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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is Bloomberg Intelligence with Alex Steele and Paul Sweeney.

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Speaker 3: The real our performance has been the US corporate high yield.

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Speaker 4: Are the companies lean enough? Have they trimmed all the fats?

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Speaker 3: The semiconductor business is a really cyclical.

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Speaker 2: Business, breaking market headlines and corporate news from across the globe.

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Speaker 4: Do investors like the M and A that we've seen?

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Speaker 3: These are two big time blue chip companies.

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Speaker 4: Window between the peak and cut changing super.

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Speaker 2: Fast Bloomberg Intelligence with Alex Steele and Paul Sweeney.

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Speaker 5: On Bloomberg Radio.

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Speaker 6: On Today's Bloomberg Intelligent Show, We're going to dig inside

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Speaker 6: the big business stories impacting Wall Street and the global markets.

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Speaker 6: Each week we provide in depth research and data on

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Speaker 6: some of the two thousand companies and one hundred and

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Speaker 6: thirty industries our analysts cover worldwide. Today, we're going to

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Speaker 6: discuss how Chinese AI startup Deep Seek challenge Silicon Valley's

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Speaker 6: assumptions about the cost of artificial intelligence, plus why shares

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Speaker 6: of jeff Blue Airways took a hit last week. But first,

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Speaker 6: a look into corporate earnings from one of the largest

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Speaker 6: wireless carriers in the US. TEA Mobile reported fourth quarter

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Speaker 6: results that beat analyst projections, and the results were driven

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Speaker 6: by growth and wireless subscriptions and home internet customers. For more,

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Speaker 6: guest host John Tucker and Paul Sweeney were joined by

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Speaker 6: t Mobile CEO Mike Sievert, and they first asked Mike

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Speaker 6: for his take on the company's most recent earnings.

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Speaker 7: We're just consistently outperforming expectations, and that's what the market

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Speaker 7: looks for in a business like ours. We're taking share,

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Speaker 7: we're growing, and then across the board we beat expectations.

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Speaker 7: We just finished the strongest growth here ever in our history.

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Speaker 7: And that's saying something because we have a story to

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Speaker 7: growth history in this company and a lot of people

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Speaker 7: wonder is the big growth run behind us, and we

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Speaker 7: just demonstrated yet again, No, it's not.

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Speaker 8: It's hard for me to get really excited about my

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Speaker 8: mobile service provider. But your customers, it's like they were

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Speaker 8: in a cult. What's the secret sauce? That's my softball question.

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Speaker 7: You know, our value, our corporate values start with this

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Speaker 7: basic idea. Love our customers, you know, give them more,

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Speaker 7: ask less of them.

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Speaker 5: And they notice. That's it's just a huge part.

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Speaker 7: Of our brand, and we have this thing we do

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Speaker 7: called T Mobile Tuesdays where every week customers come to

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Speaker 7: our Tea Life app, which has fifty million users, and

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Speaker 7: they engage to find out how are we rewarding them

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Speaker 7: this week?

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Speaker 5: Do you know what this week's was?

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Speaker 7: We gave away a shack Burger like the world's best

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Speaker 7: burger for free to every single teams Reflix.

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Speaker 3: Absolutely so, Mike, this is you're in a competitive business.

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Speaker 3: I think about the wireless business, the barriers to change

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Speaker 3: are pretty minimal. Churn is always an issue. Your competitors

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Speaker 3: are depocketed, they're good competitors. Is it just you guys

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Speaker 3: switching customers all the time just for deals. Talk to

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Speaker 3: us about the churn for your company.

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Speaker 7: Your business well churns at historic lows across the industry,

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Speaker 7: not just T Mobile. We just had our best churn

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Speaker 7: year ever, So people aren't switching a lot when they

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Speaker 7: are switching the net share takers tea Mobiles.

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Speaker 5: This is a great trend. You know.

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Speaker 7: I don't need for others to fail in order for

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Speaker 7: us to succeed in our business. This is a great neighborhood.

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Speaker 7: We just happen to be the best house in the neighborhood,

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Speaker 7: and so we're out growing everyone. But this is a healthy,

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Speaker 7: vibrant sector. Everyone's you know, growing and making money. I

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Speaker 7: think that's great. Part of it is people can't get

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Speaker 7: enough of the service that we all offer at T Mobile.

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Speaker 7: You know, we just guide it again to a big

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Speaker 7: year of revenue gains per customer. And that's not because

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Speaker 7: of pricing. It's because customers are self selecting up our

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Speaker 7: rate card to our higher priced offers because they see

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Speaker 7: the superior value and they want what we have to sell.

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Speaker 7: That's a great dynamic, not just for T Mobile, but

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Speaker 7: for the industry.

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Speaker 8: The growth strategy is organic or M and A or what.

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Speaker 5: It's organic principally.

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Speaker 7: I mean, we do have a number of M and

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Speaker 7: A deals in the pipeline that we're intending to close

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Speaker 7: this year, centered around fiber, centered around you know, other

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Speaker 7: add ons. We're also in, you know, acquiring a cellular company,

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Speaker 7: US Cellular.

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Speaker 5: So but by far, the.

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Speaker 7: Growth is an organic growth story focused on taking share,

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Speaker 7: adding revenues, deepening relationships with the existing customers that now

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Speaker 7: number well past one hundred million.

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Speaker 8: I don't understand like outdoor advertising, what does that have

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Speaker 8: to do with your business.

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Speaker 7: Yeah, we just announced the acquisition of a company called Vistar,

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Speaker 7: and you know we are in We're a billion dollar

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Speaker 7: advertising support company already, so it's a significant business for us.

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Speaker 7: We call it marketing services for marketers buy marketers. T

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Speaker 7: Mobile is a very famous marketer, and marketers want services

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Speaker 7: from us, so we provide that already. But our Tea

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Speaker 7: Life app part of what it does is it asks

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Speaker 7: customers buy the millions whether they would like to opt in.

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Speaker 7: Opt in to make their digital life better and their

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Speaker 7: advertising more relevant.

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Speaker 5: And then we can use.

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Speaker 7: Data to provide marketers with an ability to put advertising

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Speaker 7: in front of customers that they will actually appreciate.

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Speaker 5: And our dream with place.

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Speaker 7: Based marketing, outdoor marketing, that's the Vistaar acquisition is to

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Speaker 7: do that for the first time ever in outdoor advertising,

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Speaker 7: so that for the first time outdoor advertising, place based

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Speaker 7: advertising can become an addressable market.

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Speaker 5: Yeah, it's interesting. I love the outdoor business. You can't

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Speaker 5: switch channels on that.

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Speaker 3: I took all those companies public back in the day. Apple,

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Speaker 3: Mark German Bloomberg News. Apple has been working with SpaceX.

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Speaker 5: And T Mobile on starlink. What is starlink?

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Speaker 7: Okay, So this is the ability to connect your mobile

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Speaker 7: phone directly to satellite service. This is a huge breakthrough.

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Speaker 7: We announced our intention to partner with SpaceX over two

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Speaker 7: years ago, and now finally it's coming to market. With

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Speaker 7: opening of our beta a couple of weeks ago. We're

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Speaker 7: bringing on thousands of users and soon way more than that.

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Speaker 7: We're going to throw the doors open on this thing.

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Speaker 7: If you can see the sky, you're connected.

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Speaker 8: That's our visual the iPhone app.

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Speaker 5: That's correct.

