1 00:00:05,120 --> 00:00:09,360 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 2 00:00:09,480 --> 00:00:10,600 Speaker 1: Bloomberg Radio. 3 00:00:13,039 --> 00:00:16,040 Speaker 2: This is Wall Street Week. I'm David Weston bringing you 4 00:00:16,280 --> 00:00:20,320 Speaker 2: stories of capitalism. This week, opportunity and why it's getting 5 00:00:20,400 --> 00:00:24,200 Speaker 2: harder to succeed on our own merits and the companionship 6 00:00:24,239 --> 00:00:26,480 Speaker 2: of our pets, and how it's led to a multi 7 00:00:26,520 --> 00:00:30,640 Speaker 2: billion dollar industry. We start with the story about prudence, 8 00:00:30,960 --> 00:00:34,760 Speaker 2: about getting the balance just right in life, in business, 9 00:00:34,960 --> 00:00:37,440 Speaker 2: and when it comes to managing money, knowing when to 10 00:00:37,440 --> 00:00:40,640 Speaker 2: take risks, the right risks to take, and when to 11 00:00:40,720 --> 00:00:42,240 Speaker 2: avoid risks altogether. 12 00:00:44,640 --> 00:00:49,160 Speaker 3: We obviously take credit risk and other risks, but people 13 00:00:49,200 --> 00:00:53,680 Speaker 3: who operate in a community tend to know the good 14 00:00:53,680 --> 00:00:55,000 Speaker 3: players and the bad players. 15 00:00:55,240 --> 00:00:58,520 Speaker 2: That's Bill Dempschak, who, as CEO of PANC manages risk 16 00:00:58,640 --> 00:01:00,880 Speaker 2: for a living. P and C is one of the 17 00:01:00,880 --> 00:01:03,800 Speaker 2: so called regional banks that are at the core of 18 00:01:03,840 --> 00:01:06,880 Speaker 2: the US banking system. They're not as big as money 19 00:01:06,880 --> 00:01:10,280 Speaker 2: center banks like JP Morgan, Bank of America, and Wells Fargo, 20 00:01:10,480 --> 00:01:13,759 Speaker 2: which have assets of just under ten trillion dollars combined, 21 00:01:14,360 --> 00:01:16,960 Speaker 2: but they can be much larger than the community banks 22 00:01:17,000 --> 00:01:20,119 Speaker 2: catering to individuals and local businesses, which are less than 23 00:01:20,160 --> 00:01:24,039 Speaker 2: ten billion dollars in assets each. PNC, for example, is 24 00:01:24,040 --> 00:01:26,800 Speaker 2: one of the largest regional banks with assets of over 25 00:01:26,840 --> 00:01:30,680 Speaker 2: five hundred billion dollars. For a critical segment of American business, 26 00:01:30,720 --> 00:01:33,679 Speaker 2: Regional banks get the balance just right. They lend to 27 00:01:33,720 --> 00:01:36,920 Speaker 2: businesses like Perimunt Company, a privately held firm based in 28 00:01:36,920 --> 00:01:40,240 Speaker 2: P andc's hometown of Pittsburgh. The company has grown to 29 00:01:40,240 --> 00:01:43,160 Speaker 2: become one of the top five producers of titanium in 30 00:01:43,200 --> 00:01:45,280 Speaker 2: the world and it's been banking with P and C 31 00:01:45,400 --> 00:01:46,880 Speaker 2: since the very beginning. 32 00:01:47,560 --> 00:01:50,400 Speaker 4: Where what you would call a medium fish or not 33 00:01:50,520 --> 00:01:56,000 Speaker 4: a big fish, but our track record is unmatchable in 34 00:01:56,120 --> 00:01:59,240 Speaker 4: our in the metals industry, and we like our position 35 00:01:59,320 --> 00:02:02,360 Speaker 4: where we're at, you know, very we are very loyal. 36 00:02:02,640 --> 00:02:07,880 Speaker 4: Our first meeting with PNC occurred in my parents' basement 37 00:02:08,320 --> 00:02:11,200 Speaker 4: when we were just starting our company, and you know, 38 00:02:11,240 --> 00:02:14,120 Speaker 4: it was over a couple of fold out tables where 39 00:02:14,720 --> 00:02:17,720 Speaker 4: the bank came in and we pitched our plan to 40 00:02:17,760 --> 00:02:22,000 Speaker 4: them on what we were going to do, and along 41 00:02:22,040 --> 00:02:25,440 Speaker 4: with our business plan, along with our ideas, our vision 42 00:02:25,520 --> 00:02:29,520 Speaker 4: or strategy. They said to my father, yes, Jim, we'll 43 00:02:29,560 --> 00:02:33,000 Speaker 4: back you. And the relationship started there and it's done 44 00:02:33,080 --> 00:02:35,320 Speaker 4: nothing but grow immensely over the years. 45 00:02:35,600 --> 00:02:38,760 Speaker 2: Knowing its customers well over long periods of time helps 46 00:02:38,760 --> 00:02:41,040 Speaker 2: the bank assess the risks it takes, but it can 47 00:02:41,080 --> 00:02:44,520 Speaker 2: also make original Bank a true partner for local companies 48 00:02:44,520 --> 00:02:47,840 Speaker 2: when they face turning points in their businesses, as Perman 49 00:02:47,919 --> 00:02:50,840 Speaker 2: did when it moved to expand its world class titanium 50 00:02:50,880 --> 00:02:54,359 Speaker 2: business into melting operations and faced a challenge that might 51 00:02:54,400 --> 00:02:56,799 Speaker 2: have taken it outside of Pittsburgh. 52 00:02:57,120 --> 00:03:00,000 Speaker 4: In two thousand and five, we were at the point 53 00:03:00,200 --> 00:03:04,680 Speaker 4: we needed to expand significantly in our capabilities. We needed 54 00:03:04,720 --> 00:03:08,880 Speaker 4: more facilities and more land, which we were at the 55 00:03:08,960 --> 00:03:11,959 Speaker 4: point of growing out of space in some of our 56 00:03:12,000 --> 00:03:16,360 Speaker 4: campuses in this region. Well, we were having a very 57 00:03:16,400 --> 00:03:22,560 Speaker 4: hard time getting additional land for this expansion, and we 58 00:03:22,639 --> 00:03:25,760 Speaker 4: started looking at the State of Virginia. Well, in the 59 00:03:25,800 --> 00:03:29,079 Speaker 4: eleventh hour, I came to my executives here at PNC 60 00:03:29,680 --> 00:03:33,120 Speaker 4: and said, Hey, this is what's happening. We can't get 61 00:03:33,160 --> 00:03:36,520 Speaker 4: what we need in the region. Well, they immediately got 62 00:03:36,520 --> 00:03:41,120 Speaker 4: in touch with the governor who started moving the roadblocks 63 00:03:41,200 --> 00:03:45,920 Speaker 4: that were in place, and lo and behold that allowed 64 00:03:46,000 --> 00:03:50,560 Speaker 4: us to grow further in this region, not leave the 65 00:03:50,680 --> 00:03:56,119 Speaker 4: city not leave Pennsylvania, and PNC was a key. 66 00:03:55,960 --> 00:03:57,119 Speaker 1: Part of that bill. 67 00:03:57,200 --> 00:04:00,320 Speaker 2: Dempjack Ce's support for companies like perimunt as the core 68 00:04:00,480 --> 00:04:04,120 Speaker 2: of his business, a basic banking business, serving customers and 69 00:04:04,120 --> 00:04:07,640 Speaker 2: providing credit for key parts of the economy, knowing when 70 00:04:07,760 --> 00:04:11,480 Speaker 2: and how to take risk and avoiding growth for growth's sake. 71 00:04:12,080 --> 00:04:14,280 Speaker 3: Maybe it's part of our Pittsburgh roots. But what I've 72 00:04:14,280 --> 00:04:17,599 Speaker 3: come to understand and all the years I've worked, is 73 00:04:17,680 --> 00:04:20,320 Speaker 3: banking really is three yards in a cloud of dust. 74 00:04:20,839 --> 00:04:24,440 Speaker 3: There isn't a magic answer. There isn't something that's going 75 00:04:24,520 --> 00:04:27,279 Speaker 3: to cause you to you know, as we've seen double 76 00:04:27,320 --> 00:04:32,440 Speaker 3: and triple in size safely. It's hard work, it's sticking 77 00:04:32,440 --> 00:04:36,200 Speaker 3: to what you know. It's being relevant to clients. 78 00:04:37,520 --> 00:04:40,000 Speaker 2: In the spring of twenty twenty three, regional banks were 79 00:04:40,000 --> 00:04:42,680 Speaker 2: put in the spotlight, but the failure of Silicon Valley, 80 00:04:42,880 --> 00:04:46,640 Speaker 2: Signature and First Republic banks, with questions raised about whether 81 00:04:46,720 --> 00:04:48,560 Speaker 2: they were inherently more risky. 82 00:04:49,200 --> 00:04:52,680 Speaker 3: What hit the news was than this notion of you know, 83 00:04:52,839 --> 00:04:55,560 Speaker 3: regional banks as a group are in trouble, and the 84 00:04:55,680 --> 00:05:00,360 Speaker 3: g sifies the giant money center banks are safe in 85 00:05:01,880 --> 00:05:05,039 Speaker 3: you know, you saw a market share move to the 86 00:05:05,120 --> 00:05:08,200 Speaker 3: larger banks during that period of time. Some of that 87 00:05:08,360 --> 00:05:10,200 Speaker 3: was fair in the sense that people said, look, if 88 00:05:10,240 --> 00:05:14,000 Speaker 3: I put my money at a JP Morgan, government will 89 00:05:14,000 --> 00:05:17,000 Speaker 3: never let them fail, my money will be safe. And 90 00:05:17,040 --> 00:05:21,880 Speaker 3: that's unfortunate because the descriptor of smaller necessarily being more 91 00:05:22,000 --> 00:05:26,160 Speaker 3: risky is just fundamentally wrong. But I understood the mentality. 