 370 00:19:11,600 --> 00:19:13,399 Speaker 1: so it doesn't move with all the markets. So we 371 00:19:13,480 --> 00:19:16,320 Speaker 1: don't care where the DAO is today or yesterday or tomorrow. 372 00:19:16,640 --> 00:19:18,040 Speaker 1: What we care is and when we look at our 373 00:19:18,080 --> 00:19:20,960 Speaker 1: portfolio companies, how are those businesses going to go through 374 00:19:21,000 --> 00:19:23,960 Speaker 1: a cycle? And then explaining it to investors, here's why 375 00:19:24,080 --> 00:19:28,080 Speaker 1: you should be comfortable with our track record with very 376 00:19:28,160 --> 00:19:31,920 Speaker 1: few losses over the last twenty years, through multiple cycles, 377 00:19:32,359 --> 00:19:35,520 Speaker 1: and with very careful screening of companies to make sure 378 00:19:35,560 --> 00:19:38,199 Speaker 1: that if we do hit a downturn, that those companies 379 00:19:38,240 --> 00:19:40,840 Speaker 1: are going to be safe. Real quick, thirty seconds. What's 380 00:19:40,840 --> 00:19:42,280 Speaker 1: a typical deal for you? What do you look for? 381 00:19:42,920 --> 00:19:45,879 Speaker 1: So we look for companies that are leaders in their field. 382 00:19:46,000 --> 00:19:48,520 Speaker 1: We look for companies that are backed by the best 383 00:19:48,600 --> 00:19:51,399 Speaker 1: private equity firms that we have close relationships with, who 384 00:19:51,480 --> 00:19:54,360 Speaker 1: do a lot of the thought leadership about Okay, why 385 00:19:54,440 --> 00:19:57,000 Speaker 1: the sector and why this business um And we look 386 00:19:57,040 --> 00:20:00,160 Speaker 1: for structures that are conservative fully secured by ass that's 387 00:20:00,200 --> 00:20:03,760 Speaker 1: in cash flow, low leverage pricing that is at a 388 00:20:03,840 --> 00:20:07,280 Speaker 1: premium to the public markets. And second and third ways 389 00:20:07,320 --> 00:20:09,840 Speaker 1: out because we all know that things happen you want 390 00:20:09,840 --> 00:20:13,080 Speaker 1: to make sure their ways out if something happens that's unexpected, 391 00:20:13,080 --> 00:20:15,840 Speaker 1: and then there always is all right, good stuff. Randy Schwimmer, 392 00:20:16,119 --> 00:20:18,520 Speaker 1: co head of Senior Lending and Senior Managing Director Churchill 393 00:20:18,520 --> 00:20:21,720 Speaker 1: Asset Management, talking about the private capital business and again 394 00:20:21,760 --> 00:20:24,840 Speaker 1: as the public markets. And you've got a very popular newsletter. Yeah, 395 00:20:24,880 --> 00:20:28,000 Speaker 1: well we should that because you have a big readership 396 00:20:28,160 --> 00:20:31,200 Speaker 1: and for this kind of a niche industry, right, I 397 00:20:31,200 --> 00:20:33,159 Speaker 1: think it's a pretty big deal. I appreciate that the 398 00:20:33,240 --> 00:20:35,480 Speaker 1: lead left dot com and it's free to any friends 399 00:20:35,640 --> 00:20:38,480 Speaker 1: of this group right here because we're friends of Bloomberg. 400 00:20:38,600 --> 00:20:40,639 Speaker 1: Good stuff. I love to hear that. I range Schimmer 401 00:20:40,680 --> 00:20:43,159 Speaker 1: Joints as we appreciate that. In studio he had the 402 00:20:43,200 --> 00:20:46,120 Speaker 1: long walk across the street, So we appreciate folks. They're out, 403 00:20:46,200 --> 00:20:52,200 Speaker 1: they're getting out. And about how about that Hurricane Ian 404 00:20:52,320 --> 00:20:55,520 Speaker 1: has come and gone, but boy, the destruction in Florida 405 00:20:55,560 --> 00:20:58,840 Speaker 1: and some other places is just extraordinary. Let's put some 406 00:20:58,960 --> 00:21:01,679 Speaker 1: numbers around, uh, the costs of the storm. We can 407 00:21:01,680 --> 00:21:04,040 Speaker 1: do that with Matthew Palozzola. He's a senior analyst covering 408 00:21:04,400 --> 00:21:07,240 Speaker 1: property and casualty insurance for Bloomberg Intelligence. He trains is 409 00:21:07,280 --> 00:21:10,840 Speaker 1: here in our Bloomberg Interactive Brokers studio. So, Matt, what's 410 00:21:10,920 --> 00:21:14,360 Speaker 1: the headline number in terms of the insured loss coming 411 00:21:14,400 --> 00:21:15,840 Speaker 1: from this storm, which I think is one of the 412 00:21:15,880 --> 00:21:19,719 Speaker 1: biggest ones sure, So it's shaping up to be perhaps 413 00:21:19,800 --> 00:21:26,400 Speaker 1: the second largest insured hurricane loss ever after Katrina, after Katrina. Um, 414 00:21:26,840 --> 00:21:29,359 Speaker 1: and you know, it's actually even bigger than the Twitter 415 00:21:29,560 --> 00:21:34,359 Speaker 1: Elon deal at at around sixty billion dollars of insured losses, 416 00:21:34,440 --> 00:21:37,199 Speaker 1: which could imply that the economic losses would be over 417 00:21:37,240 --> 00:21:40,760 Speaker 1: a hundred billion dollars. And who backs up? The difference 418 00:21:40,960 --> 00:21:44,000 Speaker 1: is that does the government take over that some of 419 00:21:44,080 --> 00:21:46,520 Speaker 1: it's a government A lot of infrastructure is not insured, 420 00:21:46,720 --> 00:21:49,480 Speaker 1: so a lot of it would be that a lot 421 00:21:49,560 --> 00:21:53,280 Speaker 1: of it could be uh, you know, uninsured properties too. Yea, 422 00:21:53,640 --> 00:21:57,040 Speaker 1: all right, so this was bad. But if it hit Tampa, 423 00:21:57,080 --> 00:21:58,480 Speaker 1: I think we were talking to you a week or 424 00:21:58,520 --> 00:22:00,920 Speaker 1: so ago that could but had a much bigger number. 