WEBVTT - Consumer Sentiment, Bank Earnings, Litigation Latest 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.280 --> 0:00:12.160 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:12.240 --> 0:00:15.320 weekdays at ten am Eastern on Apple card playing Android 0:00:15.360 --> 0:00:18.480 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:18.520 --> 0:00:22.120 you get your podcasts, or watch us live on YouTube. 0:00:23.079 --> 0:00:26.000 Let's get right to these Youmish sentiment data. So basically, 0:00:26.000 --> 0:00:28.560 we're looking at a fall for you Mish for the 0:00:28.600 --> 0:00:31.080 first time in three months, and you have the high 0:00:31.120 --> 0:00:34.280 cost of living really offsetting any sort of sanguine views 0:00:34.320 --> 0:00:36.600 on the job mark, kind of the opposite of what 0:00:36.760 --> 0:00:38.400 the FED was sort of looking at over the last 0:00:38.440 --> 0:00:41.440 few weeks. Joan Shue, University of Michigan Surveys of Consumer 0:00:41.520 --> 0:00:45.680 Director joins us now walk us through the decline here 0:00:45.720 --> 0:00:46.960 and the whys behind it. 0:00:48.280 --> 0:00:51.760 Absolutely so, I would point out that this decline is 0:00:51.840 --> 0:00:54.480 not statistically significant. We should see this as you know, 0:00:54.520 --> 0:00:57.880 inching down a very very small change. We're still higher 0:00:57.880 --> 0:01:01.680 than we were two months ago. Being said, consumers are 0:01:02.680 --> 0:01:04.520 you know, I think reacting to the same data that 0:01:04.880 --> 0:01:08.000 we saw on the CPI print yesterday. Inflation is slowing, 0:01:08.080 --> 0:01:11.280 but it's not slowing down as quickly as one would like. 0:01:12.000 --> 0:01:15.399 I'll note that the long term inflation expectations actually came 0:01:15.440 --> 0:01:17.240 down a little bit, so, you know, sort of mixed 0:01:17.319 --> 0:01:20.520 views on inflation, on inflation expectations, and. 0:01:20.520 --> 0:01:21.440 On labor markets. 0:01:21.520 --> 0:01:23.400 You know, I think consumers are feeling a little bit 0:01:23.440 --> 0:01:26.520 more confident this month. We had been seeing a week 0:01:26.640 --> 0:01:28.920 a bit of a weakening and labor market expectations the 0:01:29.000 --> 0:01:31.280 last few months, but they did expect the Fed to 0:01:31.319 --> 0:01:33.760 step in they did last month, and so consumers are 0:01:33.760 --> 0:01:35.280 feeling a little bit more staple there. 0:01:36.319 --> 0:01:38.920 How does just interest rates coming down? Is that just 0:01:39.080 --> 0:01:42.320 too much of a macro Wall Street thing to really 0:01:42.319 --> 0:01:43.440 impact the UMISH data. 0:01:45.400 --> 0:01:48.680 I don't think that the FOMC announcement necessarily moves the 0:01:49.440 --> 0:01:50.800 UMISH data at all. 0:01:50.800 --> 0:01:52.160 It doesn't really move consumers. 0:01:52.280 --> 0:01:55.520 That being said, consumers are fully aware of the interest 0:01:55.600 --> 0:01:58.840 rates around them, and when we ask them about buying 0:01:58.840 --> 0:02:02.400 conditions for a large large purchases like cars or durable 0:02:02.440 --> 0:02:07.160 goods or homes, the spontaneous mentions of high interest rates 0:02:07.200 --> 0:02:10.080 has fallen this month, So consumers are perfectly aware that 0:02:10.160 --> 0:02:13.560 interest rates are going to have been falling, and fifty 0:02:13.600 --> 0:02:16.480 four percent of consumers expect interest rates to continue following 0:02:16.680 --> 0:02:18.000 falling In the year ahead. 