92 00:05:26,920 --> 00:05:30,080 Speaker 2: Former Federal Reserve Governor Dan Trulo agrees that it was 93 00:05:30,120 --> 00:05:32,600 Speaker 2: a mistake to lump in a bank like PNC with 94 00:05:32,720 --> 00:05:36,080 Speaker 2: smaller versions of regional banks, and Tarula worries that the 95 00:05:36,120 --> 00:05:39,320 Speaker 2: smaller regionals may get caught in a squeeze. 96 00:05:39,960 --> 00:05:43,880 Speaker 5: So I think here's the dilemma, David. On the one hand, 97 00:05:44,680 --> 00:05:48,520 Speaker 5: the regional banks that I'm talking about, a group between 98 00:05:48,640 --> 00:05:51,280 Speaker 5: seventy and eighty billion and two hundred and twenty billion, 99 00:05:51,839 --> 00:05:56,120 Speaker 5: are in a business model squeeze. They cannot compete with 100 00:05:56,240 --> 00:06:00,279 Speaker 5: the pncs and USBs of the world, much less less 101 00:06:00,720 --> 00:06:04,800 Speaker 5: with Chase Manhattan and Bank of America. They just don't 102 00:06:04,800 --> 00:06:08,360 Speaker 5: have the scale to do it. Scale is becoming increasingly 103 00:06:08,400 --> 00:06:14,560 Speaker 5: important as digitization, tech and eventually artificial intelligence become important 104 00:06:14,640 --> 00:06:17,640 Speaker 5: parts of the banking business model. On the other hand, 105 00:06:18,080 --> 00:06:22,440 Speaker 5: what's left of genuine relationship banking, that is banking in 106 00:06:22,560 --> 00:06:28,800 Speaker 5: which subjective judgments about a potential borrower's position and ability 107 00:06:28,839 --> 00:06:33,159 Speaker 5: to repay are of significant importance, where it hasn't mostly 108 00:06:33,200 --> 00:06:37,680 Speaker 5: been reduced to numbers. That's where the community banks, fourteen eighteen, 109 00:06:37,800 --> 00:06:40,760 Speaker 5: twenty twenty two billion dollar banks, that's where they have 110 00:06:40,880 --> 00:06:43,880 Speaker 5: an advantage. And I think it's that group in the middle, 111 00:06:44,320 --> 00:06:48,280 Speaker 5: which has neither the scale nor the capacity to be 112 00:06:48,440 --> 00:06:52,599 Speaker 5: true local relationship lenders that are facing the squeeze. And 113 00:06:52,680 --> 00:06:55,200 Speaker 5: I don't think it's a coincidence that those are the 114 00:06:55,240 --> 00:06:57,800 Speaker 5: banks on which people feared runs a year and a 115 00:06:57,880 --> 00:06:58,800 Speaker 5: half ago. 116 00:06:59,520 --> 00:07:03,320 Speaker 2: And Bill Demchek agrees that regional banks like his have 117 00:07:03,400 --> 00:07:05,919 Speaker 2: a vital role to play, but he's not sure that 118 00:07:06,000 --> 00:07:08,240 Speaker 2: regulators have figured out what it is. 119 00:07:09,160 --> 00:07:11,880 Speaker 3: One of the things I've asked all of the regulatory 120 00:07:11,920 --> 00:07:16,360 Speaker 3: groups what their vision of banking is, and more often 121 00:07:16,360 --> 00:07:19,200 Speaker 3: than they'll not they'll say, that's not my problem. Our 122 00:07:19,240 --> 00:07:23,720 Speaker 3: problem is to keep banks safe. And if you point 123 00:07:23,800 --> 00:07:26,760 Speaker 3: out to them the change in the banking landscape where 124 00:07:27,200 --> 00:07:30,400 Speaker 3: you know a JP Morgan or a Bank America have 125 00:07:30,720 --> 00:07:34,960 Speaker 3: organically grown a PNC every three years, you know they're 126 00:07:35,680 --> 00:07:38,120 Speaker 3: I don't know what is it six seven times our 127 00:07:38,160 --> 00:07:41,000 Speaker 3: size even though we are as an institution. If we 128 00:07:41,240 --> 00:07:43,960 Speaker 3: just do what we're doing today, I think you'll have 129 00:07:43,960 --> 00:07:46,960 Speaker 3: three or four banks that'll consolidate the whole country. With 130 00:07:47,080 --> 00:07:52,000 Speaker 3: the exception of true community banks, which I think everybody 131 00:07:52,080 --> 00:07:56,000 Speaker 3: up and down agrees as do I, serve a really 132 00:07:56,040 --> 00:07:58,240 Speaker 3: important purpose in our country. 133 00:07:59,080 --> 00:08:02,040 Speaker 2: Whatever the role of regional banks ultimately proves to be. 134 00:08:02,200 --> 00:08:04,760 Speaker 2: Bankers like Bill Dempcheck doubt that the current approach to 135 00:08:04,800 --> 00:08:07,280 Speaker 2: bank regulation accomplishes what it's meant to. 136 00:08:07,720 --> 00:08:10,320 Speaker 3: In the end. If and I don't think we need this, 137 00:08:10,400 --> 00:08:12,160 Speaker 3: but if they said, you know what, the banking system 138 00:08:12,360 --> 00:08:15,200 Speaker 3: just needs more capital because we'll sleep better at night, 139 00:08:15,600 --> 00:08:19,200 Speaker 3: I'd rather have them just say hold more capital, but 140 00:08:19,240 --> 00:08:21,440 Speaker 3: then get out of my hair so that they don't 141 00:08:21,480 --> 00:08:23,600 Speaker 3: tell me how I'm supposed to allocate it. We know 142 00:08:23,640 --> 00:08:26,880 Speaker 3: how to allocate it. That's our business. You know. All 143 00:08:26,920 --> 00:08:30,680 Speaker 3: of the rules they hit you with ultimately cause all 144 00:08:30,680 --> 00:08:33,480 Speaker 3: the banks to kind of look the same based on 145 00:08:33,520 --> 00:08:36,959 Speaker 3: whatever the FED models say, which aren't always the right models. 146 00:08:37,000 --> 00:08:39,880 Speaker 3: It's a problem. I think we're long past a world 147 00:08:39,960 --> 00:08:44,920 Speaker 3: where bankers are high flyers and are trying to bet 148 00:08:45,000 --> 00:08:50,160 Speaker 3: on red I think that ended definitively in the financial crisis. 149 00:08:50,679 --> 00:08:56,040 Speaker 3: I worry more about by putting everybody under the same 150 00:08:56,120 --> 00:09:01,239 Speaker 3: microscope with the same models, we're replicating the same problems 151 00:09:01,600 --> 00:09:04,600 Speaker 3: across the entirety of the system. You know, if the 152 00:09:04,640 --> 00:09:08,200 Speaker 3: FED says in a stress test that this type of 153 00:09:08,320 --> 00:09:12,600 Speaker 3: loan is bad, then nobody will do it because regulatory 154 00:09:12,640 --> 00:09:15,680 Speaker 3: capital is too high. FED says this type of loan 155 00:09:15,800 --> 00:09:20,160 Speaker 3: is good. What if it isn't everybody does it because 156 00:09:20,200 --> 00:09:20,960 Speaker 3: the FED said so. 157 00:09:21,320 --> 00:09:24,800 Speaker 2: If regulators are looking for systemic risk to address, Bill 158 00:09:24,880 --> 00:09:27,760 Speaker 2: Demscheck suggests they look at the movement of assets outside 159 00:09:27,800 --> 00:09:31,400 Speaker 2: the regulated banking system to the non bank banks, in 160 00:09:31,480 --> 00:09:35,640 Speaker 2: part because of their growing codependency with other financial institutions. 161 00:09:35,920 --> 00:09:39,720 Speaker 3: The shift of assets outside of the banking system, leverage 162 00:09:39,760 --> 00:09:43,360 Speaker 3: lending and mortgage, we miss opportunities. Leverage lending is in 163 00:09:43,440 --> 00:09:47,800 Speaker 3: our core target. You know, our clients are right there 164 00:09:47,800 --> 00:09:50,960 Speaker 3: in Pittsburgh or Cleveland or Texas, and they're real companies 165 00:09:51,000 --> 00:09:55,160 Speaker 3: and they're not necessarily catered to private equity or other 166 00:09:55,200 --> 00:09:58,439 Speaker 3: buyout funds. But down the road it matters. I think 167 00:09:58,480 --> 00:09:59,600 Speaker 3: mortgage matters a lot. 168 00:10:00,280 --> 00:10:03,559 Speaker 2: Increasingly we see the non banks doing business with the banks. 