425 00:22:00,960 --> 00:22:03,119 Speaker 1: But still this is just huge. So we avoided the 426 00:22:03,160 --> 00:22:05,400 Speaker 1: worst case. But it's just it's just a less bad 427 00:22:05,520 --> 00:22:09,400 Speaker 1: bad case. Um. The direction on Tampa people were talking 428 00:22:09,440 --> 00:22:12,280 Speaker 1: about that kind of scenario costing insurance companies a hundred 429 00:22:12,320 --> 00:22:15,200 Speaker 1: billion dollars which might have cost two dred billion in 430 00:22:15,320 --> 00:22:20,440 Speaker 1: economic losses. So, um, what is the result here for 431 00:22:20,600 --> 00:22:24,520 Speaker 1: the insurers? I mean, um, they're obviously prepared for this 432 00:22:24,640 --> 00:22:26,760 Speaker 1: kind of thing, but this is pretty big. So this 433 00:22:26,920 --> 00:22:29,600 Speaker 1: is a big um. This will hit the reinsurance market, 434 00:22:29,640 --> 00:22:32,760 Speaker 1: which is insurance for insurance companies. A couple of things 435 00:22:32,840 --> 00:22:35,879 Speaker 1: to note is that catastrophe losses there haven't been a 436 00:22:36,000 --> 00:22:38,560 Speaker 1: lot so far in the year, especially in the quarter, 437 00:22:38,720 --> 00:22:41,800 Speaker 1: so they have budgets for these things. We we have 438 00:22:41,920 --> 00:22:46,920 Speaker 1: some analysis that says this could cost about of third 439 00:22:47,040 --> 00:22:49,879 Speaker 1: quarter earnings on average for a selected group of companies, 440 00:22:50,119 --> 00:22:52,920 Speaker 1: which is what we would say an earnings event, not 441 00:22:53,040 --> 00:22:56,399 Speaker 1: a capital event. All right, So to us about just 442 00:22:56,480 --> 00:22:59,280 Speaker 1: the insurance industry in in Florida in general, because it 443 00:22:59,320 --> 00:23:01,360 Speaker 1: kind of goes to the insurance business. I mean, it's 444 00:23:01,400 --> 00:23:06,040 Speaker 1: not it. I thought the insurance infrastructure umbrella in place 445 00:23:06,119 --> 00:23:09,080 Speaker 1: like Florida, which has so you know, they're so prone 446 00:23:09,119 --> 00:23:11,760 Speaker 1: to these storms, would be more robust. But it's really not, 447 00:23:12,000 --> 00:23:15,000 Speaker 1: is it. And it's it's in trouble. So one of 448 00:23:15,040 --> 00:23:17,240 Speaker 1: the biggest, not the biggest insurer in the state is 449 00:23:17,440 --> 00:23:19,840 Speaker 1: the state. So if you can't get insurance from private 450 00:23:19,880 --> 00:23:22,280 Speaker 1: insurance companies. You have to go to citizens, which is 451 00:23:22,320 --> 00:23:25,119 Speaker 1: the state fund. Uh and the policies and forces have 452 00:23:25,200 --> 00:23:28,000 Speaker 1: been growing and growing, and what's essentially happening is the 453 00:23:28,040 --> 00:23:31,440 Speaker 1: reinsurance companies don't want to give reinsurance to the primary 454 00:23:31,480 --> 00:23:33,920 Speaker 1: companies there and a lot of the smaller ones have 455 00:23:34,040 --> 00:23:36,560 Speaker 1: either left the state are actually gone insolvent. What does 456 00:23:36,640 --> 00:23:41,000 Speaker 1: this mean for rates for premiums? So typically the adages 457 00:23:41,160 --> 00:23:43,399 Speaker 1: you get a big storm loss and rates kind of 458 00:23:43,440 --> 00:23:46,440 Speaker 1: spike up. Um rates will be going up for homeowners 459 00:23:46,440 --> 00:23:50,240 Speaker 1: insurance anyway. Rates on the commercial side have been going 460 00:23:50,320 --> 00:23:51,920 Speaker 1: up for a couple of years anyway, So I don't 461 00:23:51,960 --> 00:23:54,280 Speaker 1: think that adage is gonna hold this at a time 462 00:23:54,320 --> 00:23:57,359 Speaker 1: when rates rates are going up. Oh well, you know, 463 00:23:57,480 --> 00:24:00,240 Speaker 1: interest rates are going up, which helps the insurance comes 464 00:24:00,240 --> 00:24:03,240 Speaker 1: on the investment income side, which theoretically means they don't 465 00:24:03,320 --> 00:24:05,200 Speaker 1: need to raise prices as much, but they still will 466 00:24:05,680 --> 00:24:09,960 Speaker 1: get your hopes what percentage of you know, you drag denistry. 