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Speaker 7: These are lower th orbit satellites, easier for your phone

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Speaker 7: to find and vice versa. But this country, you guys,

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Speaker 7: has five hundred thousand square miles uncovered by any cellular network,

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Speaker 7: and it's a massive part of our land mass, and

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Speaker 7: we're about to close that coverage.

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Speaker 8: Okay, So if I uh on my bucket list is

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Speaker 8: a trip to the South Pole, I don't need cellular

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Speaker 8: service down there. I could just use a T mobile

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Speaker 8: iPhone Starling.

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Speaker 7: Well, I'm gonna have to check on how good the

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Speaker 7: l EO coverage is. But one of the things you

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Speaker 7: point out and very quickly to follow our terrestrial coverage

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Speaker 7: across the continental US and big parts of Alaska is

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Speaker 7: the world's oceans that. That's a big piece of this

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Speaker 7: because you know now you'll be able to not right away,

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Speaker 7: but as soon as we are able to turn it on,

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Speaker 7: you'll be able to get your service across the US

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Speaker 7: and as you travel around the oceans outside the reach

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Speaker 7: of any cellular See.

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Speaker 8: It's in beta testing right now. It's just confined to messaging.

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Speaker 7: Hundreds of satellites are in the air where we have

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Speaker 7: a free beta service going on. We're starting to let

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Speaker 7: people into it. Right now it's text messaging only, but

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Speaker 7: fast to follow will be light data services and eventually voice.

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Speaker 8: So I can get rid of my satellite phone. We

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Speaker 8: don't need that anymore.

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Speaker 5: I think the time will come when that's the case.

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Speaker 3: Top line growth four to five percent for you guys,

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Speaker 3: that's how I think about the wireless business. Is that

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Speaker 3: all pricing? If so, how do you think about the

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Speaker 3: pricing environment out there?

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Speaker 7: It's sharetaking and self selecting up our rate card, you know,

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Speaker 7: very little pricing. And so those are the big dynamics.

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Speaker 7: Postpaid service revenue growth eight percent, more than double the

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Speaker 7: rate of our peers. And so this is you know,

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Speaker 7: a dynamic that makes t mobiles so different in this

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Speaker 7: space because we're not only growing the top line, but

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Speaker 7: we're translating it into financial growth on the bottom line.

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Speaker 7: Twenty five percent year over year growth and cash flows

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Speaker 7: seventeen billion dollars are highest ever.

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Speaker 8: Now, how do you raise prices? You sort of touched

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Speaker 8: on this just briefly before, but how do you raise

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Speaker 8: prices without scaring away your cult members?

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Speaker 7: Cult members? Well, one thing is people. You know, we

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Speaker 7: have a rate card with a variety of options, and

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Speaker 7: people choose at an increasing rate the prices that are

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Speaker 7: higher up because they want what we have to sell.

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Speaker 7: Do you know that sixty percent of our new customers

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Speaker 7: coming in the front door choose one of our two

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Speaker 7: most premium plans because those are the ones that are

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Speaker 7: most packed with value. And they you know, they're here

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Speaker 7: for a reason. They want more data, they want the

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Speaker 7: experience that T Mobile can provide with the world's best

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Speaker 7: five G network.

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Speaker 3: Subscriber acquisition costs have how are they trending for you

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Speaker 3: guys these days?

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Speaker 7: They're pretty flat, and that's good. We're very comfortable with

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Speaker 7: this business model. It's a high CLV, you know, value exchange.

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Speaker 7: One of the things about this business it's reliable, it's predictable.

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Speaker 7: We do what we say, we try to exceed what

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Speaker 7: we say, and it's growing and that's one of the

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Speaker 7: things that really distinguishes us in a group of peers,

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Speaker 7: not just in the US, but around the world.

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Speaker 8: There is a fed meat today. Can you tell me

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Speaker 8: how if it all rates affect your business?

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Speaker 7: Well, we're a big debt issuer, so obviously it's relevant

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Speaker 7: in the long haul.

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Speaker 8: What's the debt right now?

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Speaker 7: With two point five leverage against debit, so it's you know,

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Speaker 7: it's very significant eve as in the thirty one, you know,

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Speaker 7: very significant debt, but it's also a stack that's you know,

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Speaker 7: investment grade, it's long term, it's you know, spread out,

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Speaker 7: so it doesn't affect us in an immediate way, but

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Speaker 7: in the long taul of course, as a debt.

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Speaker 5: It what would you like that leverage ratio to be

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Speaker 5: right where it is?

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Speaker 8: Okay?

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Speaker 3: Market structure in the wireless business three main players? Okay,

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Speaker 3: is there room for fourth? And I think about my

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Speaker 3: old friend Charlie Oregon. I have for the last fifteen years,

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Speaker 3: I had no idea what he's doing with a spectrum,

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Speaker 3: and I don't think the market knows either.

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Speaker 7: Well, he's operating you know, a major brand and Boost Mobile.

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Speaker 7: And the other thing is the cable companies, Charter and

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Speaker 7: Comcasts taken together, who don't overlap, kind of constant to

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Speaker 7: an additional carrier ass going well, and you know, they

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Speaker 7: are really growing their mobile service at a significant pace,

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Speaker 7: not as significant as us. We're the growth leaders, but

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Speaker 7: it's you know, it shows that this is a vibrant market.

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Speaker 5: Yeah, with a lot of competition in the smaller market.

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Speaker 8: So that's a big deal for you too, right.

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Speaker 7: Yeah, forty percent of the country everything that's not the

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Speaker 7: top one hundred markets we call smaller markets in rural areas.

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Speaker 5: It's a huge source of our growth right.

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Speaker 6: Now, thanks to Tea Mobile CEO Mike Sivert. We move

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Speaker 6: next to the auto sector. This week General Motors gave

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Speaker 6: a better than expected outlook for profit in twenty twenty five,

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Speaker 6: but President Trump's recent tear of threats have raised uncertainty

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Speaker 6: about the automaker's business. As a result, GM shares dropped

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Speaker 6: as much as ten percent on Tuesday, and for more.

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Speaker 6: We were joined by Steve Mann, Bloomberg Intelligence, Global Autos

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Speaker 6: and Industrials research analyst.

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Speaker 9: Yeah, I think the you know, Scott had a nice

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Speaker 9: run up last year. You know, the management team has

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Speaker 9: done a great job and actually managing and investors and

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Speaker 9: managing the challenges that's in the US market that the

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Speaker 9: other company, Ford and stilentas have been facing. I think

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Speaker 9: the expectation has actually ran up through last year, and

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Speaker 9: you know, we got some negative news, mixed news in

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Speaker 9: terms of the outlook. You know, the tone has changed.

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Speaker 9: You know, this is the first time that GM actually

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Speaker 9: is a little bit worried about the end market since COVID.

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Speaker 10: Well, what have we learned.

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Speaker 6: About GM and its actual EV units? Like, we're sales

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Speaker 6: better than expected, Like is the trough passed?

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Speaker 9: Yeah, it sales, especially in the fourth quarter, it did

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Speaker 9: run up. Some of that may be some channel inventory

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Speaker 9: stock building anticipation of better sales than twenty twenty five,

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Speaker 9: and that's one of the key issues. I think the

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Speaker 9: investors are concerned. There's a you know, there's going to

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Speaker 9: be a mixed change. They think that EV sales increase

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Speaker 9: EV sales will offset some of the more profitable truck

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Speaker 9: sales in twenty twenty five. So, you know, based on

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Speaker 9: our estimates, like it seems like even their adjusted EBIT

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Speaker 9: margin of eight to ten percent, maybe a little bit

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Speaker 9: too high, and they may fall actually at the low

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Speaker 9: end of that range or maybe even below our.