169 00:10:03,960 --> 00:10:06,880 Speaker 2: They're banking with the banks. Is there a potential risk 170 00:10:06,960 --> 00:10:09,520 Speaker 2: in that basically that it could what has been thought 171 00:10:09,520 --> 00:10:12,640 Speaker 2: to be a non systemic risk could actually get into 172 00:10:12,679 --> 00:10:14,840 Speaker 2: the system particular, we're not able to see what's going on. 173 00:10:15,559 --> 00:10:20,439 Speaker 3: Yeah, it's it's a really good question. You will probably remember, 174 00:10:20,480 --> 00:10:23,800 Speaker 3: having seen recent comments and f SOOC notes if you 175 00:10:23,840 --> 00:10:26,160 Speaker 3: read that stuff where the regulators are starting to say, wait, 176 00:10:26,200 --> 00:10:29,959 Speaker 3: where's the interconnectedness here? And you know, all of the 177 00:10:30,000 --> 00:10:33,079 Speaker 3: shadow banking system, you know, if it's still called that, 178 00:10:33,360 --> 00:10:37,000 Speaker 3: from the retail lenders through to the leverage finance lenders, 179 00:10:37,080 --> 00:10:41,840 Speaker 3: through to hedge funds. They exist because banks provide liquidity 180 00:10:41,920 --> 00:10:46,160 Speaker 3: to them, so we empower You think about what's happened 181 00:10:46,200 --> 00:10:48,360 Speaker 3: to the mortgage business. I think seventy five percent of 182 00:10:48,400 --> 00:10:51,960 Speaker 3: it it's left banking and gone to not terribly well 183 00:10:52,000 --> 00:10:55,640 Speaker 3: capitalized or funded institutions, and then banking provided them with 184 00:10:55,800 --> 00:10:59,360 Speaker 3: liquidity lines for their warehouse. Things get bad, all those 185 00:10:59,360 --> 00:11:03,960 Speaker 3: liquidity lines go away and they're left hanging. So it's 186 00:11:04,000 --> 00:11:07,480 Speaker 3: the right conversation to have. And if you look specifically 187 00:11:07,480 --> 00:11:09,520 Speaker 3: at that outcome, is that a good outcome? I moved 188 00:11:09,520 --> 00:11:11,680 Speaker 3: it out of the banks. The banks still finance it all. 189 00:11:12,120 --> 00:11:15,520 Speaker 3: I don't have line of sight into it anymore. But 190 00:11:16,160 --> 00:11:17,840 Speaker 3: you know, I feel great about the banks. I just 191 00:11:17,880 --> 00:11:21,560 Speaker 3: don't necessarily feel great about everything that now is non 192 00:11:21,640 --> 00:11:23,839 Speaker 3: bank that I pushed out of the system, and we're 193 00:11:23,840 --> 00:11:26,760 Speaker 3: gonna we'll have a day of reckoning with that at some. 194 00:11:26,800 --> 00:11:30,079 Speaker 2: Point, whether you talk with a former regulator like Dan 195 00:11:30,120 --> 00:11:33,840 Speaker 2: Trulum or a banker like PNC's Bill Demchek. The future 196 00:11:33,880 --> 00:11:36,760 Speaker 2: of regional banks looks like it will lie with further consolidation, 197 00:11:37,360 --> 00:11:40,280 Speaker 2: something that raises its own issues with integration and of 198 00:11:40,280 --> 00:11:43,880 Speaker 2: course pricing, but that could make the system stronger if 199 00:11:43,920 --> 00:11:44,440 Speaker 2: done right. 200 00:11:44,880 --> 00:11:47,839 Speaker 3: I think mergers consolidation has to be a big part 201 00:11:48,080 --> 00:11:52,359 Speaker 3: of the future of banking. One of the challenges everybody 202 00:11:52,679 --> 00:11:58,080 Speaker 3: faces in this world of increasing technology spend in cyber 203 00:11:58,120 --> 00:12:01,160 Speaker 3: and what clients expect in terms of the product delivery 204 00:12:02,320 --> 00:12:05,560 Speaker 3: makes it hard for two medium size banks to get 205 00:12:05,600 --> 00:12:10,160 Speaker 3: together and be anything other than larger, but not necessarily 206 00:12:10,200 --> 00:12:13,440 Speaker 3: be any any better. You know, it gives them perhaps 207 00:12:13,480 --> 00:12:17,520 Speaker 3: an expense platform where over multiple years they now have 208 00:12:17,679 --> 00:12:22,400 Speaker 3: more to invest, but they are at a structural disadvantage. 209 00:12:22,960 --> 00:12:26,880 Speaker 2: But whatever further mergers or acquisitions may lie in PNC's future. 210 00:12:27,040 --> 00:12:30,080 Speaker 2: It's CEO and at least one of its longtime clients. 211 00:12:30,360 --> 00:12:36,160 Speaker 2: I believe this regional bank will retain deep roots in Pittsburgh. Next, 212 00:12:36,320 --> 00:12:39,160 Speaker 2: the billions of dollars we spend to keep our pets healthy. 213 00:12:39,520 --> 00:12:41,080 Speaker 2: Here on Wall Street Week. 214 00:12:42,080 --> 00:12:45,480 Speaker 1: You're listening to Bloomberg Wall Street Week with David Weston 215 00:12:45,640 --> 00:12:49,160 Speaker 1: from Bloomberg Radio. Take a nut so random walk through 216 00:12:49,200 --> 00:12:51,080 Speaker 1: hot topics and markets. 217 00:12:50,679 --> 00:12:54,600 Speaker 6: And finance, the case of the counterfeit commodities, collateral. 218 00:12:54,200 --> 00:12:58,280 Speaker 7: Tough times in the offshore wind sector, the Odd Lots podcast, 219 00:12:58,559 --> 00:13:01,040 Speaker 7: Joe Wisenthal, and how does. 220 00:13:00,960 --> 00:13:02,959 Speaker 8: Machine learning actually work? 221 00:13:03,080 --> 00:13:05,520 Speaker 1: Listen on that book car playing at Android Auto with 222 00:13:05,600 --> 00:13:08,840 Speaker 1: the Bloomberg Business and anywhere you'll get your podcasts. 223 00:13:08,880 --> 00:13:13,079 Speaker 9: We're leaning into the sort of nineties Nickelodeon, SpongeBob five. 224 00:13:13,280 --> 00:13:19,880 Speaker 1: Maybe Bloomberg podcasts context changes everything. This is Bloomberg Wall 225 00:13:19,960 --> 00:13:23,600 Speaker 1: Street Week with David Weston from Bloomberg Radio. 226 00:13:25,800 --> 00:13:28,760 Speaker 2: This is a story about companionship, the kind that eighty 227 00:13:28,840 --> 00:13:31,760 Speaker 2: seven million households enjoying in the United States. It's the 228 00:13:31,840 --> 00:13:35,320 Speaker 2: kind that can come only from pets, and Americans are 229 00:13:35,320 --> 00:13:37,280 Speaker 2: willing to pay a good deal of money to make 230 00:13:37,320 --> 00:13:39,920 Speaker 2: sure they can have it for as long as possible. 231 00:13:41,559 --> 00:13:43,400 Speaker 8: Look at some of the incredible studies on this. 232 00:13:43,960 --> 00:13:47,320 Speaker 6: Eighty six percent of pet owners would spend whatever it 233 00:13:47,360 --> 00:13:49,480 Speaker 6: takes to take care of their animal fit was sick. 234 00:13:49,800 --> 00:13:52,600 Speaker 6: And we said, okay, what if there was a twenty 235 00:13:52,640 --> 00:13:55,600 Speaker 6: percent reduction in your take home income, would you change 236 00:13:55,600 --> 00:13:57,320 Speaker 6: what you spend for your pet when it's sick? 237 00:13:57,480 --> 00:13:58,679 Speaker 8: And they wouldn't change it at dime. 238 00:13:59,240 --> 00:14:01,480 Speaker 6: It's a member of your family, and I think that 239 00:14:01,520 --> 00:14:04,200 Speaker 6: really does change what you're willing to spend as well 240 00:14:04,240 --> 00:14:06,280 Speaker 6: as the conditions that you're really going to pay attention to. 241 00:14:07,120 --> 00:14:10,960 Speaker 2: That's Kristin Peck, CEO zoetis the largest animal healthcare company 242 00:14:11,000 --> 00:14:14,960 Speaker 2: in the world, and she knows whereof she speaks. Last year, 243 00:14:15,000 --> 00:14:18,760 Speaker 2: Americans spent thirty eight billion dollars to keep their pets healthy, 244 00:14:19,080 --> 00:14:22,200 Speaker 2: up from fourteen billion dollars a decade ago, a jump 245 00:14:22,240 --> 00:14:25,600 Speaker 2: of one hundred and seventy percent. That's more than people 246 00:14:25,640 --> 00:14:28,560 Speaker 2: spent on gym memberships, and twice what they spent on 247 00:14:28,600 --> 00:14:31,840 Speaker 2: takeout pizza or going to the movies. There's also a 248 00:14:31,840 --> 00:14:34,760 Speaker 2: big business in the health and welfare of livestock, but 249 00:14:34,800 --> 00:14:37,520 Speaker 2: it's the pets side of things that's showing the most growth. 250 00:14:37,960 --> 00:14:40,760 Speaker 2: Pfizer spun off to at US eleven years ago. It's 251 00:14:40,760 --> 00:14:44,360 Speaker 2: gone from focusing mainly on livestock to dedicating the lion's 252 00:14:44,360 --> 00:14:46,479 Speaker 2: share of resources to our pets. 253 00:14:47,040 --> 00:14:50,720 Speaker 6: It's evolved dramatically since our IPO about eleven years ago. 254 00:14:50,960 --> 00:14:53,640 Speaker 6: Back then we were sixty five percent livestock, thirty five 255 00:14:53,640 --> 00:14:57,360 Speaker 6: percent pet care. We've really invested aggressively in science based 256 00:14:57,400 --> 00:14:58,480 Speaker 6: innovation and. 257 00:14:58,400 --> 00:15:00,000 Speaker 8: Now it's actually flopped completely. 