467 00:24:10,000 --> 00:24:11,320 Speaker 1: You look at some of these homes, are they all 468 00:24:11,400 --> 00:24:14,080 Speaker 1: insured or do people just say it's too expensive, I'm 469 00:24:14,080 --> 00:24:16,639 Speaker 1: just going to roll the dice. So if you have 470 00:24:16,720 --> 00:24:19,159 Speaker 1: a mortgage, you need insurance right, And if you're in 471 00:24:19,160 --> 00:24:21,120 Speaker 1: a flood zone and you have a mortgage, you need 472 00:24:21,240 --> 00:24:25,199 Speaker 1: flood insurance. I think what where the we're not going 473 00:24:25,280 --> 00:24:27,000 Speaker 1: to do it is is the take up on flood 474 00:24:27,040 --> 00:24:30,200 Speaker 1: insurance outside of designated flood zones. So like if you 475 00:24:30,320 --> 00:24:32,720 Speaker 1: looked at these counties down there, that take up rate 476 00:24:32,920 --> 00:24:35,920 Speaker 1: people who buy the flood insurance is around thirty and 477 00:24:36,000 --> 00:24:37,920 Speaker 1: that's probably only the people who need to buy it. 478 00:24:38,200 --> 00:24:39,800 Speaker 1: So the people who don't need to buy it don't 479 00:24:40,080 --> 00:24:41,920 Speaker 1: buy it, and then they have a flood loss and 480 00:24:42,040 --> 00:24:43,959 Speaker 1: it's out of there. And that's what these losses are, right, 481 00:24:43,960 --> 00:24:46,480 Speaker 1: because it was the surge that was the most damaging. 482 00:24:46,640 --> 00:24:49,000 Speaker 1: So some of it is when I'd say sixty billion, 483 00:24:49,280 --> 00:24:52,159 Speaker 1: that is not including the flood. It might include some 484 00:24:52,400 --> 00:24:55,240 Speaker 1: of the National Flood Insurance Program, but it's not. That's 485 00:24:56,040 --> 00:24:59,080 Speaker 1: mostly not the flood losses because a lot of that 486 00:24:59,119 --> 00:25:02,439 Speaker 1: will be uninsured. So what's it like to be an 487 00:25:02,440 --> 00:25:06,480 Speaker 1: insurance company these days? With wildfires every day in the news. 488 00:25:06,760 --> 00:25:09,600 Speaker 1: If it's not wildfires, it's raining, then the mud slides 489 00:25:09,680 --> 00:25:13,000 Speaker 1: from the stuff that was burnt, or hurricanes or superstorms 490 00:25:13,040 --> 00:25:15,920 Speaker 1: to I mean, I guess they just adjust their models 491 00:25:15,960 --> 00:25:19,360 Speaker 1: on the risk premium, and they do they go merrily along. Well, 492 00:25:19,400 --> 00:25:21,600 Speaker 1: if and if it's not that it's a pandemic, and 493 00:25:21,640 --> 00:25:25,239 Speaker 1: if it's not that it's a war in Ukraine. So uh, 494 00:25:25,600 --> 00:25:28,120 Speaker 1: you know, look, they're they're used to these things. Non 495 00:25:28,240 --> 00:25:32,359 Speaker 1: correlated risks are are tough, or massively correlated risks are 496 00:25:32,359 --> 00:25:35,360 Speaker 1: also tough. So uh, they've been adapting to new things. 497 00:25:35,440 --> 00:25:37,760 Speaker 1: But one thing that's interesting is there's a ton of 498 00:25:37,800 --> 00:25:40,800 Speaker 1: stuff that just isn't insured. So it's it's a little 499 00:25:40,800 --> 00:25:43,200 Speaker 1: bit of an exciting time to be an insurance company 500 00:25:43,320 --> 00:25:46,200 Speaker 1: because you know, there's cyber there's there's tons of things, 501 00:25:46,240 --> 00:25:48,480 Speaker 1: there's a lot of new opportunities. They'll be very weary 502 00:25:48,560 --> 00:25:50,120 Speaker 1: to get into these things, but I think the ones 503 00:25:50,160 --> 00:25:54,000 Speaker 1: who first move will be good. So away from this storm, 504 00:25:54,680 --> 00:25:56,879 Speaker 1: when you're at a dinner party, and I'm sure you 505 00:25:56,920 --> 00:26:00,879 Speaker 1: get a lot of invites as the insurance analysts, of course, 506 00:26:01,520 --> 00:26:03,000 Speaker 1: what are you excited about? What do you what do 507 00:26:03,080 --> 00:26:05,120 Speaker 1: you talk to people about when when when the woman 508 00:26:05,200 --> 00:26:07,560 Speaker 1: next to you says, hey, what are some good opportunities 509 00:26:07,600 --> 00:26:11,359 Speaker 1: out there? What do you recommend? Um? You know, the 510 00:26:12,119 --> 00:26:15,800 Speaker 1: the interesting companies, to be honest, are the boring companies. Right, 511 00:26:15,840 --> 00:26:18,000 Speaker 1: So you look at the bell Weather is like a 512 00:26:18,160 --> 00:26:21,480 Speaker 1: chub um. You know, it's just a company that keeps 513 00:26:21,520 --> 00:26:24,680 Speaker 1: growing every year, keeps being the best underwriter every year. 514 00:26:26,040 --> 00:26:27,800 Speaker 1: And you know what another one's interesting is a I G. 515 00:26:27,960 --> 00:26:31,200 Speaker 1: They're they're working on a spinoff of their life insurance unit. 516 00:26:31,480 --> 00:26:35,120 Speaker 1: Their valuation is much lower than the than the group average, 517 00:26:35,200 --> 00:26:38,040 Speaker 1: and I think their performance has been catching up to 518 00:26:38,119 --> 00:26:40,760 Speaker 1: the group. So it's it's a nice kind of turnaround story. 