0:02:18.520 --> 0:02:20.760 So this is something that's on the minds of consumers. 0:02:20.919 --> 0:02:23.280 The narrative yesterday when we got the CPI data initial 0:02:23.360 --> 0:02:26.160 jobless claims, is that which one is the FED look at, right, 0:02:26.240 --> 0:02:30.160 higher jobless claims or an inflation narrative, that disinflation narrative. 0:02:30.200 --> 0:02:33.360 That's not as steep as we had thought. It feels 0:02:33.400 --> 0:02:36.320 like from the report consumers are looking at those two things. Also, 0:02:36.480 --> 0:02:38.080 job's okay, inflation not okay. 0:02:39.600 --> 0:02:42.880 Absolutely, I mean I think that in terms of inflation, 0:02:43.400 --> 0:02:46.399 and also high prices, that is absolutely. 0:02:45.840 --> 0:02:47.840 The number one factor on consumers' minds. 0:02:48.200 --> 0:02:52.400 We have over forty percent of consumers spontaneously telling us 0:02:52.400 --> 0:02:56.040 that high prices are eroding their personal finances. And it's 0:02:56.080 --> 0:02:59.160 been that way for quite some time, and so consumers 0:02:59.160 --> 0:03:02.680 are really concerned about that. With labor markets, you know, 0:03:02.720 --> 0:03:07.040 consumers are not super concerned about unemployment. They are aware 0:03:07.080 --> 0:03:10.079 that labor markets have been strong for the last couple 0:03:10.080 --> 0:03:10.600 of years. 0:03:11.560 --> 0:03:12.760 They are, you know. 0:03:12.680 --> 0:03:15.720 Watching their incomes very closely, of course, but they aren't 0:03:15.720 --> 0:03:17.919 really afraid of losing their jobs in the year ahead. 0:03:18.360 --> 0:03:20.440 All right, Joan, thank you so much. I really appreciate that. 0:03:20.520 --> 0:03:24.280 Joanne Shu, She's a Surveys of consumer director for the 0:03:24.400 --> 0:03:27.400 University of Michigan's they don't make just good football players 0:03:27.400 --> 0:03:29.959 out there. They make some good economists. It's good economic 0:03:30.080 --> 0:03:30.640 data out there, and. 0:03:31.000 --> 0:03:31.600 They make cars. 0:03:31.800 --> 0:03:33.960 They make cars, but not necessarily at the university. 0:03:34.160 --> 0:03:35.200 Okay, I see the distinction. 0:03:35.280 --> 0:03:37.960 See what you're seeing. So that's all good stuff there. 0:03:38.000 --> 0:03:39.800 So you missed data coming in a little bit weaker 0:03:39.840 --> 0:03:40.440 than expected. 0:03:41.960 --> 0:03:45.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:03:45.920 --> 0:03:48.960 weekdays at ten am Eastern on Apple car Play and 0:03:48.960 --> 0:03:51.880 Android Auto with the Bloomberg Business App. You can also 0:03:51.960 --> 0:03:55.160 listen live on Amazon Alexa from our flagship New York 0:03:55.200 --> 0:03:59.560 station Just say Alexa playing Bloomberg eleven thirty. 0:04:00.120 --> 0:04:01.960 What's really driving here? Are banks? 0:04:02.040 --> 0:04:05.000 I mean JP Morgan having like a tremendous move. Paul, 0:04:05.000 --> 0:04:08.000 you got the KBW bank index also arise in the 0:04:08.040 --> 0:04:10.320 most since December fourteenth. 0:04:11.480 --> 0:04:13.520 You've been talking people on morning. Did you find any 0:04:13.560 --> 0:04:14.120 cracks here? 0:04:14.400 --> 0:04:16.800 Well, I mean, you know, people were on the call 0:04:16.880 --> 0:04:19.919 talking about net interest margines, net interest incoming. Finally, Jamie 0:04:19.920 --> 0:04:22.320 Thymond's like, hey, guys, we put up some great numbers. 