258 00:15:00,360 --> 00:15:02,800 Speaker 6: We're now about sixty five percent in pet care and 259 00:15:02,840 --> 00:15:04,000 Speaker 6: thirty five percent in livestock. 260 00:15:04,320 --> 00:15:07,880 Speaker 2: The overall animal healthcare business grows between four and six 261 00:15:07,920 --> 00:15:11,400 Speaker 2: percent a year, but since it's IPO, Zoetis has averaged 262 00:15:11,400 --> 00:15:14,800 Speaker 2: a compound annual growth rate of eight percent, something Kristen 263 00:15:14,840 --> 00:15:18,400 Speaker 2: Peck attributes to investment in research and development to create 264 00:15:18,600 --> 00:15:19,560 Speaker 2: new treatments. 265 00:15:20,880 --> 00:15:24,160 Speaker 6: That difference is really the science based innovation that we bring, 266 00:15:24,480 --> 00:15:28,000 Speaker 6: bringing new treatments to new unmet medical needs. And as 267 00:15:28,000 --> 00:15:30,720 Speaker 6: I look to the future, there's no reason that should stop. 268 00:15:31,040 --> 00:15:35,359 Speaker 6: There are significant unmet medical needs across both companion and livestock. 269 00:15:35,760 --> 00:15:39,240 Speaker 6: Major diseases such as chronic kidney disease and renal disease 270 00:15:39,360 --> 00:15:42,000 Speaker 6: that right now has no treatment for cats and dogs. 271 00:15:42,480 --> 00:15:44,960 Speaker 2: And beating the market as you have done. How much 272 00:15:45,000 --> 00:15:47,840 Speaker 2: of that is organic? I would say internally generated as 273 00:15:47,840 --> 00:15:50,120 Speaker 2: opposed to acquisitions. 274 00:15:49,560 --> 00:15:51,920 Speaker 8: So almost all of it for us has been organic. 275 00:15:52,640 --> 00:15:55,520 Speaker 6: We look very closely to what are the customer needs 276 00:15:55,520 --> 00:15:58,360 Speaker 6: across the globe and meeting those needs. We have a 277 00:15:58,480 --> 00:16:01,320 Speaker 6: very large R and D organization, and we spent five 278 00:16:01,400 --> 00:16:03,840 Speaker 6: billion dollars in R and D. For example, since we 279 00:16:03,920 --> 00:16:07,000 Speaker 6: iPod and our R and D expense grows double digits. 280 00:16:07,480 --> 00:16:10,520 Speaker 6: We're really excited to discover the future of what animals need. 281 00:16:11,000 --> 00:16:14,320 Speaker 2: Discovering that future and creating it could be the core 282 00:16:14,360 --> 00:16:17,960 Speaker 2: of Zoetta's success story, and it's the purview of Rob Bohlzer, 283 00:16:18,200 --> 00:16:20,920 Speaker 2: the man who oversees the firm's R and D efforts 284 00:16:20,960 --> 00:16:22,640 Speaker 2: from its headquarters in Michigan. 285 00:16:23,440 --> 00:16:26,800 Speaker 10: R and D within Zoetis represents about fifteen hundred colleagues 286 00:16:26,840 --> 00:16:30,680 Speaker 10: across the globe. Nearly a thousand of those colleagues work 287 00:16:30,680 --> 00:16:34,040 Speaker 10: here in Kalamazoo and in the Richland Farm area, and 288 00:16:34,600 --> 00:16:37,440 Speaker 10: it's really at the core of the innovation for the company. 289 00:16:37,600 --> 00:16:40,840 Speaker 10: So we really pride ourselves as a company to develop 290 00:16:40,840 --> 00:16:44,520 Speaker 10: innovative medicines that are based in science, and you know, 291 00:16:44,560 --> 00:16:46,920 Speaker 10: the R and D function is really key to bring 292 00:16:46,960 --> 00:16:50,640 Speaker 10: those new innovations, you know, forward to marketed products for 293 00:16:50,760 --> 00:16:51,280 Speaker 10: the company. 294 00:16:52,040 --> 00:16:54,600 Speaker 2: Like other drug makers, Zoettas has made a business of 295 00:16:54,680 --> 00:16:58,200 Speaker 2: taking big risks and hope of earning big rewards. Take 296 00:16:58,240 --> 00:17:02,800 Speaker 2: for example, Zoeta's treatment for hermatitis in dogs historically treated 297 00:17:02,880 --> 00:17:06,560 Speaker 2: with steroids mantil. Zoetis made a substantial investment in a 298 00:17:06,600 --> 00:17:08,600 Speaker 2: new way to address the problem. 299 00:17:08,720 --> 00:17:11,480 Speaker 10: At its core, R and D did a lot of 300 00:17:11,520 --> 00:17:15,320 Speaker 10: the basic biology to understand, well, what is causing itch 301 00:17:15,720 --> 00:17:20,280 Speaker 10: within dogs? Can we intervene safely? And the answer was yes. 302 00:17:20,359 --> 00:17:24,840 Speaker 10: So through that research we identified that the jack pathways, 303 00:17:25,040 --> 00:17:28,040 Speaker 10: it's a janis kindase, it's a group of enzymes were 304 00:17:28,080 --> 00:17:32,960 Speaker 10: responsible for sending out chemical messagers in the body of 305 00:17:33,000 --> 00:17:36,800 Speaker 10: the dog that made them mitche And through the work 306 00:17:36,840 --> 00:17:41,280 Speaker 10: with our chemists, we designed a molecule that blocked that 307 00:17:41,280 --> 00:17:45,520 Speaker 10: that communication, that messaging pathway, and you know, ensured that 308 00:17:45,560 --> 00:17:47,760 Speaker 10: we had the right product profile because we wanted to 309 00:17:47,800 --> 00:17:51,400 Speaker 10: be able to treat seasonal allergies as well as chronic 310 00:17:51,560 --> 00:17:55,119 Speaker 10: itch in dogs. And you know, through that process spent 311 00:17:55,240 --> 00:17:58,919 Speaker 10: about seven eight years developing that product, getting it to 312 00:17:59,080 --> 00:18:01,600 Speaker 10: the regulatory thought news, and eventually getting on the market. 313 00:18:01,880 --> 00:18:04,720 Speaker 10: And now after eleven years and twenty eight million dogs 314 00:18:04,800 --> 00:18:06,720 Speaker 10: treat it, I think we have a lot of happy 315 00:18:06,760 --> 00:18:09,280 Speaker 10: customers and less toy dogs out there. 316 00:18:10,160 --> 00:18:13,080 Speaker 2: All that is good news for twenty eight million dogs, 317 00:18:13,280 --> 00:18:16,040 Speaker 2: but also for Zoweta's bottom line after it took the 318 00:18:16,160 --> 00:18:19,919 Speaker 2: risk and invested in Rob Pohlzer's research team to develop 319 00:18:19,960 --> 00:18:22,680 Speaker 2: a new product based on an assessment of the likelihood 320 00:18:22,720 --> 00:18:27,000 Speaker 2: of success and the possible payoff. As a CEO, perhaps 321 00:18:27,000 --> 00:18:30,240 Speaker 2: your most important job is allocational capital. How do you 322 00:18:30,320 --> 00:18:33,080 Speaker 2: decide how much capital to allocate toward. 323 00:18:33,359 --> 00:18:33,639 Speaker 3: R and D. 324 00:18:34,080 --> 00:18:35,159 Speaker 8: It's a robust process. 325 00:18:35,200 --> 00:18:37,200 Speaker 6: I get this question a lot from investors, like what's 326 00:18:37,240 --> 00:18:38,879 Speaker 6: the right amount and how do you know? 327 00:18:38,960 --> 00:18:40,280 Speaker 8: And as we've talked. 328 00:18:40,080 --> 00:18:42,720 Speaker 6: About, we spend a lot over five hundred million dollars 329 00:18:42,760 --> 00:18:44,560 Speaker 6: a year in R and D and we've been growing 330 00:18:44,560 --> 00:18:47,639 Speaker 6: that number double digits, and that's because we've had an 331 00:18:47,680 --> 00:18:50,800 Speaker 6: incredibly successful R and D engine and we have a 332 00:18:50,840 --> 00:18:55,159 Speaker 6: rigorous process where every project gets prioritized, it has a 333 00:18:55,960 --> 00:19:00,120 Speaker 6: expected return on investment, and that's based on the probability 334 00:19:00,359 --> 00:19:03,360 Speaker 6: that technically that program will be successful, and that there's 335 00:19:03,359 --> 00:19:07,320 Speaker 6: a regulatory pathway to make it successful. And we prioritize 336 00:19:07,359 --> 00:19:09,560 Speaker 6: all those and then we come up with an answer. 337 00:19:09,840 --> 00:19:12,119 Speaker 6: But we don't stop there because there may be some 338 00:19:12,160 --> 00:19:14,640 Speaker 6: big bets you want to make that you know you're 339 00:19:14,680 --> 00:19:16,119 Speaker 6: not really sure what that value is going to be. 340 00:19:16,200 --> 00:19:18,840 Speaker 6: I'll look at, for example, dermatology. Back when we launched 341 00:19:18,880 --> 00:19:21,960 Speaker 6: the product in twenty fourteen, that's where like you know, steroids, 342 00:19:21,960 --> 00:19:23,560 Speaker 6: they're fine, they should be fined. 