519 00:26:41,200 --> 00:26:45,600 Speaker 1: Kicks me out? Did they how come they insured something 520 00:26:45,760 --> 00:26:47,760 Speaker 1: for me? And they were great about it, like no 521 00:26:47,920 --> 00:26:50,920 Speaker 1: questions asked, here's the money, thanks very much, and that 522 00:26:51,119 --> 00:26:55,560 Speaker 1: they were like, you're not coming back your Picasso, and 523 00:26:55,600 --> 00:26:58,760 Speaker 1: then they dropped exactly exactly all right. Matthew Palazzola, thanks 524 00:26:58,800 --> 00:27:02,040 Speaker 1: so much for joining us here our studios here. Matthew Palozola. 525 00:27:02,080 --> 00:27:06,320 Speaker 1: He covers property and count casualty insurance companies in industry 526 00:27:06,440 --> 00:27:09,520 Speaker 1: for Bloomberg Intelligence. So he's been a person in demand. 527 00:27:09,560 --> 00:27:14,320 Speaker 1: He always seems to be this time of year. So, man, 528 00:27:14,359 --> 00:27:16,159 Speaker 1: I guess so earnings will be kicking off in a 529 00:27:16,200 --> 00:27:18,880 Speaker 1: couple of weeks and it usually leads with the big 530 00:27:19,080 --> 00:27:22,520 Speaker 1: investment banks um and I think it's gonna be a 531 00:27:22,600 --> 00:27:26,479 Speaker 1: little dicey for these guys that the major earning season. 532 00:27:26,600 --> 00:27:30,360 Speaker 1: I'm focused on a number of other companies. I saw 533 00:27:30,480 --> 00:27:34,120 Speaker 1: that til Ray is coming out with earnings on Friday. 534 00:27:34,560 --> 00:27:38,680 Speaker 1: That's the marijuana um we brand company, and then a 535 00:27:38,760 --> 00:27:40,960 Speaker 1: couple of other weed companies are coming out on Tuesday. 536 00:27:41,240 --> 00:27:43,119 Speaker 1: I just find it so interesting. I've been talking to 537 00:27:43,200 --> 00:27:46,600 Speaker 1: some analysts um in the industry, those who are allowed 538 00:27:46,680 --> 00:27:49,680 Speaker 1: to because it's difficult to get coverage on this, and 539 00:27:49,760 --> 00:27:52,240 Speaker 1: they're saying, like, these socks are trading for two time 540 00:27:52,320 --> 00:27:55,800 Speaker 1: sales for five times earnings. I mean, they're priced for uh, 541 00:27:56,440 --> 00:27:58,920 Speaker 1: some kind of drop in demand. But of course it's 542 00:27:59,040 --> 00:28:00,960 Speaker 1: only going to ride. This is more and more stags go. 543 00:28:01,040 --> 00:28:02,320 Speaker 1: All right, but let's talk Wall Street. We do that 544 00:28:02,359 --> 00:28:06,320 Speaker 1: with Alison Williams, Senior Global Banks and Asset Manager Analysts. 545 00:28:06,359 --> 00:28:08,440 Speaker 1: I hired her as the Bank Sandles, but her title 546 00:28:08,520 --> 00:28:11,680 Speaker 1: keeps getting bigger and bigger and bigger. Bloomberg Intelligence Paul 547 00:28:11,680 --> 00:28:13,840 Speaker 1: has always taking credit for you, by the way, yeah always, 548 00:28:14,160 --> 00:28:17,000 Speaker 1: let's why tell us what we should be thinking about 549 00:28:17,040 --> 00:28:19,720 Speaker 1: for these earnings coming off for the big banks and 550 00:28:19,800 --> 00:28:22,080 Speaker 1: investment banks that you follow me what's JP Morgan, what's 551 00:28:22,080 --> 00:28:24,320 Speaker 1: Morgan Stanley? What are they gonna be saying in this quarter? 552 00:28:25,080 --> 00:28:28,600 Speaker 1: So one thing we know is week fees Okay, so 553 00:28:29,480 --> 00:28:31,960 Speaker 1: I P O S have you know, are are sort 554 00:28:32,000 --> 00:28:36,120 Speaker 1: of completely gone away almost compared to record year last year. 555 00:28:36,760 --> 00:28:40,200 Speaker 1: Fees are gonna be down fift Wealth management fees are 556 00:28:40,200 --> 00:28:42,440 Speaker 1: going to be weak. Asset management fees are gonna week 557 00:28:42,640 --> 00:28:45,800 Speaker 1: over draft fees are gonna be weak. So okay, but 558 00:28:46,040 --> 00:28:47,760 Speaker 1: don't we have a steeping and we have a steeping 559 00:28:47,840 --> 00:28:50,000 Speaker 1: yield curve. Isn't that good for you? So stepien and 560 00:28:50,120 --> 00:28:52,000 Speaker 1: yield curve is good. But it does take a while 561 00:28:52,680 --> 00:28:56,080 Speaker 1: to to sort of feed through. And I think one 562 00:28:56,120 --> 00:28:58,680 Speaker 1: of the things that we're gonna be watching um at 563 00:28:58,760 --> 00:29:01,960 Speaker 1: the at the US Bank is loan growth and that 564 00:29:02,080 --> 00:29:05,000 Speaker 1: interest margin expansion because we think there's gonna be some slowing. 565 00:29:05,720 --> 00:29:09,760 Speaker 1: Our overdraft fees going to be weak because consumers have 566 00:29:09,880 --> 00:29:13,960 Speaker 1: been so responsible in terms of watching what they spend. 