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Speaker 6: Thanks to Steve Mann, Bloomberg Intelligence Global Autos and Industrials

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Speaker 6: Research channelist. Coming up, we're going to break down some

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Speaker 6: key corporate earnings in the aerospace industry. You're listening to

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Speaker 6: Bloomberg Intelligence on Bloomberg Radio, providing in depth research and

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Speaker 6: data on two thousand companies and one hundred and thirty industries.

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Speaker 6: You can access Bloomberg Intelligence through Bigo. I'm the Terminal,

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Speaker 6: I'm Alex Steele, and this is Bloomberg.

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Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 2: weekdays at ten am Easter what Apple CarPlay and the

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Speaker 2: Android Auto with the Bloomberg Business App. Listen on demand

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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 6: We move next to the aerospace industry. This week, Boeing

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Speaker 6: report or did a four billion dollar operating loss in

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Speaker 6: the fourth quarter. Boeing CEO Kelly Ordberg said he will

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Speaker 6: realign the company around key business lines and cleave off

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Speaker 6: fringe assets. Separately, Jet Blue shares had a record plunge

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Speaker 6: after the carrier forecasted weaker than expected revenue and higher

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Speaker 6: costs for twenty twenty five. For more, we were joined

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Speaker 6: by George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst.

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Speaker 6: We began by asking George about Boeing and one of

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Speaker 6: the worst was over for the company.

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Speaker 11: Look, it seems like it's always hard to say the

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Speaker 11: worst is over. It seems like the trend is definitely

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Speaker 11: going the right direction. It seems like twenty twenty five

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Speaker 11: could be the year they thought twenty twenty four was

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Speaker 11: going to be. Look, you know, I heard a lot

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Speaker 11: of positive things about the manufacturing process in the call.

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Speaker 11: I think that's why Boeing pre announced. They wanted to

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Speaker 11: get some of the you know, the forward chargers out

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Speaker 11: of the way so people could focus on the message.

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Speaker 11: And I think the message was the factory, especially for

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Speaker 11: the seven thirty seven, has restarted in the new year.

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Speaker 11: It's building in the mid twenties range going to thirty eight.

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Speaker 11: It sounded like somewhere near midyear, which is probably before

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Speaker 11: where most of consensus thought it would get. I'm gonna

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Speaker 11: and the year close to forty two is what I

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Speaker 11: think I heard. I mean, management kept trying to solve

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Speaker 11: pedal it to a degree, and what I heard is

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Speaker 11: quality as spirit aerosystems improving. They're happy with it. They

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Speaker 11: don't think it's a liminar. I mean, all that's positive

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Speaker 11: for profitability and cash flow. Boeing should make this year

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Speaker 11: a lot better than last year if it all comes true.

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Speaker 3: Where should that seven three seven build number be in

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Speaker 3: a perfect world, Georgia, I'm trying to gauge the thirty

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Speaker 3: eight number, the forty number, the forty two number, versus

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Speaker 3: where it should be, maybe versus where Airbus is with

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Speaker 3: their product.

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Speaker 11: Well, I guess I would say if you were at

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Speaker 11: the Boeing board level, would you not say it should

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Speaker 11: be in the sixties, somewhere well above Airbus. Look Boeing

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Speaker 11: ended the last decade before the pandemic sort of driving

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Speaker 11: closer to sixty builds a month. They have plenty of

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Speaker 11: back laws. I don't think it should be at sixty

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Speaker 11: a month now, but I would expect they should be

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Speaker 11: driving hard towards sixty a month as we go into

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Speaker 11: the middle of the back half of this decade. That's

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Speaker 11: a little complex, Sorry about that, but you know the

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Speaker 11: twenty seven's twenty eighths. I think that sixties ought to

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Speaker 11: be a number they'd be looking at given the backlog,

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Speaker 11: And look, where should they be right now? Maybe they

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Speaker 11: should be, you know, close to fifty. So they're I mean,

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Speaker 11: they're what, they're halfway to that level they probably should

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Speaker 11: be at right now. This is the money maker, this

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Speaker 11: is the one they want to really optimize.

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Speaker 6: And no, no, I was going to say, I mean,

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Speaker 6: it's always like at least it could be worse. I

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Speaker 6: guess right, because it has been worse, So there's something there.

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Speaker 6: I do want to switch and talk about Jet Blue

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Speaker 6: for a second, because Paul and I are just really

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Speaker 6: confused to the extent to which Jet Blue is getting

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Speaker 6: beaten down. We know the costs will higher than estimated,

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Speaker 6: but what do you make of that price action?

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Speaker 11: Yeah, so, I mean I think they're Look, the big

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Speaker 11: service carriers, I think showed slightly better results than we

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Speaker 11: had expected, right, And so I think if you were

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Speaker 11: looking at the entire airline space, you could be confused

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Speaker 11: that those better numbers would carry through to the economy carriers,

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Speaker 11: to the more basic economy carriers. And I think what

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Speaker 11: Jet Blue told us it didn't right. Jet Blue lives

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Speaker 11: in a really difficult part.

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Speaker 10: Of the market.

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Speaker 11: They are you know, they're low cost plus they have

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Speaker 11: some premium seating and I say low costs, but they're not.

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Speaker 11: Their costs are not as low as like a Frontier,

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Speaker 11: a spirit an Allegiance. And so we think at the

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Speaker 11: bottom of that market and the basic economy world, your

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Speaker 11: best advantage is to be able to deliver seat miles

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Speaker 11: as cheap as possible because you're getting customers on price,

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Speaker 11: where if you're up in the United American right delta

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Speaker 11: world you get people on loyalty programs and premium seating

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Speaker 11: and things like that. We know the back end of

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Speaker 11: this business is really competitive, and it's hard for like

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Speaker 11: the Jet Blues in Southwest to survive in a world

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Speaker 11: where you've got to just deliver the really cheapest seat price.

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Speaker 11: And they're having a hard time doing that given the upstarts.

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Speaker 11: And when they show us an eight percent increase in

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Speaker 11: cost per available seat mile in one queue, no operating

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Speaker 11: profit that gets concerning that the worst isn't behind us

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Speaker 11: on excess budget seats in the marketplace.

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Speaker 3: Can we get some consolidation in that lower end of

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Speaker 3: the market now with this new administration, George.

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Speaker 11: Look, we could. I think the bigger ones could. I

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Speaker 11: think Jet Blue could consolidate somebody underneath them or somebody

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Speaker 11: about the same size. I don't think they'd allow Southwest

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Speaker 11: to go out and buy somebody, but I think you

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Speaker 11: could at the bottom end. Plus, you have some that

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Speaker 11: are hurting, right, you have Spirit airlines. Question is can

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Speaker 11: they survive. That could take some capacity out of the marketplace.

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Speaker 11: The challenges the planes don't go away. They're built, they're aluminum,

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Speaker 11: they last third years. Someone gets the airplanes. Where do

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Speaker 11: those airplanes go? Do they go out of market? They

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Speaker 11: go in market. But you could get some consolidation too.

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Speaker 6: Thirty seconds RTX you cover some of the defense guys.

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Speaker 10: RTX doing well.