343 00:19:23,680 --> 00:19:26,320 Speaker 8: It was one hundred million dollar market. How valuable is 344 00:19:26,320 --> 00:19:28,399 Speaker 8: that going to be? Maybe it's one hundred million dollars. 345 00:19:28,760 --> 00:19:31,240 Speaker 6: So sometimes you've got to make bets because you really believed, 346 00:19:31,400 --> 00:19:33,399 Speaker 6: even if the market doesn't see it today, that you 347 00:19:33,440 --> 00:19:34,440 Speaker 6: think that's going to be big. 348 00:19:35,000 --> 00:19:37,840 Speaker 8: That was the right bet. One hundred million dollar market 349 00:19:37,920 --> 00:19:38,480 Speaker 8: in twenty. 350 00:19:38,280 --> 00:19:41,600 Speaker 6: Fourteen is now one point five billion dollar market, of 351 00:19:41,640 --> 00:19:43,960 Speaker 6: which were more than one point two billion dollars of that. 352 00:19:44,640 --> 00:19:48,439 Speaker 2: Zoetis and others weighing the costs and benefits of research bets, 353 00:19:48,480 --> 00:19:51,840 Speaker 2: now have a new partner in the form of artificial intelligence, 354 00:19:52,240 --> 00:19:55,840 Speaker 2: something that experts like doctor Casey Kaser of Cornell say 355 00:19:55,920 --> 00:19:58,119 Speaker 2: is one of the most significant additions to the field. 356 00:19:58,840 --> 00:20:01,480 Speaker 9: I think there are several new so exciting developments in 357 00:20:01,560 --> 00:20:05,360 Speaker 9: terms of drugs and treatments available for pets and veterinary 358 00:20:05,400 --> 00:20:08,000 Speaker 9: medicine in general, and a lot of those are actually 359 00:20:08,119 --> 00:20:12,800 Speaker 9: using artificial intelligence to help develop them or create them. 360 00:20:13,080 --> 00:20:15,320 Speaker 9: For example, there are a lot of new efforts to 361 00:20:15,400 --> 00:20:19,679 Speaker 9: create diagnostic tests using artificial intelligence that can do things 362 00:20:19,760 --> 00:20:23,280 Speaker 9: like talith a dog or cat has kidney disease earlier 363 00:20:23,320 --> 00:20:27,200 Speaker 9: than we currently can, or look at radiographs or X 364 00:20:27,320 --> 00:20:30,880 Speaker 9: rays and help us diagnose things like hip displaysia in dogs, 365 00:20:31,080 --> 00:20:35,000 Speaker 9: which is a degenerative and genetic condition. Other people are 366 00:20:35,080 --> 00:20:38,679 Speaker 9: using generative AI, which is like chat GPT, So the 367 00:20:38,720 --> 00:20:42,840 Speaker 9: Cornell University Feline Health Center has created a cat GPT 368 00:20:43,760 --> 00:20:48,000 Speaker 9: which provides cat owners with helpful information online about their 369 00:20:48,040 --> 00:20:51,199 Speaker 9: cat's health, so that people have a reliable resource to 370 00:20:51,240 --> 00:20:52,800 Speaker 9: go to rather than just Google. 371 00:20:53,720 --> 00:20:56,480 Speaker 2: As much as we anticipate that artificial intelligence is going 372 00:20:56,520 --> 00:20:59,640 Speaker 2: to help us around the corner in diagnosing humans, Chris 373 00:20:59,760 --> 00:21:03,119 Speaker 2: pet says that in animal healthcare it's already being used 374 00:21:03,520 --> 00:21:06,120 Speaker 2: extensively and with immediate results. 375 00:21:06,960 --> 00:21:08,800 Speaker 8: People talk about the future being AI. 376 00:21:09,119 --> 00:21:11,800 Speaker 6: The future is here in AI in animal health, and 377 00:21:11,840 --> 00:21:15,439 Speaker 6: we have multiple applications that we're currently using at the 378 00:21:15,520 --> 00:21:18,600 Speaker 6: vet and with the pet owner. So the images platform, 379 00:21:18,640 --> 00:21:22,040 Speaker 6: for example, is really fascinating in that we partnered with 380 00:21:22,080 --> 00:21:24,800 Speaker 6: a company called tech Site. They had this technology where 381 00:21:24,800 --> 00:21:27,360 Speaker 6: they believed firmly that they could take a really good 382 00:21:27,359 --> 00:21:29,679 Speaker 6: picture and then you could use AI to compare it. 383 00:21:30,119 --> 00:21:31,920 Speaker 6: But we had all the data, right, we have all 384 00:21:31,920 --> 00:21:34,439 Speaker 6: the samples where we could train. We could train the 385 00:21:34,480 --> 00:21:37,960 Speaker 6: AI with blood samples or with fecal samples to help 386 00:21:38,000 --> 00:21:40,520 Speaker 6: it learn faster. And so it was really the partnership 387 00:21:40,640 --> 00:21:44,000 Speaker 6: of a sort of AI company with the biology, the chemistry, 388 00:21:44,080 --> 00:21:46,560 Speaker 6: the science that Zoett has had. And now we have 389 00:21:46,680 --> 00:21:50,440 Speaker 6: six indications on this one platform. But we're looking at 390 00:21:50,440 --> 00:21:53,760 Speaker 6: other applications of AI and using them today. So one 391 00:21:53,800 --> 00:21:55,760 Speaker 6: of the things we hear from our customers is that 392 00:21:56,040 --> 00:21:58,240 Speaker 6: it's so hard to get your cat in a carrier 393 00:21:58,280 --> 00:22:00,399 Speaker 6: and get it to the vet and you don't know 394 00:22:00,440 --> 00:22:02,200 Speaker 6: that there's a treatment or know your cat has it. 395 00:22:02,280 --> 00:22:02,959 Speaker 8: Is it worth it? 396 00:22:03,359 --> 00:22:05,560 Speaker 6: Well, you can now upload a video of your cat 397 00:22:05,720 --> 00:22:08,000 Speaker 6: walking around your house, going up the stairs, and you 398 00:22:08,000 --> 00:22:10,600 Speaker 6: can upload it to cat pain Iq and we can 399 00:22:10,640 --> 00:22:13,760 Speaker 6: tell you the likelihood that cat has osteothritis and whether 400 00:22:13,760 --> 00:22:15,240 Speaker 6: it would be worth it to bring your cat in. 401 00:22:15,680 --> 00:22:19,480 Speaker 2: So what's next for animal healthcare? Cornell's doctor Kaser says 402 00:22:19,560 --> 00:22:21,800 Speaker 2: she's focused on trying to fix a problem that we 403 00:22:21,960 --> 00:22:25,119 Speaker 2: created ourselves, resistance to antibiotics. 404 00:22:25,640 --> 00:22:28,960 Speaker 9: I'm looking at that in both animals and human species. 405 00:22:29,320 --> 00:22:32,480 Speaker 9: So I'm particularly excited about how we're paying more attention 406 00:22:32,560 --> 00:22:35,400 Speaker 9: to how antibiotics are used in our pets and our 407 00:22:35,400 --> 00:22:38,200 Speaker 9: dogs and cats. So I think historically a lot of 408 00:22:38,320 --> 00:22:41,680 Speaker 9: us have focused on resistant bacteria and people and also 409 00:22:41,720 --> 00:22:45,879 Speaker 9: in live stock, and we've kind of ignored the animals 410 00:22:45,880 --> 00:22:48,640 Speaker 9: that are sleeping in our beds, living in our houses, 411 00:22:48,680 --> 00:22:49,760 Speaker 9: and licking in our faces. 412 00:22:50,880 --> 00:22:53,840 Speaker 2: Back at Zoetas, Rob Polzer is turning his research team 413 00:22:53,880 --> 00:22:56,760 Speaker 2: to focus on cancer and on kidney diseases. 414 00:22:57,320 --> 00:23:00,720 Speaker 10: So on a therapeutic area perspective, you know a lot 415 00:23:00,760 --> 00:23:04,359 Speaker 10: of advances in oncology, so not surprising, I think to 416 00:23:04,800 --> 00:23:08,480 Speaker 10: many of your viewers, Ammino oncology has really advanced on 417 00:23:08,520 --> 00:23:11,359 Speaker 10: the human health side to treat cancer. Certainly, that's a 418 00:23:11,400 --> 00:23:14,159 Speaker 10: space we're interested in. On the animal health side. In 419 00:23:14,240 --> 00:23:19,199 Speaker 10: canine renal disease is another, you know, critical disease in 420 00:23:19,280 --> 00:23:22,320 Speaker 10: both dogs and cats. And what we see is that 421 00:23:22,440 --> 00:23:25,439 Speaker 10: you know, for older cats, you know, typically by the 422 00:23:25,480 --> 00:23:28,360 Speaker 10: age of thirteen, about eighty percent of cats will have 423 00:23:28,440 --> 00:23:31,119 Speaker 10: some form of renal disease. Older dogs have you know, 424 00:23:31,119 --> 00:23:34,000 Speaker 10: about ten percent of that population face renal disease, and 425 00:23:34,080 --> 00:23:37,280 Speaker 10: there's no good therapy out there. Most of the approaches 426 00:23:37,320 --> 00:23:41,560 Speaker 10: today are to try to go and manage the clinical 427 00:23:41,560 --> 00:23:45,080 Speaker 10: symptoms that are occurring from renal disease, but actually not 428 00:23:45,160 --> 00:23:46,640 Speaker 10: slowing the progression. 