567 00:29:14,240 --> 00:29:17,720 Speaker 1: I think because banks have been pressured to cut eliminate. 568 00:29:17,880 --> 00:29:21,240 Speaker 1: I will never understand this. Why do they when that 569 00:29:21,480 --> 00:29:23,400 Speaker 1: her go to issues? Yeah, but you know what, you 570 00:29:23,640 --> 00:29:26,600 Speaker 1: only get charged and overgraph fee if you spend more 571 00:29:26,680 --> 00:29:28,840 Speaker 1: money than you have in your account. Just don't do 572 00:29:29,040 --> 00:29:33,560 Speaker 1: that right, rightly. That part of fiscal responsibility that everyone 573 00:29:33,600 --> 00:29:36,840 Speaker 1: should learn it is opt in service, right, you have 574 00:29:36,920 --> 00:29:39,560 Speaker 1: to opt in for that service. So so it is 575 00:29:39,720 --> 00:29:44,560 Speaker 1: interesting that the continued scrutiny there. But um but fees week, 576 00:29:44,720 --> 00:29:48,320 Speaker 1: as we said, um, loan growth slowing, and I think 577 00:29:48,400 --> 00:29:51,040 Speaker 1: that's something that we've been worried about, right, Like everyone's 578 00:29:51,080 --> 00:29:53,360 Speaker 1: excited about rates going up because it's good for the margin, 579 00:29:53,560 --> 00:29:56,680 Speaker 1: but you need people to borrow, and as rates are 580 00:29:56,720 --> 00:29:59,080 Speaker 1: going up, are gonna we haven't had any of your 581 00:29:59,120 --> 00:30:01,560 Speaker 1: your big banks that you however, nobody's pre announced yet, 582 00:30:01,600 --> 00:30:05,320 Speaker 1: have they No one's pre announced, And I think that 583 00:30:05,480 --> 00:30:07,640 Speaker 1: a lot of the as they said, a lot of 584 00:30:07,640 --> 00:30:09,800 Speaker 1: the bad news, as we now always relates to the outlook, 585 00:30:09,880 --> 00:30:11,960 Speaker 1: right Like we're not we're not so worried about the 586 00:30:12,080 --> 00:30:14,680 Speaker 1: last three months, but we're worried about what's ahead. So 587 00:30:16,040 --> 00:30:18,320 Speaker 1: what what are the trends in loan growth? What does 588 00:30:18,360 --> 00:30:21,840 Speaker 1: that tell us about next year? And then provisions that's 589 00:30:21,880 --> 00:30:24,520 Speaker 1: still a wild card, right, So in terms of the 590 00:30:24,600 --> 00:30:27,080 Speaker 1: economy and in terms of the accounting at these banks, 591 00:30:27,200 --> 00:30:29,800 Speaker 1: banks have to look ahead, reserve over the life of 592 00:30:29,880 --> 00:30:32,560 Speaker 1: the loans UM and so there are some accounting and 593 00:30:32,560 --> 00:30:37,240 Speaker 1: assumptions there, and as the assumptions get tougher, UM will 594 00:30:37,280 --> 00:30:41,680 Speaker 1: there be some provisions. The exciting thing this earnings go 595 00:30:41,760 --> 00:30:45,480 Speaker 1: around is we have four big banks kicking off next Friday, 596 00:30:46,560 --> 00:30:48,840 Speaker 1: so we'll have all the answers, if you will, sort 597 00:30:48,880 --> 00:30:52,360 Speaker 1: of in one day. UM. Fixed income trading, the rate 598 00:30:52,440 --> 00:30:54,120 Speaker 1: side of things is going to be very strong. So 599 00:30:54,240 --> 00:30:56,680 Speaker 1: that's positive for for people like JP Morgan and City 600 00:30:56,680 --> 00:31:00,120 Speaker 1: when they kick off the results equity trading UM, it's 601 00:31:00,160 --> 00:31:03,120 Speaker 1: probably gonna be down from the prior year. UM and 602 00:31:03,240 --> 00:31:06,680 Speaker 1: again we'll be looking to see those investment banking pipelines. 603 00:31:07,560 --> 00:31:10,920 Speaker 1: Is there any potential to execute uh that you know 604 00:31:11,120 --> 00:31:13,560 Speaker 1: some of that pipeline going into your end. That's really 605 00:31:13,560 --> 00:31:16,440 Speaker 1: going to depend on the market. So you don't cover credit, 606 00:31:16,520 --> 00:31:20,520 Speaker 1: sweee credit? You do? Okay? So what's the deal here? 607 00:31:21,240 --> 00:31:24,080 Speaker 1: Have they just had uh? Have they just had a 608 00:31:24,200 --> 00:31:29,640 Speaker 1: lack of faith in UM market partners? Well, I'll say 609 00:31:29,680 --> 00:31:33,600 Speaker 1: two things with the recent price action. First, when a 610 00:31:33,680 --> 00:31:36,920 Speaker 1: bank comes out and says they're evaluating their strategy, and 611 00:31:37,280 --> 00:31:39,680 Speaker 1: that strategy may or may not include a capital raise, 612 00:31:39,840 --> 00:31:41,680 Speaker 1: that's that's never going to be good for the stock. 