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Speaker 11: Yeah, they showed some nice numbers. The guidance for next

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Speaker 11: year was nice as well. Look, they have a lower

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Speaker 11: I think view on how much original equipment deliveries they'll

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Speaker 11: make next year. That I think is probably practical, especially

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Speaker 11: given what Boeing said. So they kind of looked for

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Speaker 11: mid single digits growth in that original equipment deliveries. I

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Speaker 11: think Boeing and Airbus alone with narrow body deliveries are

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Speaker 11: going to be twelve ish percent. It'll be interesting to

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Speaker 11: see how that plays out, because the more that original

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Speaker 11: equipment they deliver, the more PRESSUREUS margins.

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Speaker 6: All right, thanks to George ferguson Bloomberg Intelligence and your Aerospace,

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Speaker 6: Defense and Airlines analyst. This week we focus on a

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Speaker 6: Bloomberg Big Take story titled deep Seek Challenges Silicon Valley's

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Speaker 6: assumptions about AI costs. You can find it on Bloomberg

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Speaker 6: dot Com and the Terminal. The story looks at how

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Speaker 6: Chinese AI startup called deep Seek released a new open

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Speaker 6: source AI model called r one that can mimic human reasoning,

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Speaker 6: and the release sent shock waves to the US tech industry,

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Speaker 6: with tech companies analyzing how deep Seek built its chatbot

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Speaker 6: and whether it did as cheaply as it claimed. For more,

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Speaker 6: we were joined by Rachel Metz, Bloomberry AI reporter, and

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Speaker 6: we first asked Rachel what the feeling is in Silicon

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Speaker 6: Valley after the latest news.

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Speaker 10: We're hearing a bunch of different things.

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Speaker 1: I mean, I think some people are a little alarmed,

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Speaker 1: a little bit surprised, but I think there's also a

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Speaker 1: lot of excitement. Frankly, I mean some of it may

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Speaker 1: boil down to sort of what your goals are what

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Speaker 1: your job is. I think you're seeing a lot of

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Speaker 1: interest and excitement, such as from companies that sell these

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Speaker 1: AI models to other people, like sell the usage of them,

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Speaker 1: a company like Data Bricks or cohere. I think they're

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Speaker 1: really interested in seeing where this goes. Data Bricks CEO

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Speaker 1: told me that they have a ton of customer interest

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Speaker 1: in us Deep seeks, so that's really interesting to them

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Speaker 1: from a customer perspective. But you could also see how

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Speaker 1: companies that are making these models might be like wait

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Speaker 1: a minute, yeah.

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Speaker 6: Well, and I guess the question is how soon can

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Speaker 6: can Silicon Valley replicate the model that Deep Seek created.

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Speaker 1: Well hugging face, which does a wide variety of things

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Speaker 1: including deploying their own models, hosting other people's models, stuff

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Speaker 1: like that. They're doing it right now, actually, so they

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Speaker 1: were replicating it and making it available to people, and

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Speaker 1: I think they're going along at a pretty good clip.

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Speaker 1: So other people could be doing that as well. And

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Speaker 1: that's the sense that I get that they that they

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Speaker 1: are starting to you know.

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Speaker 3: We've obviously Nvidia and other chip names took just a

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Speaker 3: huge hit, and I guess that kind of calls into question.

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Speaker 3: Investors are questioning do we need this much spending. If

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Speaker 3: somebody can come in here and do it as such

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Speaker 3: a discount, how is that argument kind of festering in

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Speaker 3: your backyard.

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Speaker 1: Yeah, I mean I think that people rightfully were a

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Speaker 1: little bit concerned, right and you saw.

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Speaker 5: The stocks really drop.

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Speaker 1: But on the other hand, you're still going to be

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Speaker 1: needing chips for all kinds of things, including AI processes.

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Speaker 1: And it's important to keep in mind that these AI

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Speaker 1: models that are mimicking the ways that humans reason, they're

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Speaker 1: still very new. There aren't that many of them at

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Speaker 1: this point. They're just not very far along, so it's

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Speaker 1: not clear yet how much compute. The compute in these

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Speaker 1: cases is often you're using a lot more of it

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Speaker 1: at the end of the process than you would have

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Speaker 1: with different types of models, so it'll be interesting to see.

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Speaker 1: It would be. One thing that's important to keep in mind, though,

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Speaker 1: I think, is that a number of companies have been

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Speaker 1: trying to make their models more efficient for a while.

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Speaker 1: I mean, efficiency could be great, it could be great

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Speaker 1: for the environment, it could be great for these companies

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Speaker 1: in terms of keeping costs down. So I think that's

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Speaker 1: why you see a lot of people excited about this.

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Speaker 6: Well, Also, I thought it was interesting in Vidia's statement

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Speaker 6: on deep Sea it was twofold. It was like, Hey,

438
00:21:56,640 --> 00:21:59,520
Speaker 6: they totally have complied with any restrictions on chips from

439
00:21:59,520 --> 00:22:01,399
Speaker 6: the government and they still were able to accomplish it,

440
00:22:01,480 --> 00:22:04,119
Speaker 6: and we're super pumped about it. That feels like it's like,

441
00:22:04,280 --> 00:22:08,920
Speaker 6: please don't put more tearffs on chips learning from the US.

442
00:22:09,240 --> 00:22:12,040
Speaker 10: Is that in the zeitgeist at all in Silicon Valley,

443
00:22:12,800 --> 00:22:15,439
Speaker 10: Not that I've heard, to be honest.

444
00:22:15,480 --> 00:22:17,560
Speaker 1: I mean, there may be people talking about that, but

445
00:22:17,640 --> 00:22:22,440
Speaker 1: I feel like most people are concentrating more on the

446
00:22:22,560 --> 00:22:26,840
Speaker 1: idea that this company has done something that appears to

447
00:22:26,880 --> 00:22:30,840
Speaker 1: be quite interesting, and they've made some really smart decisions

448
00:22:30,880 --> 00:22:32,879
Speaker 1: and they're a really smart team, and I think a

449
00:22:32,920 --> 00:22:34,919
Speaker 1: lot of people just find that really fascinating and they

450
00:22:34,920 --> 00:22:36,080
Speaker 1: want to know how they can do it too.

451
00:22:36,400 --> 00:22:37,600
Speaker 3: What do you expect to hear from some of the

452
00:22:37,640 --> 00:22:40,040
Speaker 3: big tech companies that report over the next couple of

453
00:22:40,080 --> 00:22:42,560
Speaker 3: weeks their earnings as it relates to AI and kind

454
00:22:42,560 --> 00:22:44,760
Speaker 3: of maybe how the ball field maybe changing.

455
00:22:45,000 --> 00:22:48,560
Speaker 1: Ooh ah, that's a good question. I mean, I'm sure

456
00:22:48,560 --> 00:22:50,600
Speaker 1: they're thinking about this and looking at this. I mean,

457
00:22:50,640 --> 00:22:54,880
Speaker 1: what it would probably make sense to hear more remarks

458
00:22:54,920 --> 00:22:59,600
Speaker 1: about efficiency. Frankly, I mean that seems to be what

459
00:22:59,680 --> 00:23:02,280
Speaker 1: this company has done in a few different areas, and

460
00:23:03,040 --> 00:23:06,800
Speaker 1: I would be curious to see if other companies are

461
00:23:07,040 --> 00:23:08,959
Speaker 1: thinking about how they can do that. I mean, I

462
00:23:08,960 --> 00:23:10,919
Speaker 1: would assume investors would like that if they're being more

463
00:23:10,960 --> 00:23:13,879
Speaker 1: efficient with how they're spending money and using resources.