429 00:23:46,160 --> 00:23:46,760 Speaker 8: Of the disease. 430 00:23:47,480 --> 00:23:50,000 Speaker 2: Poles are and others see a bright future for animal 431 00:23:50,040 --> 00:23:53,000 Speaker 2: health care. And underlying it all the research and the 432 00:23:53,000 --> 00:23:55,919 Speaker 2: investment in the large and growing market is the emotional 433 00:23:56,000 --> 00:24:00,000 Speaker 2: attachment so many of us have to animals in our lives. 434 00:24:00,400 --> 00:24:01,760 Speaker 2: That drives the business. 435 00:24:02,520 --> 00:24:03,240 Speaker 8: I think it's true. 436 00:24:03,280 --> 00:24:05,400 Speaker 6: I mean, you know, one of the examples I give 437 00:24:05,520 --> 00:24:07,800 Speaker 6: is what you're willing to spend on your animal when 438 00:24:07,840 --> 00:24:10,560 Speaker 6: it's in your backyard versus when it enters your house 439 00:24:10,680 --> 00:24:13,200 Speaker 6: versus when it sleeps on your bed is just different. 440 00:24:13,320 --> 00:24:15,360 Speaker 6: And I think you know, maybe twenty thirty years ago, 441 00:24:15,359 --> 00:24:17,080 Speaker 6: a lot of the animals spent most of their day outside. 442 00:24:17,160 --> 00:24:17,880 Speaker 8: They entered your house. 443 00:24:17,920 --> 00:24:20,240 Speaker 6: Now that's interacting with your family, and you want to 444 00:24:20,240 --> 00:24:22,000 Speaker 6: make sure that you're protecting against diseases. 445 00:24:22,080 --> 00:24:22,960 Speaker 8: It goes regularly. 446 00:24:23,280 --> 00:24:24,960 Speaker 6: Well, now that it's on your bed, you're worried about 447 00:24:24,960 --> 00:24:28,080 Speaker 6: it's emotional well being. You're paying attention to different things, 448 00:24:28,359 --> 00:24:30,120 Speaker 6: and the animals are living longer. 449 00:24:30,200 --> 00:24:32,720 Speaker 2: And maybe that's why leaders in the industry like zoea 450 00:24:32,880 --> 00:24:36,280 Speaker 2: Is Kristin Peck have a lifelong attachment of their own 451 00:24:36,520 --> 00:24:37,440 Speaker 2: to animals. 452 00:24:37,960 --> 00:24:40,439 Speaker 6: I love our purpose as a company. I grew up 453 00:24:40,440 --> 00:24:41,560 Speaker 6: with animals. 454 00:24:41,080 --> 00:24:41,960 Speaker 8: My whole life. 455 00:24:42,040 --> 00:24:44,639 Speaker 6: My family raised horses and we had four dogs and 456 00:24:44,720 --> 00:24:46,040 Speaker 6: cats and birds. 457 00:24:46,160 --> 00:24:48,280 Speaker 8: My first job actually. 458 00:24:47,960 --> 00:24:50,080 Speaker 6: Was for a company called American Equine Products when I 459 00:24:50,119 --> 00:24:51,800 Speaker 6: was in high school, which is, believe it or not, 460 00:24:51,880 --> 00:24:55,240 Speaker 6: a legacy Zoetas company and the small world. So I 461 00:24:55,240 --> 00:24:56,960 Speaker 6: don't know that I thought when I was little and 462 00:24:57,119 --> 00:25:00,080 Speaker 6: I loved animals, that that would be my career. But 463 00:25:00,119 --> 00:25:02,399 Speaker 6: what I saw our purpose, which is to nurture the 464 00:25:02,440 --> 00:25:05,560 Speaker 6: world in humankind by advancing care for animals. I was 465 00:25:05,600 --> 00:25:08,760 Speaker 6: a business person with a finance background in private equity 466 00:25:08,800 --> 00:25:09,400 Speaker 6: and consulting. 467 00:25:09,480 --> 00:25:10,560 Speaker 8: It really spoke to me. 468 00:25:12,320 --> 00:25:16,200 Speaker 2: Coming up. Is America still the land of opportunity? That's 469 00:25:16,200 --> 00:25:18,760 Speaker 2: next on Wall Street Week on Bloomberg. 470 00:25:18,680 --> 00:25:22,080 Speaker 1: You're listening to Bloomberg Wall Street Week with David Weston 471 00:25:22,240 --> 00:25:23,760 Speaker 1: from Bloomberg Radio. 472 00:25:24,040 --> 00:25:24,760 Speaker 11: From New York. 473 00:25:24,840 --> 00:25:26,359 Speaker 1: Another update on Wall Street. 474 00:25:26,400 --> 00:25:27,600 Speaker 11: In fact, records to. 475 00:25:27,600 --> 00:25:31,440 Speaker 12: London, UK businesses are feeling the effects of high prices. 476 00:25:31,160 --> 00:25:33,720 Speaker 1: To Hong Kong. The hang sang down about one point 477 00:25:33,760 --> 00:25:36,639 Speaker 1: three percent right now twenty four to seven Business and 478 00:25:36,720 --> 00:25:38,879 Speaker 1: Market News that expands your worldview. 479 00:25:38,960 --> 00:25:41,160 Speaker 6: Ethankslins Kate, thank you so much for joining Bloomberg. 480 00:25:41,280 --> 00:25:44,359 Speaker 1: Get more weak economic data out of China. Listen on 481 00:25:44,400 --> 00:25:47,920 Speaker 1: Apple car Play and Android Auto with a Bloomberg Business app, 482 00:25:47,960 --> 00:25:52,639 Speaker 1: and always on Bloomberg Radio. Context changes everything. 483 00:25:54,080 --> 00:25:59,879 Speaker 13: Snakes, zombies, sharks, heights, speaking in public. The list of 484 00:26:00,080 --> 00:26:03,480 Speaker 13: fears is endless. But while you're clutching your blanket in 485 00:26:03,520 --> 00:26:05,679 Speaker 13: the dark, wondering if that sound in the hall was 486 00:26:05,800 --> 00:26:09,400 Speaker 13: actually a footstep, the real danger is in your hand 487 00:26:09,600 --> 00:26:12,240 Speaker 13: when you're behind the wheel. And while you might think 488 00:26:12,280 --> 00:26:15,399 Speaker 13: a great white shark is scary, what's really terrifying and 489 00:26:15,520 --> 00:26:20,320 Speaker 13: even deadly is distracted. Driving Eyes forward, don't drive distracted. 490 00:26:20,600 --> 00:26:22,320 Speaker 13: Brought to you by Nitze and the Ad Council. 491 00:26:23,680 --> 00:26:27,920 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 492 00:26:28,040 --> 00:26:29,400 Speaker 1: Bloomberg Radio. 493 00:26:30,600 --> 00:26:34,160 Speaker 2: This is a story about opportunity, the opportunity to succeed 494 00:26:34,200 --> 00:26:37,000 Speaker 2: in life on your own merits, to do better than 495 00:26:37,040 --> 00:26:40,160 Speaker 2: your parents by working hard and playing by the rules, 496 00:26:40,680 --> 00:26:43,800 Speaker 2: something in the United States, the so called land of opportunity, 497 00:26:43,880 --> 00:26:47,480 Speaker 2: has long embraced, and something that education was supposed to 498 00:26:47,520 --> 00:26:49,280 Speaker 2: help provide. 499 00:26:49,359 --> 00:26:53,840 Speaker 12: You are investing in helping people better their lives when you. 500 00:26:53,920 --> 00:26:56,000 Speaker 8: Invest in people's education. 501 00:26:56,040 --> 00:26:59,240 Speaker 12: And in turn, that means that they are bettering the 502 00:26:59,280 --> 00:27:01,720 Speaker 12: lives of the people around them. 503 00:27:02,200 --> 00:27:05,600 Speaker 2: Heather Coleman works at Amazon, and she's living the story 504 00:27:05,640 --> 00:27:09,320 Speaker 2: of upward mobility, thanks in marge part to her employer's 505 00:27:09,440 --> 00:27:12,560 Speaker 2: career choice program that made it possible for her to 506 00:27:12,600 --> 00:27:16,399 Speaker 2: complete an associate's degree and earn a BS while working 507 00:27:16,440 --> 00:27:21,040 Speaker 2: full time and raising three children. But the United States 508 00:27:21,119 --> 00:27:23,520 Speaker 2: might be less of a land of opportunity than it 509 00:27:23,600 --> 00:27:26,800 Speaker 2: used to be. In his book Ours Was a Shining Future, 510 00:27:27,000 --> 00:27:30,200 Speaker 2: David Lionhardt reports that the likelihood of Americans would make 511 00:27:30,240 --> 00:27:32,720 Speaker 2: more than their parents went from ninety percent for those 512 00:27:32,720 --> 00:27:35,920 Speaker 2: born in nineteen forty to eighty percent for the boomers 513 00:27:35,960 --> 00:27:39,080 Speaker 2: born between nineteen forty six and nineteen sixty four, to 514 00:27:39,240 --> 00:27:42,200 Speaker 2: just sixty percent for Gen xers. And all the way 515 00:27:42,240 --> 00:27:45,719 Speaker 2: down to fifty percent for the millennials born between nineteen 516 00:27:45,760 --> 00:27:50,840 Speaker 2: eighty and nineteen ninety six. Dan Porterfield helped run Georgetown University, 517 00:27:50,960 --> 00:27:53,199 Speaker 2: was president of Franklin and Marshall, and now runs the 518 00:27:53,200 --> 00:27:57,320 Speaker 2: Aspen Institute. He says there are obstacles to opportunity, but 519 00:27:57,520 --> 00:27:59,960 Speaker 2: changes in higher