613 00:31:41,760 --> 00:31:46,560 Speaker 1: Stocks hate uncertainty, and especially if that uncertainty, um, you know, 614 00:31:46,640 --> 00:31:49,200 Speaker 1: could relate to dilution, it's going to be hard for 615 00:31:49,280 --> 00:31:52,960 Speaker 1: those shares to study. And then when you have markets 616 00:31:53,000 --> 00:31:56,520 Speaker 1: like we've had, right, So Credit Sweets was very volatile 617 00:31:56,600 --> 00:31:59,840 Speaker 1: on Monday. It was not a strong market, so that's 618 00:32:00,000 --> 00:32:03,840 Speaker 1: obviously a contributor. Banks in general are under pressure. There's 619 00:32:03,840 --> 00:32:06,800 Speaker 1: a lot of uncertainty about banks. European banks are under pressure. 620 00:32:07,000 --> 00:32:10,400 Speaker 1: But they've had to reneg on deals they've made with clients, right. 621 00:32:10,440 --> 00:32:14,600 Speaker 1: Apparently they lend out stock to clients, agreed to do 622 00:32:14,760 --> 00:32:18,320 Speaker 1: it contractually obligated, and then they realized they can't get 623 00:32:18,480 --> 00:32:22,560 Speaker 1: that stock from other market participants, so they've had to cancel. Well, 624 00:32:22,640 --> 00:32:26,320 Speaker 1: I'm you know, Bloomberg News has reported that I'm you know, 625 00:32:26,600 --> 00:32:29,800 Speaker 1: less familiar with those intimate details inside the bank, but 626 00:32:29,880 --> 00:32:33,479 Speaker 1: I would say that, you know, the the bigger picture 627 00:32:33,600 --> 00:32:37,040 Speaker 1: for Credit suitees is risk management, right, So that's really 628 00:32:37,080 --> 00:32:40,560 Speaker 1: what killed them last year. They had all these they 629 00:32:40,600 --> 00:32:43,640 Speaker 1: had all these hits. Um, they made some steps potentially 630 00:32:43,720 --> 00:32:48,600 Speaker 1: not aggressive enough. You know, sometimes hindsight, if the market 631 00:32:48,640 --> 00:32:51,840 Speaker 1: had been a great market this year, maybe maybe things 632 00:32:51,880 --> 00:32:54,680 Speaker 1: would have been different, but they're not. They need to 633 00:32:54,760 --> 00:32:59,000 Speaker 1: make deeper cuts. They've made changes at the top UM 634 00:32:59,720 --> 00:33:02,320 Speaker 1: and and you know, I guess that the tough thing 635 00:33:02,400 --> 00:33:04,080 Speaker 1: is gonna be what are they going to say to 636 00:33:04,160 --> 00:33:07,440 Speaker 1: instill confidence? Because whatever plan they come out with, that's 637 00:33:07,480 --> 00:33:12,479 Speaker 1: also gonna take time and patient capital capital. Alison Williams, 638 00:33:12,480 --> 00:33:14,800 Speaker 1: thank you so much for joining us. Alison Williams, Senior 639 00:33:15,000 --> 00:33:21,000 Speaker 1: banks analysts for Bloomberg Intelligence. One of the biggest I 640 00:33:21,120 --> 00:33:23,840 Speaker 1: think themes in investment in the last decade plus has 641 00:33:23,880 --> 00:33:28,120 Speaker 1: been E s G, Environmental, social, and governance. It's attracted 642 00:33:28,160 --> 00:33:30,200 Speaker 1: a lot of assets for investors that are looking to, 643 00:33:30,760 --> 00:33:33,000 Speaker 1: you know, focus on those issues in their investing. But 644 00:33:33,040 --> 00:33:36,080 Speaker 1: I think it's getting a little some pushback recently. UM 645 00:33:36,200 --> 00:33:39,120 Speaker 1: Bloomberg has a story out on that. We welcome Priscilla, 646 00:33:40,640 --> 00:33:44,160 Speaker 1: reporter for Bloomberg News. She's in our London office. Priscilla, 647 00:33:44,640 --> 00:33:46,440 Speaker 1: talk to us about kind of the work you guys 648 00:33:46,480 --> 00:33:48,960 Speaker 1: have been doing looking at this E s G investment picture, 649 00:33:49,040 --> 00:33:52,280 Speaker 1: It seems like it may not be delivering some of 650 00:33:52,480 --> 00:33:54,880 Speaker 1: some of the benefits that it that some of the 651 00:33:54,960 --> 00:33:58,320 Speaker 1: early folks were talking about. What did you find, Hey, 652 00:33:59,640 --> 00:34:03,160 Speaker 1: good turnoon here from London. Thank you for having me so. Uh. 653 00:34:03,400 --> 00:34:05,400 Speaker 1: This story that we have out that is also in 654 00:34:05,480 --> 00:34:07,680 Speaker 1: the Markets magazine that it is going to come out 655 00:34:07,800 --> 00:34:11,719 Speaker 1: next week. Um. It's also the result of an investigation 656 00:34:11,840 --> 00:34:14,240 Speaker 1: that we did for six months. We looked into companies 657 00:34:14,280 --> 00:34:18,799 Speaker 1: that issue sustainability linked bonds in particular. So sustainability linked 658 00:34:18,840 --> 00:34:23,720 Speaker 1: bonds are different from green social and sustainable bonds because 659 00:34:24,200 --> 00:34:27,480 Speaker 1: when I'll do like a short explanation, when a company 660 00:34:27,560 --> 00:34:30,200 Speaker 1: comes to the market and they issue a label bond 661 00:34:30,400 --> 00:34:33,520 Speaker 1: like green Social sustainable, the money that they take from 662 00:34:33,600 --> 00:34:36,239 Speaker 1: investors for that bond needs to be allocated for a 663 00:34:36,280 --> 00:34:40,960 Speaker 1: specific project. With this sustainability linked bonds, the story is 664 00:34:41,080 --> 