464
00:23:14,280 --> 00:23:17,159
Speaker 6: Thanks to Rachel Mattz, Bloomberg AI reporter, coming up in

465
00:23:17,160 --> 00:23:19,640
Speaker 6: the program, a look at why HSBC will wind down

466
00:23:19,680 --> 00:23:23,159
Speaker 6: it's investment banking operations in Europe, the UK and the Americas.

467
00:23:23,480 --> 00:23:27,680
Speaker 12: If you don't have the operations, say on Wall Street

468
00:23:27,840 --> 00:23:31,200
Speaker 12: in the City of London, continental Europe, how meaningful can

469
00:23:31,240 --> 00:23:33,840
Speaker 12: you be to those types of clients in Asia and

470
00:23:33,880 --> 00:23:35,960
Speaker 12: the Middle East when they want to do stuff around

471
00:23:35,960 --> 00:23:38,200
Speaker 12: the world. You know, it's all very well obviously saying

472
00:23:38,280 --> 00:23:40,520
Speaker 12: you know, we're very big in Middle East and Asia,

473
00:23:40,560 --> 00:23:42,880
Speaker 12: will service use there. But when it comes to being

474
00:23:42,880 --> 00:23:45,760
Speaker 12: able to offer some kind of global perspective, maybe being

475
00:23:45,800 --> 00:23:47,600
Speaker 12: somewhat lacking then and I think that's going to be

476
00:23:47,680 --> 00:23:50,000
Speaker 12: the area that's going to be interesting to watch.

477
00:23:50,000 --> 00:23:53,320
Speaker 6: Here, you're listening to Bloomberg Intelligence. I'm Bloomberg Radio providing

478
00:23:53,359 --> 00:23:55,800
Speaker 6: in depth research and data on two thousand companies and

479
00:23:55,800 --> 00:23:58,879
Speaker 6: one hundred and thirty industries. You can access Bloomberg Intelligence

480
00:23:58,920 --> 00:24:01,320
Speaker 6: through b I go on the terminal. I'm Alex Steele,

481
00:24:01,480 --> 00:24:02,720
Speaker 6: and this is Bloomberg.

482
00:24:04,600 --> 00:24:08,159
Speaker 2: You were listening to the Bloomberg Intelligence Podcast. Catch the

483
00:24:08,200 --> 00:24:12,240
Speaker 2: program live weekdays at ten am Eastern on Applecarplay and

484
00:24:12,240 --> 00:24:15,080
Speaker 2: Android Auto with the Bloomberg Business app. You can also

485
00:24:15,240 --> 00:24:18,560
Speaker 2: listen live on Amazon Alexa from our flagship New York station.

486
00:24:18,960 --> 00:24:22,080
Speaker 2: Just say Alexa Play Bloomberg. Eleven thirty, we.

487
00:24:22,080 --> 00:24:24,639
Speaker 6: Moved next to the municipal bond market. It's looking like

488
00:24:24,680 --> 00:24:27,119
Speaker 6: a big year for unis in twenty twenty five, with

489
00:24:27,200 --> 00:24:30,920
Speaker 6: investors looking at high yield municipals to generate strong demand.

490
00:24:31,359 --> 00:24:33,800
Speaker 6: For more on this, we were joined by Nora Whitstruck,

491
00:24:33,880 --> 00:24:37,720
Speaker 6: chief Municipal Analytical Officer at SMP Global Ratings. We spoke

492
00:24:37,760 --> 00:24:40,960
Speaker 6: to Nora live from BAM Mutual offices in New York City.

493
00:24:41,400 --> 00:24:44,840
Speaker 13: Generally in twenty twenty five, I like to say that

494
00:24:44,880 --> 00:24:49,920
Speaker 13: the municipal sector is cautiously stable. A lot of state

495
00:24:49,920 --> 00:24:53,159
Speaker 13: and local governments are coming into twenty twenty five still

496
00:24:53,200 --> 00:24:56,600
Speaker 13: sort of writing some high liquidity and reserve levels based

497
00:24:56,680 --> 00:25:01,080
Speaker 13: on the COVID relief based still oh yeah, you know,

498
00:25:01,119 --> 00:25:02,679
Speaker 13: they had to commit it all by the end of

499
00:25:02,760 --> 00:25:04,960
Speaker 13: last year, but they had to they have to spend

500
00:25:05,000 --> 00:25:06,760
Speaker 13: it all by the end of twenty twenty six, so

501
00:25:06,800 --> 00:25:09,960
Speaker 13: they still have some in their coffers generally, and I

502
00:25:10,040 --> 00:25:12,919
Speaker 13: think also the economy has been pretty good and that

503
00:25:13,080 --> 00:25:15,600
Speaker 13: helps state in local governments and other entities that we

504
00:25:15,720 --> 00:25:18,560
Speaker 13: rate in terms of the demand that they see for

505
00:25:18,680 --> 00:25:19,520
Speaker 13: their services.

506
00:25:20,240 --> 00:25:22,240
Speaker 6: When it comes to something we've been talking about the

507
00:25:22,280 --> 00:25:24,320
Speaker 6: last hour and a half or so, are the impact

508
00:25:24,320 --> 00:25:28,040
Speaker 6: of natural disasters and the LA wildfires, Like how do

509
00:25:28,080 --> 00:25:30,880
Speaker 6: you deal with ratings and natural disasters like that?

510
00:25:31,760 --> 00:25:35,520
Speaker 13: So we bake risk into our ratings, as you might

511
00:25:35,560 --> 00:25:38,040
Speaker 13: imagine as credit analysts.

512
00:25:38,080 --> 00:25:40,120
Speaker 6: And but that probably wasn't on anyone's BINGO card.

513
00:25:40,320 --> 00:25:43,960
Speaker 13: So we In California, the state has inverse condemnation, which

514
00:25:44,000 --> 00:25:46,880
Speaker 13: means utilities, even if they are not negligent, can be.

515
00:25:47,840 --> 00:25:51,200
Speaker 10: Liable for sparking a wildfire if any of their equipment

516
00:25:51,240 --> 00:25:51,679
Speaker 10: is involved.

517
00:25:51,760 --> 00:25:57,240
Speaker 13: That's right, closet yep, absolutely so. Actually, LADWP, we lowered

518
00:25:57,400 --> 00:25:59,960
Speaker 13: from double A to double A minus a few years

519
00:26:00,080 --> 00:26:05,000
Speaker 13: ago because they choose as a decision not to de

520
00:26:05,160 --> 00:26:09,320
Speaker 13: energize their lines relative to wildfires, and that's fine for

521
00:26:09,400 --> 00:26:11,200
Speaker 13: them to do that. It's different than some of their

522
00:26:11,240 --> 00:26:15,639
Speaker 13: peers in California who do do that. But because of that,

523
00:26:16,119 --> 00:26:18,639
Speaker 13: they decide that because they're based in an urban area,

524
00:26:18,800 --> 00:26:20,800
Speaker 13: they don't want to shut off their traffic lights. They

525
00:26:20,800 --> 00:26:24,280
Speaker 13: think that the risk trade off between the wildfire and

526
00:26:24,400 --> 00:26:29,960
Speaker 13: human costs are are not equal. So we lowered their ratings,

527
00:26:29,960 --> 00:26:32,560
Speaker 13: and I think part of that is the inverse condemnation,

528
00:26:32,680 --> 00:26:36,920
Speaker 13: but also it's just the fact that utilities are particularly

529
00:26:37,000 --> 00:26:41,640
Speaker 13: susceptible to infrastructure damage during a severe weather event, whether

530
00:26:41,680 --> 00:26:45,800
Speaker 13: it be a wildfire, a hurricane, flooding. So it's all

531
00:26:45,840 --> 00:26:49,120
Speaker 13: been baked into our ratings. The actions that we took

532
00:26:49,160 --> 00:26:54,720
Speaker 13: on LADWP, we're partly reflecting a recalibration of that risk

533
00:26:54,880 --> 00:26:58,920
Speaker 13: as wildfires have come into more urban areas versus where

534
00:26:58,920 --> 00:27:01,480
Speaker 13: they historically have a cur and rural communities.