education are a big fact. 520 00:28:00,720 --> 00:28:04,440 Speaker 11: The role of higher education in enabling economic mobility has 521 00:28:04,520 --> 00:28:07,359 Speaker 11: been threatened over the years. One reason why is because 522 00:28:07,359 --> 00:28:10,360 Speaker 11: of the rising cost of tuition. Another reason has been 523 00:28:10,359 --> 00:28:13,000 Speaker 11: that the middle class has found some parts of higher 524 00:28:13,080 --> 00:28:15,800 Speaker 11: education to be unaffordable. And then finally, one of the 525 00:28:15,840 --> 00:28:18,400 Speaker 11: issues is that lower income people have not always had 526 00:28:18,440 --> 00:28:21,240 Speaker 11: confidence that college is there for them, and so really 527 00:28:21,320 --> 00:28:24,720 Speaker 11: talented students have not been applying as much as they 528 00:28:24,800 --> 00:28:26,639 Speaker 11: might in earlier years have done. 529 00:28:27,400 --> 00:28:30,520 Speaker 2: When lower income students do decide to apply to college 530 00:28:30,520 --> 00:28:33,240 Speaker 2: and the system they confront does not always welcome them. 531 00:28:33,680 --> 00:28:36,879 Speaker 2: One man trying to change that Michael Crowe, president of 532 00:28:36,920 --> 00:28:38,440 Speaker 2: Arizona State University. 533 00:28:39,120 --> 00:28:41,400 Speaker 7: So the model for the New American University is built 534 00:28:41,400 --> 00:28:44,520 Speaker 7: around this premise of can we build a new kind 535 00:28:44,560 --> 00:28:50,280 Speaker 7: of institution which is simultaneously very very accessible, egalitarian, That 536 00:28:50,360 --> 00:28:54,920 Speaker 7: is families from every socioeconomic background can come into a modern, 537 00:28:55,560 --> 00:29:00,600 Speaker 7: high intensity, discovery oriented, creativity oriented university. Those things don't 538 00:29:00,600 --> 00:29:03,760 Speaker 7: have to be separated. So right now, we have universities 539 00:29:03,760 --> 00:29:06,959 Speaker 7: that have gone off and become very much measured by 540 00:29:07,000 --> 00:29:09,600 Speaker 7: who they exclude and the quality of their research. And 541 00:29:09,680 --> 00:29:12,160 Speaker 7: there's other universities that have become very much measured by 542 00:29:12,560 --> 00:29:15,240 Speaker 7: just being the most efficient machine that they can be 543 00:29:15,280 --> 00:29:17,880 Speaker 7: in terms of producing students. And so in our case, 544 00:29:17,880 --> 00:29:20,560 Speaker 7: we're trying to which we have make the point, prove 545 00:29:20,600 --> 00:29:22,880 Speaker 7: the point, and demonstrate the model that you can build 546 00:29:22,920 --> 00:29:26,840 Speaker 7: an institution deeply connected to the fullest spectrum of the 547 00:29:26,840 --> 00:29:31,080 Speaker 7: population possible to move them forward from an educational perspective, 548 00:29:31,280 --> 00:29:34,360 Speaker 7: while at the same time creating for them an educational 549 00:29:34,360 --> 00:29:37,360 Speaker 7: opportunity and a learning experience equal to that which any 550 00:29:37,400 --> 00:29:38,600 Speaker 7: other university can put together. 551 00:29:39,320 --> 00:29:41,880 Speaker 2: There was a time when the United States led the 552 00:29:41,920 --> 00:29:45,280 Speaker 2: world in education innovation with the creation of public land 553 00:29:45,360 --> 00:29:48,880 Speaker 2: grant colleges in the nineteenth century, by making public high 554 00:29:48,880 --> 00:29:52,360 Speaker 2: school mandatory in the nineteen twenties, and then passing the 555 00:29:52,400 --> 00:29:55,240 Speaker 2: gi Bill to allow soldiers coming back from World War 556 00:29:55,280 --> 00:29:58,480 Speaker 2: Two to get a college degree. But Michael Crowe says 557 00:29:58,480 --> 00:30:01,680 Speaker 2: that over the decades, the US became too complacent. 558 00:30:02,080 --> 00:30:05,800 Speaker 7: We began to become self satisfied with our model as 559 00:30:05,840 --> 00:30:10,520 Speaker 7: the country continued to grow and the world continued to complexify, 560 00:30:10,920 --> 00:30:13,040 Speaker 7: and so we didn't build for scale, and we didn't 561 00:30:13,040 --> 00:30:16,760 Speaker 7: build for complexity in the way that we should have, 562 00:30:16,800 --> 00:30:18,720 Speaker 7: and so we stopped innovating at the rate that we 563 00:30:18,720 --> 00:30:21,280 Speaker 7: should have kept innovating. What's happened is that more than 564 00:30:21,280 --> 00:30:22,960 Speaker 7: half the students that go to a university in the 565 00:30:23,040 --> 00:30:27,440 Speaker 7: United States never graduate. So that's unparalleled among the industrial countries. 566 00:30:27,640 --> 00:30:31,320 Speaker 7: Number one. Number two. It turns out that you've got 567 00:30:31,440 --> 00:30:34,760 Speaker 7: universities that have become so selective where everybody graduates from 568 00:30:34,760 --> 00:30:37,720 Speaker 7: those places. Because the students are hand picked, they also 569 00:30:37,760 --> 00:30:39,600 Speaker 7: get a huge amount of the resources. And then you've 570 00:30:39,600 --> 00:30:43,360 Speaker 7: got other universities in which most people don't graduate. And 571 00:30:43,400 --> 00:30:47,680 Speaker 7: so then you create this expectation frustration. I sent my 572 00:30:47,800 --> 00:30:50,920 Speaker 7: kid to college, they encounter debt, they took on debt, 573 00:30:50,920 --> 00:30:53,560 Speaker 7: and they didn't graduate. So the debt crisis is, in 574 00:30:53,600 --> 00:30:56,000 Speaker 7: my view, not a debt crisis. The debt crisis is 575 00:30:56,040 --> 00:30:59,800 Speaker 7: a graduation crisis. The debt crisis is a performance crisis. 576 00:31:00,040 --> 00:31:02,640 Speaker 2: If students are frustrated about the prospects of making it 577 00:31:02,680 --> 00:31:04,960 Speaker 2: all the way through college to get a degree. They 578 00:31:05,000 --> 00:31:08,840 Speaker 2: have good reason. Although the percentage of Americans receiving bachelor's 579 00:31:08,840 --> 00:31:12,280 Speaker 2: degrees has steadily risen since nineteen sixty, less than two 580 00:31:12,360 --> 00:31:15,040 Speaker 2: thirds of those starting out managed to get a bachelor's 581 00:31:15,040 --> 00:31:18,320 Speaker 2: degree within six years, with the numbers for private, for 582 00:31:18,480 --> 00:31:22,560 Speaker 2: profit schools much worse than public or private nonprofit universities. 583 00:31:23,480 --> 00:31:26,640 Speaker 2: To improve the odds, Arizona State has built an educational 584 00:31:26,720 --> 00:31:30,760 Speaker 2: gateway for students across income ranges that's very different from 585 00:31:30,760 --> 00:31:32,200 Speaker 2: what most schools provide. 586 00:31:32,840 --> 00:31:35,800 Speaker 7: So a few years ago, we had an engineering school 587 00:31:36,000 --> 00:31:39,000 Speaker 7: of about six thousand students. We weren't doing very well 588 00:31:39,040 --> 00:31:42,000 Speaker 7: in freshman retention. We were in the old weed out 589 00:31:42,040 --> 00:31:44,680 Speaker 7: mode of thinking about engineering. We decided to change everything. 590 00:31:44,840 --> 00:31:47,280 Speaker 7: We graduated about nine hundred engineers a year. This was 591 00:31:47,600 --> 00:31:51,080 Speaker 7: about thirteen years ago. We decided to change everything, change culture, 592 00:31:51,240 --> 00:31:55,640 Speaker 7: change design, change intellectual structure, use technology, move in new directions, 593 00:31:55,680 --> 00:31:58,720 Speaker 7: and then we began measuring learning outcomes, finding new ways 594 00:31:58,760 --> 00:32:00,800 Speaker 7: to teach math, new ways to teach each calculus, new 595 00:32:00,800 --> 00:32:03,880 Speaker 7: ways to teach biology, new ways to teach chemistry. Graduates 596 00:32:04,480 --> 00:32:07,160 Speaker 7: last year, we graduated seventy two hundred graduates in an 597 00:32:07,480 --> 00:32:10,280 Speaker 7: engineering school. That's not six thousand students, but thirty two 598 00:32:10,280 --> 00:32:13,440 Speaker 7: thousand students. Its level of research activity has accelerated, its 599 00:32:13,520 --> 00:32:16,320 Speaker 7: level of excellence has accelerated, and the market value of 600 00:32:16,320 --> 00:32:18,680 Speaker 7: the students coming from the school are greatly altered. And 601 00:32:18,760 --> 00:32:23,440 Speaker 7: so the measurement is measurement of everything, learning outcomes by 602 00:32:23,600 --> 00:32:28,520 Speaker 7: student learning outcomes within certain courses. Graduation success is changing everything. 