00:34:43,759 Speaker 1: slightly different. So you take the money from investors, you 665 00:34:43,840 --> 00:34:46,480 Speaker 1: can use that money for whatever you want as long 666 00:34:46,800 --> 00:34:50,800 Speaker 1: as you and you tie this this bond to a 667 00:34:50,960 --> 00:34:55,320 Speaker 1: bigger like corporate climate goals, so you can take this 668 00:34:55,440 --> 00:34:58,080 Speaker 1: money as long as you achieve other goals at a 669 00:34:58,160 --> 00:35:01,000 Speaker 1: company level. And it turns out out then when looking 670 00:35:01,080 --> 00:35:03,760 Speaker 1: at those bonds that boomed in Europe over the past 671 00:35:03,800 --> 00:35:07,239 Speaker 1: two to three years, uh, most of those goals they 672 00:35:07,239 --> 00:35:10,400 Speaker 1: were irrelevant, they were weak, or they were already achieved 673 00:35:10,600 --> 00:35:13,920 Speaker 1: so the companies they weren't like they were achieving goals 674 00:35:14,040 --> 00:35:18,800 Speaker 1: that were already achieved. So yeah, so the penalties like 675 00:35:19,160 --> 00:35:24,320 Speaker 1: they weren't. Uh, the industry itself wasn't living up to 676 00:35:24,400 --> 00:35:27,480 Speaker 1: its potential. I mean, of course, why would you put 677 00:35:27,560 --> 00:35:29,719 Speaker 1: yourself as a company in a position where you're forced 678 00:35:29,760 --> 00:35:32,520 Speaker 1: to pay millions of dollars and penalties. I mean, if 679 00:35:32,600 --> 00:35:35,239 Speaker 1: you have a whole bunch of investors who are willing 680 00:35:35,280 --> 00:35:37,120 Speaker 1: to give you money for cheap because they think you're 681 00:35:37,120 --> 00:35:40,160 Speaker 1: going to do something special, and then, um, you said, 682 00:35:40,280 --> 00:35:43,239 Speaker 1: super easy goals for yourself, low hurdles that you clear 683 00:35:43,320 --> 00:35:46,240 Speaker 1: with no problem, that's like a win win for the company, 684 00:35:46,440 --> 00:35:50,480 Speaker 1: right exactly, that an absolute win win. In those bones, 685 00:35:50,600 --> 00:35:54,719 Speaker 1: they were super subscribed by investors, especially in an environment 686 00:35:54,880 --> 00:35:57,279 Speaker 1: of low interest rates like that we had in the 687 00:35:57,400 --> 00:35:59,440 Speaker 1: past two years. That's the part I don't get. So 688 00:35:59,800 --> 00:36:03,080 Speaker 1: why why this is the part I don't get. Um, 689 00:36:03,320 --> 00:36:08,320 Speaker 1: I understand why Chanel uh did the deal. I don't 690 00:36:08,440 --> 00:36:12,480 Speaker 1: understand why the deal was oversubscribed. I mean, who wants 691 00:36:12,520 --> 00:36:17,399 Speaker 1: to give them a better rate for pretending to be green? Well, 692 00:36:17,640 --> 00:36:21,040 Speaker 1: so investors did. At the time. The bond was super 693 00:36:21,120 --> 00:36:24,920 Speaker 1: subscribed by investors. So when in an in an environment 694 00:36:25,000 --> 00:36:28,440 Speaker 1: where interest rates are so low, everything that comes to 695 00:36:28,520 --> 00:36:31,920 Speaker 1: the market is super subscribed, right. And also when you 696 00:36:32,000 --> 00:36:34,880 Speaker 1: have a new portfolio, a bond that is labeled, it 697 00:36:35,120 --> 00:36:38,359 Speaker 1: gives the impression that you're doing good. So this bond 698 00:36:38,560 --> 00:36:45,560 Speaker 1: is fulfilling, uh, sort of like E s G investment mandate. 699 00:36:46,280 --> 00:36:49,279 Speaker 1: But there's so much going on, so many bonds coming 700 00:36:49,360 --> 00:36:53,160 Speaker 1: to the market, that maybe investors are credit analysts. They 701 00:36:53,200 --> 00:36:57,320 Speaker 1: didn't dig down into the numbers to look at this. So, Priscilla, 702 00:36:57,480 --> 00:37:00,120 Speaker 1: is there any sense that you know, investors are like 703 00:37:00,600 --> 00:37:04,120 Speaker 1: latching onto this idea that hey, maybe this isn't such 704 00:37:04,120 --> 00:37:08,480 Speaker 1: a great deal. Is there any pushback from the investment community. Yes, 705 00:37:08,600 --> 00:37:12,359 Speaker 1: So lately we've we've started seeing the headlines coming. We've 706 00:37:12,400 --> 00:37:15,840 Speaker 1: seen investors like moving Toro prize that they said like 707 00:37:16,160 --> 00:37:19,680 Speaker 1: criticizing those products, saying that they are not living up 708 00:37:19,719 --> 00:37:23,040 Speaker 1: to their expectations. That companies are doing this and they 709 00:37:23,200 --> 00:37:27,680 Speaker 1: took massive advantage of those conditions to bring those zeals. 710 00:37:27,719 --> 00:37:31,120 Speaker 1: So those criticism is there and it is becoming more 711 00:37:31,239 --> 00:37:36,280 Speaker 1: and more evident. Did um central banks participate in these deals? 