535
00:27:01,640 --> 00:27:04,879
Speaker 3: I guess in response to the LA fires, President Trump

536
00:27:05,080 --> 00:27:07,720
Speaker 3: I think is voiced some displeasure with FEMA and even

537
00:27:07,760 --> 00:27:10,919
Speaker 3: suggesting maybe some of the disaster relief responsibilities at the

538
00:27:10,920 --> 00:27:13,119
Speaker 3: federal level FEMA be put down at the state and

539
00:27:13,160 --> 00:27:16,199
Speaker 3: local level. Can states and local municipalties afford that kind

540
00:27:16,240 --> 00:27:16,879
Speaker 3: of stuff?

541
00:27:17,880 --> 00:27:22,280
Speaker 13: Well, we've historically said that FEMA is an important credit

542
00:27:22,359 --> 00:27:26,120
Speaker 13: support for state and local governments. These disasters are increasing

543
00:27:26,160 --> 00:27:31,919
Speaker 13: in frequency and increasing in cost, and absent federal aid,

544
00:27:32,760 --> 00:27:35,680
Speaker 13: you know, that would be a significant pressure for them,

545
00:27:35,920 --> 00:27:38,840
Speaker 13: and absorbing all of the costs is just probably a

546
00:27:38,880 --> 00:27:43,000
Speaker 13: little unsustainable at the current reading levels. I think what

547
00:27:43,119 --> 00:27:46,880
Speaker 13: we are watching for is what he actually decides to do.

548
00:27:46,880 --> 00:27:49,879
Speaker 13: Does he still decide to maintain the federal aid and

549
00:27:49,960 --> 00:27:52,560
Speaker 13: shift it to a block grant for states and then

550
00:27:52,600 --> 00:27:56,560
Speaker 13: states are responsible for allocating it, or you know, does

551
00:27:56,640 --> 00:27:59,639
Speaker 13: disaster relief go away entirely? Those are two very different

552
00:27:59,720 --> 00:28:02,080
Speaker 13: dyna that we have to monitor in terms of how

553
00:28:02,119 --> 00:28:02,800
Speaker 13: I relate.

554
00:28:03,040 --> 00:28:04,520
Speaker 10: What are the different options.

555
00:28:04,520 --> 00:28:07,240
Speaker 6: Then for those two scenarios, how would that impact How

556
00:28:07,280 --> 00:28:08,600
Speaker 6: would each impact the mini market?

557
00:28:09,440 --> 00:28:12,720
Speaker 13: So I think if even a lower level of disaster

558
00:28:12,840 --> 00:28:16,119
Speaker 13: relief for state and local governments, right now, they typically

559
00:28:16,200 --> 00:28:19,240
Speaker 13: get somewhere between seventy and ninety percent of the costs

560
00:28:19,280 --> 00:28:23,480
Speaker 13: reimbursed from the federal government. If that goes to twenty percent,

561
00:28:24,400 --> 00:28:28,680
Speaker 13: that's something that we'd have to consider. If that goes

562
00:28:28,720 --> 00:28:32,280
Speaker 13: to zero, that's a whole nother decision on our part

563
00:28:32,359 --> 00:28:35,399
Speaker 13: to determine what the liquidity and reserves of state and

564
00:28:35,440 --> 00:28:38,440
Speaker 13: local governments and entities that we rate need to maintain

565
00:28:38,520 --> 00:28:42,200
Speaker 13: as a buffer against these types of disasters. Now, if

566
00:28:42,240 --> 00:28:45,880
Speaker 13: it just shifts from FEMA being the allocator and the

567
00:28:45,880 --> 00:28:50,080
Speaker 13: distributor of funds to states in terms of a block grant,

568
00:28:50,560 --> 00:28:54,880
Speaker 13: that probably could be even like a non concern.

569
00:28:54,520 --> 00:28:56,800
Speaker 3: For us, if you will, all right, as a credit

570
00:28:56,880 --> 00:28:58,920
Speaker 3: rating agency, you get paid to worry.

571
00:28:59,120 --> 00:29:00,000
Speaker 10: We get paid to work.

572
00:29:01,000 --> 00:29:04,280
Speaker 3: Aside from natural disasters, which can be an overwhelming topic,

573
00:29:04,840 --> 00:29:07,440
Speaker 3: what are more of some pedestrian things that concern you?

574
00:29:08,400 --> 00:29:11,560
Speaker 13: Well, you know, I think generally we look at long

575
00:29:11,640 --> 00:29:14,680
Speaker 13: term liabilities, right, so pensions and how is state and

576
00:29:14,720 --> 00:29:17,640
Speaker 13: local governments and other entities that we rate manage their

577
00:29:17,680 --> 00:29:20,320
Speaker 13: pension systems. Typically it's managed at the state level.

578
00:29:20,800 --> 00:29:21,640
Speaker 10: What does that mean?

579
00:29:21,840 --> 00:29:25,040
Speaker 13: We are increasingly seeing more people retire, so how do

580
00:29:25,120 --> 00:29:28,600
Speaker 13: those costs get baked into the budget? States in particular

581
00:29:28,760 --> 00:29:31,360
Speaker 13: are a safety net for Medicaid, and that's something that

582
00:29:31,440 --> 00:29:34,680
Speaker 13: President Trump has also spoken about in terms of modifying

583
00:29:34,720 --> 00:29:37,840
Speaker 13: that plan. States get a lot of money to support

584
00:29:37,880 --> 00:29:40,840
Speaker 13: people that are vulnerable and need to be in those programs.

585
00:29:41,200 --> 00:29:44,440
Speaker 13: How could that change the way states function and what

586
00:29:44,480 --> 00:29:47,520
Speaker 13: they need to allocate resources to. I think we also

587
00:29:47,600 --> 00:29:52,960
Speaker 13: watch labor productivity and labor workforce dynamics. I think, you know,

588
00:29:53,040 --> 00:29:55,320
Speaker 13: one of the things that we noted after the election

589
00:29:55,560 --> 00:29:59,760
Speaker 13: is that immigration has been good for our workforce in

590
00:29:59,800 --> 00:30:03,800
Speaker 13: the It has really lowered the cost and the tightness

591
00:30:03,800 --> 00:30:08,000
Speaker 13: of the labor market. That has turned into high increases

592
00:30:08,120 --> 00:30:10,920
Speaker 13: in salaries and personal costs for state and local governments

593
00:30:10,920 --> 00:30:13,840
Speaker 13: and entities that we rate. So a major change in

594
00:30:13,880 --> 00:30:17,040
Speaker 13: border security could tighten that labor market right back up,

595
00:30:17,160 --> 00:30:20,640
Speaker 13: and that could put additional cost pressures back onto these

596
00:30:20,840 --> 00:30:21,640
Speaker 13: entities that we rate.