603 00:32:28,520 --> 00:32:31,239 Speaker 7: So in fact, it is the measurement of everything that 604 00:32:31,320 --> 00:32:34,400 Speaker 7: is a critical tool in driving one to innovative success. 605 00:32:34,400 --> 00:32:39,400 Speaker 2: Here, if graduation success is the ultimate goal, exclusivity in 606 00:32:39,400 --> 00:32:42,360 Speaker 2: admissions is not necessarily the best way to get there. 607 00:32:42,920 --> 00:32:46,040 Speaker 2: Izona State has greatly expanded the size of its student 608 00:32:46,080 --> 00:32:49,240 Speaker 2: body and in the process the path for those coming 609 00:32:49,240 --> 00:32:50,880 Speaker 2: from lower income households. 610 00:32:51,720 --> 00:32:57,080 Speaker 7: The notion of success through exclusion success by who you 611 00:32:57,120 --> 00:32:59,640 Speaker 7: don't admit, the measurement of success by how many people 612 00:32:59,680 --> 00:33:02,440 Speaker 7: you turn away. That's not a theme for a public 613 00:33:02,520 --> 00:33:06,080 Speaker 7: university to be maximally impactful. So what we've done is 614 00:33:06,480 --> 00:33:08,880 Speaker 7: we found a way to say, you know, if you 615 00:33:08,920 --> 00:33:11,120 Speaker 7: work hard, if you study hard, if you get prepared, 616 00:33:11,160 --> 00:33:12,760 Speaker 7: if you're willing to do some things. If you work 617 00:33:12,800 --> 00:33:14,880 Speaker 7: with our tools, we'll find a way for you to 618 00:33:14,920 --> 00:33:17,400 Speaker 7: be successful at the university, and we're not going to 619 00:33:17,400 --> 00:33:18,920 Speaker 7: turn you away. And it turns out, by the way, 620 00:33:19,000 --> 00:33:23,840 Speaker 7: that smallness is also a narrowness in thinking, a lower 621 00:33:24,360 --> 00:33:28,040 Speaker 7: probabilistic set of potential creative outcomes. And so we think 622 00:33:28,080 --> 00:33:30,959 Speaker 7: that you can have small colleges and small programs. Certainly, 623 00:33:30,960 --> 00:33:33,920 Speaker 7: but smallness doesn't really mean anything in a country of 624 00:33:33,960 --> 00:33:35,960 Speaker 7: three hundred and forty five million people. 625 00:33:36,760 --> 00:33:40,200 Speaker 2: Smallness is not a problem at ASU. By some counts, 626 00:33:40,240 --> 00:33:43,320 Speaker 2: it's the largest university in the United States, and since 627 00:33:43,360 --> 00:33:46,680 Speaker 2: two thousand, it's enrollment has nearly tripled. Much of that 628 00:33:46,720 --> 00:33:50,160 Speaker 2: growth has come from students outside the campus walls, and 629 00:33:50,200 --> 00:33:53,720 Speaker 2: the Aspen Institute's Dan Porterfield says that's not a bad thing. 630 00:33:54,160 --> 00:33:57,880 Speaker 11: Online education can be a component of learning of all types, 631 00:33:57,920 --> 00:34:01,960 Speaker 11: from you know, early education through adult learning, and in 632 00:34:02,040 --> 00:34:04,760 Speaker 11: fact that in the workplaces of today and tomorrow, more 633 00:34:04,800 --> 00:34:07,400 Speaker 11: and more people are going to lead their own learning 634 00:34:07,560 --> 00:34:11,080 Speaker 11: through online platforms. I think AI might make online learning 635 00:34:11,120 --> 00:34:14,160 Speaker 11: more personalized. So I don't fear it, I welcome. 636 00:34:13,760 --> 00:34:18,760 Speaker 2: It, certainly. Heather Cooleman, you took advantage of the online 637 00:34:18,760 --> 00:34:22,440 Speaker 2: opportunities at Southern New Hampshire University when she pursued her 638 00:34:22,480 --> 00:34:24,600 Speaker 2: two degrees while working at Amazon. 639 00:34:25,520 --> 00:34:26,160 Speaker 1: Being able to. 640 00:34:26,120 --> 00:34:30,120 Speaker 12: Go to school online and not have set times for 641 00:34:30,200 --> 00:34:32,520 Speaker 12: my classes where I didn't have to be here at 642 00:34:32,560 --> 00:34:35,799 Speaker 12: two o'clock. Instead I just had deadlines was much more 643 00:34:35,880 --> 00:34:36,719 Speaker 12: beneficial for me. 644 00:34:37,080 --> 00:34:38,520 Speaker 7: Well, I mean, if you think about it, and you 645 00:34:38,520 --> 00:34:41,759 Speaker 7: think about your life between you know, let's say teenager 646 00:34:41,880 --> 00:34:45,239 Speaker 7: to your eighties, nineties, or hundreds or however many years 647 00:34:45,280 --> 00:34:47,120 Speaker 7: people are going to live in the future, you're going 648 00:34:47,160 --> 00:34:49,840 Speaker 7: to need access to advanced learning in one way or 649 00:34:49,880 --> 00:34:53,959 Speaker 7: another across the entirety of your life, and it being 650 00:34:53,960 --> 00:34:56,279 Speaker 7: delivered to you wherever you are, whenever you need it, 651 00:34:56,320 --> 00:34:58,400 Speaker 7: however you need it. What's going to happen with online 652 00:34:58,520 --> 00:35:01,920 Speaker 7: education as it is improved and enhanced and run by 653 00:35:02,000 --> 00:35:05,000 Speaker 7: real faculty, like our faculty run all of our online programs, 654 00:35:05,040 --> 00:35:08,480 Speaker 7: design all of our online programs. As the quality goes up, 655 00:35:08,520 --> 00:35:11,319 Speaker 7: it's going to become a mainstay. It's going to be 656 00:35:11,400 --> 00:35:13,200 Speaker 7: you know, you're not just going to watch television when 657 00:35:13,239 --> 00:35:14,839 Speaker 7: you go home. You're going to be involved in these 658 00:35:14,920 --> 00:35:16,600 Speaker 7: learning activities. You're going to do this, You're going to 659 00:35:16,640 --> 00:35:20,560 Speaker 7: be involved in immersive experiences that are digital. We, for instance, 660 00:35:20,600 --> 00:35:25,160 Speaker 7: now have nine thousand biology majors at ASU, half online, 661 00:35:25,200 --> 00:35:27,719 Speaker 7: half on campus. And what we're finding is that the 662 00:35:27,760 --> 00:35:30,600 Speaker 7: learning outcomes of all these biology majors are about the same, 663 00:35:30,640 --> 00:35:31,960 Speaker 7: which is a tremendous outcome. 664 00:35:32,440 --> 00:35:34,520 Speaker 2: To make sure that those who start out with less 665 00:35:34,600 --> 00:35:38,000 Speaker 2: can move up the socioeconomic ladder, places like Arizona State 666 00:35:38,280 --> 00:35:41,520 Speaker 2: are delivering and are keeping track of just how well 667 00:35:41,560 --> 00:35:42,040 Speaker 2: they're doing. 668 00:35:42,640 --> 00:35:45,520 Speaker 7: And so what we found is that the ROI for 669 00:35:45,640 --> 00:35:50,040 Speaker 7: our degrees range between seven percent per year and twenty 670 00:35:50,040 --> 00:35:53,120 Speaker 7: three percent per year depending on the degree, all of 671 00:35:53,120 --> 00:35:56,400 Speaker 7: which are substantial returns. The average ROI for US is 672 00:35:56,440 --> 00:36:00,680 Speaker 7: fourteen percent ROI per year after you at your degree. 673 00:36:00,719 --> 00:36:02,920 Speaker 7: That's a substantial return on your investment just looking at 674 00:36:02,920 --> 00:36:06,600 Speaker 7: it from a simple business investment perspective. We also know 675 00:36:06,640 --> 00:36:12,200 Speaker 7: that life outcomes are significantly positive. Health outcomes, education of 676 00:36:12,239 --> 00:36:15,120 Speaker 7: your children, happiness indicators. We've looked at all of those things, 677 00:36:15,120 --> 00:36:17,520 Speaker 7: so we measure all those things. Now, the system's far 678 00:36:17,560 --> 00:36:21,680 Speaker 7: from perfect. I think almost four hundred thousand people have 679 00:36:21,760 --> 00:36:24,239 Speaker 7: graduated from ASU since I've been the president, and I 680 00:36:24,280 --> 00:36:26,960 Speaker 7: can't say that all four hundred thousand people are living 681 00:36:27,000 --> 00:36:29,920 Speaker 7: in nirvana. But what I can say is that we 682 00:36:30,080 --> 00:36:33,960 Speaker 7: have created a mechanism by which people from every family 683 00:36:34,040 --> 00:36:37,520 Speaker 7: background have access, if they want it, to pathway for 684 00:36:37,600 --> 00:36:41,360 Speaker 7: which they will get substantial return on their time and treasure.