712 00:37:36,320 --> 00:37:38,000 Speaker 1: Because I remember at the time the e C B 713 00:37:38,320 --> 00:37:42,399 Speaker 1: was all green as well as was the EU. Yes, 714 00:37:42,680 --> 00:37:47,240 Speaker 1: so the European Central Bank. So the market really started 715 00:37:47,280 --> 00:37:49,800 Speaker 1: off in Europe at the end of two thousand nineteen, 716 00:37:50,160 --> 00:37:52,399 Speaker 1: but we had like one to three deals. The first 717 00:37:52,440 --> 00:37:55,280 Speaker 1: one was a bound for ann L, the Italian utility company, 718 00:37:55,360 --> 00:37:57,440 Speaker 1: which is by the way, one of the biggest issuer 719 00:37:57,520 --> 00:38:01,880 Speaker 1: of this product. Um. So the market started in but 720 00:38:02,000 --> 00:38:04,520 Speaker 1: it really kicked off in two thousand twenty one, and 721 00:38:04,640 --> 00:38:08,799 Speaker 1: that's because the ECB started buying those bonds, so sustainability 722 00:38:08,880 --> 00:38:12,360 Speaker 1: linked bones started being eligible as collateral for the European 723 00:38:12,440 --> 00:38:15,160 Speaker 1: Central Bank from then and since then, because the central 724 00:38:15,160 --> 00:38:18,120 Speaker 1: Bank was able to participate in those sales, they boomed. 725 00:38:18,560 --> 00:38:22,720 Speaker 1: It's amazing. It's almost like, I mean, a conspiracy theorist 726 00:38:23,760 --> 00:38:26,680 Speaker 1: would say that the board that Chanel knows some people 727 00:38:26,719 --> 00:38:28,320 Speaker 1: on the e C being convinced them to do this 728 00:38:28,520 --> 00:38:32,799 Speaker 1: to get them easier financing. Um. But I guess those 729 00:38:32,880 --> 00:38:34,960 Speaker 1: days are gone, right. The pool of investors, you right, 730 00:38:35,120 --> 00:38:39,040 Speaker 1: has shrunk and central banks clearly are pulling back. Yes, 731 00:38:39,160 --> 00:38:42,080 Speaker 1: that's right. And now there's also more and more attention 732 00:38:42,160 --> 00:38:45,520 Speaker 1: into those deals and people are looking at the documentation 733 00:38:46,080 --> 00:38:50,120 Speaker 1: because the market now has evolved. We have because it 734 00:38:50,320 --> 00:38:53,040 Speaker 1: was new right in two thousand ninety, not only a 735 00:38:53,080 --> 00:38:55,319 Speaker 1: lot of people knew what they are what they were 736 00:38:55,400 --> 00:38:59,000 Speaker 1: looking at. So now there's more base, there's more point 737 00:38:59,040 --> 00:39:02,120 Speaker 1: of comparison, so you can go into the material and 738 00:39:02,160 --> 00:39:06,160 Speaker 1: to the documentation of such bonds and actually see what 739 00:39:06,280 --> 00:39:10,520 Speaker 1: they're all about. And investigators are looking into it even 740 00:39:10,560 --> 00:39:17,439 Speaker 1: beyond you, right, I mean, uh, courts. Well, Uh, that's 741 00:39:17,480 --> 00:39:20,560 Speaker 1: what we hope, that's what we hope. So far, the 742 00:39:20,719 --> 00:39:23,360 Speaker 1: regulators haven't gone down in Europe to the route of 743 00:39:23,560 --> 00:39:28,319 Speaker 1: looking at the ambitiousness of the goals, but we could 744 00:39:28,400 --> 00:39:30,320 Speaker 1: only hope that is more and more deals come to 745 00:39:30,400 --> 00:39:33,120 Speaker 1: the market and investors are more of the work, we 746 00:39:33,239 --> 00:39:37,000 Speaker 1: start seeing that they're not achieving the goals are actually 747 00:39:37,160 --> 00:39:41,160 Speaker 1: relevant to climate and to climate change into addressing the 748 00:39:42,320 --> 00:39:50,000 Speaker 1: the proposed goals, I was gonna say go ahead now, 749 00:39:50,120 --> 00:39:54,000 Speaker 1: out of like all the deals that we've that we've analyzed, 750 00:39:54,040 --> 00:39:56,239 Speaker 1: there's not a single bond that pays more than one 751 00:39:56,280 --> 00:39:59,160 Speaker 1: percent penalty if they failed to achieve, So this is 752 00:39:59,200 --> 00:40:01,839 Speaker 1: not relevant for a company at all. Yeah, that makes sense. 753 00:40:01,920 --> 00:40:05,920 Speaker 1: Interesting stuff. Priscillassato Roca, reporter for Bloomberg News, talking about 754 00:40:05,960 --> 00:40:08,560 Speaker 1: the e s G Investing son I think getting some 755 00:40:08,680 --> 00:40:12,200 Speaker 1: pushback on maybe some of the initial promises that were 756 00:40:12,280 --> 00:40:17,839 Speaker 1: made by folks in the E s G community. Thanks 757 00:40:17,880 --> 00:40:21,319 Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe 758 00:40:21,400 --> 00:40:25,080 Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast 759 00:40:25,160 --> 00:40:28,640 Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at 760 00:40:28,719 --> 00:40:32,320 Speaker 1: Matt Miller three. Put on false Sweeney I'm on Twitter 761 00:40:32,400 --> 00:40:35,200 Speaker 1: at pt Sweeney before the podcast. You can always catch 762 00:40:35,320 --> 00:40:36,839 Speaker 1: us worldwide at Bloomberg Radio.