597
00:30:21,720 --> 00:30:23,440
Speaker 6: I mean, on the flip side, does it actually take

598
00:30:23,480 --> 00:30:24,920
Speaker 6: away some of the state aid though?

599
00:30:24,960 --> 00:30:28,640
Speaker 13: Also so it could definitely be a bit of a boost.

600
00:30:28,800 --> 00:30:32,160
Speaker 13: Right So, New York City in particular, with asylum seekers,

601
00:30:32,240 --> 00:30:35,360
Speaker 13: had to absorb a significant billions of dollars in additional

602
00:30:35,400 --> 00:30:39,760
Speaker 13: costs to help those individuals as they come come into

603
00:30:39,800 --> 00:30:42,600
Speaker 13: the city. That could definitely be a bit of a

604
00:30:42,800 --> 00:30:46,800
Speaker 13: relief valve for them if that were to change. I

605
00:30:46,840 --> 00:30:50,280
Speaker 13: think too, you know, there could be some cost savings

606
00:30:50,440 --> 00:30:55,600
Speaker 13: relative to medicaid, relative to other social services that they

607
00:30:55,960 --> 00:30:59,520
Speaker 13: need to participate in to you know, come survive once

608
00:30:59,560 --> 00:31:01,920
Speaker 13: they get to in the US. So that definitely there

609
00:31:01,920 --> 00:31:05,840
Speaker 13: could be some offsetting improvements in cost savings relative to

610
00:31:05,840 --> 00:31:06,520
Speaker 13: credit quality.

611
00:31:06,720 --> 00:31:11,280
Speaker 3: Maybe you can explain to me how life works in Florida. Yeah, okay, Texas,

612
00:31:11,840 --> 00:31:15,760
Speaker 3: no state taxes. How do they build schools and roads

613
00:31:15,760 --> 00:31:19,600
Speaker 3: and things like that? Because my stated my property taxes

614
00:31:19,640 --> 00:31:21,760
Speaker 3: are really high. Yeah, you know New Jersey.

615
00:31:21,800 --> 00:31:24,400
Speaker 13: I mean I own a five hundred and fifty square

616
00:31:24,400 --> 00:31:27,160
Speaker 13: foot condo and my property taxes are ten thousand dollars

617
00:31:27,200 --> 00:31:28,240
Speaker 13: in New York City.

618
00:31:28,280 --> 00:31:29,239
Speaker 5: So I hear you on that.

619
00:31:30,560 --> 00:31:34,240
Speaker 13: What happens in states that don't have an income tax,

620
00:31:34,600 --> 00:31:39,160
Speaker 13: typically they securitize other forms of revenue. So they securitize

621
00:31:39,200 --> 00:31:43,960
Speaker 13: gas taxes, they securitize sales taxes, they securitize property taxes,

622
00:31:44,000 --> 00:31:47,200
Speaker 13: which is typically the way most state and local governments

623
00:31:47,200 --> 00:31:50,160
Speaker 13: secure the debt obligations that they have outstanding is through

624
00:31:50,240 --> 00:31:54,040
Speaker 13: property taxes. So, yeah, you're right, those taxes are high,

625
00:31:54,080 --> 00:31:56,520
Speaker 13: and some of it will go to paying off debt

626
00:31:56,520 --> 00:31:59,000
Speaker 13: obligations for the entities that we rate.

627
00:31:59,080 --> 00:32:00,200
Speaker 10: You don't feel good about that?

628
00:32:00,320 --> 00:32:03,240
Speaker 3: Yeah, why do I have to pay these high taxes.

629
00:32:03,560 --> 00:32:06,000
Speaker 3: Everybody's moving to Florida to escape taxes.

630
00:32:06,120 --> 00:32:08,320
Speaker 10: It's true. No one likes paying the taxes exactly.

631
00:32:08,440 --> 00:32:10,560
Speaker 6: Yes, Well, what are some other key things that are,

632
00:32:10,680 --> 00:32:12,280
Speaker 6: uh that you guys are talking about right now, like

633
00:32:12,280 --> 00:32:12,760
Speaker 6: on the desk.

634
00:32:13,000 --> 00:32:16,760
Speaker 13: Yeah, so I think, you know, we're definitely watching federal policy.

635
00:32:17,320 --> 00:32:22,600
Speaker 13: We're definitely watching how aspects of affordability cut across all

636
00:32:22,680 --> 00:32:23,680
Speaker 13: of our sectors.

637
00:32:23,760 --> 00:32:26,160
Speaker 10: So, you know, I was the housing.

638
00:32:25,880 --> 00:32:28,640
Speaker 13: Sector lead before I was the chief analytical officer, and

639
00:32:29,240 --> 00:32:33,040
Speaker 13: we were watching, you know, the lack of housing inventory

640
00:32:33,080 --> 00:32:35,480
Speaker 13: and how that was affecting the entities that we rate,

641
00:32:35,560 --> 00:32:40,120
Speaker 13: like state housing finance agencies and social housing providers, public

642
00:32:40,160 --> 00:32:44,360
Speaker 13: housing authorities, how they're navigating that particular aspect. But it's

643
00:32:44,400 --> 00:32:49,120
Speaker 13: playing out everywhere. So water utilities and public power utilities,

644
00:32:49,480 --> 00:32:51,360
Speaker 13: some of which operate in La County.

645
00:32:52,080 --> 00:32:54,600
Speaker 10: We've been watching how.

646
00:32:54,440 --> 00:32:57,560
Speaker 13: They're raising rates to not only pay for deferred maintenance,

647
00:32:57,600 --> 00:33:01,360
Speaker 13: but also for investment for adaptation into wildfires and other

648
00:33:01,480 --> 00:33:02,480
Speaker 13: severe weather events.

649
00:33:03,160 --> 00:33:04,840
Speaker 10: Some have been a little.

650
00:33:04,680 --> 00:33:08,000
Speaker 13: Bit lax in doing that because it's been expensive to

651
00:33:08,080 --> 00:33:11,640
Speaker 13: live in America right We've had an inflationary environment, We've

652
00:33:11,680 --> 00:33:15,320
Speaker 13: had higher costs associated with food. We've had a higher

653
00:33:15,360 --> 00:33:19,240
Speaker 13: cost associated with utilities. Insurance premiums are going up for

654
00:33:19,360 --> 00:33:22,480
Speaker 13: property and casualty insurance. So all of those things are

655
00:33:22,520 --> 00:33:25,320
Speaker 13: weighing on management teams and they're looking at how they

656
00:33:25,320 --> 00:33:28,320
Speaker 13: can dampen those costs as much as possible.

657
00:33:28,560 --> 00:33:32,120
Speaker 6: Our thanks to Norah Woodstruck, chief Municipal Analytics Officer at

658
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Speaker 6: SMP Global Ratings, and to BAM Mutual for hosting us

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Speaker 6: at their offices. We turn out as some news in

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Speaker 6: the banking sector. This week, we heard that HSBC will

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00:33:40,240 --> 00:33:43,040
Speaker 6: wind down its investment banking operations in Europe, the UK,

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00:33:43,160 --> 00:33:45,800
Speaker 6: and the Americas. The firm roll instead focus on its

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00:33:45,800 --> 00:33:47,680
Speaker 6: operations in Asia and the Middle East.

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Speaker 10: For more.

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Speaker 6: We are dorned by Harry Wilson, Bloomberg Finance reporter, and

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00:33:51,120 --> 00:33:53,880
Speaker 6: we asked Harry if this news was actually a surprise.

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00:33:54,320 --> 00:33:57,080
Speaker 12: It's something that we've probably expected that could happen over

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00:33:57,120 --> 00:33:59,960
Speaker 12: the years. The truth is that HSBC has really been

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00:34:00,120 --> 00:34:03,040
Speaker 12: nowhere on Wall Street and in the city for some

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00:34:03,160 --> 00:34:06,200
Speaker 12: years now. It struggled to even get into the top

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00:34:06,240 --> 00:34:08,200
Speaker 12: ten when you look at sort of major league tables

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00:34:08,239 --> 00:34:11,400
Speaker 12: like equity underwriting or em and A. So the idea

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00:34:11,400 --> 00:34:13,600
Speaker 12: that they're just now kind of giving up on this thing,

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00:34:13,680 --> 00:34:15,879
Speaker 12: realizing that they can't compete with the likes of Gold

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00:34:15,960 --> 00:34:18,560
Speaker 12: and Sacks, JP Morgan, and that actually they'll just be

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00:34:18,600 --> 00:34:21,560
Speaker 12: better off focusing their resources on markets where they do

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00:34:23,000 --> 00:34:25,759
Speaker 12: have some scales, such as Middle Eastern Asia. Makes a

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00:34:25,800 --> 00:34:29,960
Speaker 12: lot of sense. So I guess short answer, timing wise, surprise.

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00:34:30,239 --> 00:34:33,160
Speaker 12: Longer term, no, I don't think it's particularly surprising that

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00:34:33,320 --> 00:34:34,320
Speaker 12: they're taking these actions.

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00:34:34,680 --> 00:34:36,640
Speaker 3: So, I mean this kind of goes to me, Harry

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00:34:36,800 --> 00:34:39,440
Speaker 3: kind of a bigger question, which is these European banks,

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00:34:39,800 --> 00:34:43,359
Speaker 3: can any of them be global investment banks? I mean,

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00:34:43,840 --> 00:34:46,040
Speaker 3: twenty years ago, I don't think we would have seen

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00:34:46,040 --> 00:34:46,760
Speaker 3: this happen.

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00:34:47,040 --> 00:34:51,200
Speaker 12: I think it's very difficult. European banks have faced these

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00:34:51,200 --> 00:34:54,960
Speaker 12: type of problems going decades now. Many have tried to

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00:34:55,120 --> 00:34:58,040
Speaker 12: make some kind of impact on Wall Street, and many

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00:34:58,080 --> 00:35:01,800
Speaker 12: of them have come back having spent hundreds of millions

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00:35:01,840 --> 00:35:06,360
Speaker 12: and got really nothing for their investment. The simple fact

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00:35:06,480 --> 00:35:09,239
Speaker 12: is that Wall Street is something of a lockout by

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00:35:09,280 --> 00:35:12,640
Speaker 12: the US major firms. And even when you get the

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00:35:12,719 --> 00:35:14,879
Speaker 12: likes to say Barklings, which was able to buy off

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00:35:14,880 --> 00:35:17,520
Speaker 12: the PEG the Leman operations in two thousand and eight

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00:35:17,960 --> 00:35:21,040
Speaker 12: even they've struggled to make much of it. And I

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00:35:21,080 --> 00:35:24,560
Speaker 12: guess the issue is that if even a bank like HSBC,

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00:35:24,760 --> 00:35:27,919
Speaker 12: the largest bank in Europe, can't really make this thing work,

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00:35:28,000 --> 00:35:31,080
Speaker 12: then it makes a question about how anyone else, without

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00:35:31,120 --> 00:35:33,840
Speaker 12: their type of scale, without their type of profitability, could

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00:35:33,880 --> 00:35:35,600
Speaker 12: expect to make much of an inroad.

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00:35:36,680 --> 00:35:39,480
Speaker 6: What's the opportunity, said, if you flip it to for

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00:35:39,560 --> 00:35:41,760
Speaker 6: Asia and Middle East for HSBC.

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00:35:41,680 --> 00:35:44,719
Speaker 12: Obviously these are fast growing regions, so you've got a

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00:35:44,760 --> 00:35:47,480
Speaker 12: lot more economic activity, a lot of growth coming in Asia.

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00:35:47,560 --> 00:35:49,959
Speaker 12: You've got a lot of money in the Middle East.

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00:35:50,000 --> 00:35:53,920
Speaker 12: You know, every day we see headlines about a Middle

707
00:35:53,920 --> 00:35:56,720
Speaker 12: East hedge fund being involved in some deal or another.

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00:35:57,040 --> 00:35:59,840
Speaker 12: So these are good places to be a big bank.

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00:36:00,400 --> 00:36:05,320
Speaker 12: The question really is is if you don't have the operations,

710
00:36:05,520 --> 00:36:09,000
Speaker 12: say on Wall Street in the City of London, continental Europe,

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00:36:09,360 --> 00:36:11,880
Speaker 12: how meaningful can you be to those types of clients

712
00:36:12,400 --> 00:36:14,319
Speaker 12: in Asia and the Middle East when they want to

713
00:36:14,320 --> 00:36:16,319
Speaker 12: do stuff around the world. You know, it's all very

714
00:36:16,360 --> 00:36:18,880
Speaker 12: well obviously saying you know, we're very big in Middle

715
00:36:18,920 --> 00:36:21,319
Speaker 12: East and Asian will service you there. But when it

716
00:36:21,360 --> 00:36:23,440
Speaker 12: comes to being able to offer some kind of global

717
00:36:23,480 --> 00:36:26,319
Speaker 12: perspective maybe being somewhat lacking there, and I think that's

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00:36:26,360 --> 00:36:28,719
Speaker 12: going to be the area that's going to be interesting

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00:36:28,760 --> 00:36:31,239
Speaker 12: to watch here is whether HSBC, if it doesn't have

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00:36:31,360 --> 00:36:34,200
Speaker 12: the stuff around the world and is purely focused on

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00:36:34,239 --> 00:36:36,879
Speaker 12: Asian and Middle East, whether that is still a good

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00:36:36,920 --> 00:36:41,960
Speaker 12: proposition to its clients in those regions that maybe want

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00:36:42,680 --> 00:36:45,160
Speaker 12: a more worldwide global network offering.

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00:36:45,360 --> 00:36:48,279
Speaker 6: All right, thanks to Harry Wilson, Bloomberg Finance Reporter. That's

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00:36:48,320 --> 00:36:51,720
Speaker 6: this week's edition of Bloomberg Intelligence on Bloomberg Radio, providing

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00:36:51,760 --> 00:36:54,120
Speaker 6: in depth research and data on two thousand companies in

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00:36:54,120 --> 00:36:57,320
Speaker 6: one hundred and thirty industries. And remember you can access

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00:36:57,360 --> 00:37:00,760
Speaker 6: Bloomberg Intelligence through Bigo. I'm a terminal, I'm Alex Steel.

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00:37:01,280 --> 00:37:05,719
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00:37:05,840 --> 00:37:09,120
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00:37:09,120 --> 00:37:12,280
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00:37:12,320 --> 00:37:15,720
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