0:04:22.320 --> 0:04:24.279 Just lighten up about this, and that's interesting. 0:04:24.320 --> 0:04:24.840 I'm with him. 0:04:24.920 --> 0:04:27.920 I mean, and then I saw the Wells Fargo. Being 0:04:27.920 --> 0:04:29.719 a former investment banker, I go right to the investment 0:04:29.760 --> 0:04:32.359 banking lie man, they killed it, yeah, I don't you know. 0:04:32.600 --> 0:04:34.400 And Rolls Fargo they haven't been able to grow in 0:04:34.440 --> 0:04:36.200 the same way because the asset cap. So if they 0:04:36.240 --> 0:04:38.880 killed it, now, imagine when the cap is finally lifted. 0:04:38.880 --> 0:04:39.640 Someone smiling here. 0:04:39.640 --> 0:04:40.520 And I don't know if that's a good. 0:04:40.440 --> 0:04:40.760 Or bad thing. 0:04:40.760 --> 0:04:43.760 As Alison Williams, Bloomberg Intelligence, Senior Analyst for Global Banks 0:04:44.000 --> 0:04:46.680 and Asset Managers. Allison, what was your biggest takeaway from 0:04:46.680 --> 0:04:48.040 these two guys. 0:04:48.040 --> 0:04:50.480 I mean, things are good, right, and then we got 0:04:50.520 --> 0:04:53.159 the PPI numbers. I think that's also giving a list 0:04:53.400 --> 0:04:57.800 lift to the stocks. You know, JP Morgan is fascinating 0:04:57.839 --> 0:05:01.840 because they you know, beat the interest income. The guidance 0:05:01.839 --> 0:05:05.159 looks better for fourth quarter, but Jamie making him point 0:05:05.160 --> 0:05:08.839 to talk down the interest income guidance for next year, 0:05:08.839 --> 0:05:11.279 and as you pointed out, really just getting annoyed with 0:05:11.320 --> 0:05:16.040 people like focusing so much on every little thing. He 0:05:16.080 --> 0:05:19.520 did make comments about the expenses as we were discussing 0:05:19.560 --> 0:05:23.280 earlier this morning, just pointing out that look expenses are 0:05:23.320 --> 0:05:27.919 investments and investments in the future. But generally, you know, 0:05:28.080 --> 0:05:31.919 showing you know, charge offs coming in better than expected, 0:05:32.000 --> 0:05:35.839 but building the reserve. I think that reflects conservatism. Wells 0:05:35.920 --> 0:05:40.680 Fargo also, you know they're they're actually releasing reserves. So 0:05:40.720 --> 0:05:44.159 what that means is that generally a better economic view 0:05:44.200 --> 0:05:46.080 on a lot of different things. They did build some 0:05:46.279 --> 0:05:48.080 for card and for commercial real estate. 0:05:48.240 --> 0:05:50.320 A right one of the many reasons I am not 0:05:50.400 --> 0:05:53.159 a bank analyst because I focus on all the wrong things. 0:05:53.200 --> 0:05:56.800 Here's my question for Wells Fargo. Wells Fargo's CEO, they've 0:05:56.839 --> 0:05:59.800 refurbished more than four and sixty branches this year. I 0:05:59.800 --> 0:06:04.200 have been in a branch since well before the pandemic. 0:06:04.720 --> 0:06:07.159 I'm like, mister, I got my app I'm cruising on 0:06:07.160 --> 0:06:10.000 my APP. I can do everything. Why are banks still 0:06:10.000 --> 0:06:10.520 have branches? 0:06:10.839 --> 0:06:12.440 They get cash in your pocket, I see you take 0:06:12.440 --> 0:06:12.839 it out. 0:06:12.880 --> 0:06:14.840 Yeah, but I've at four or five hundred bucks because 0:06:14.880 --> 0:06:16.080 you never know when you're going to walk by a 0:06:16.080 --> 0:06:20.240 crap game. So talk to us about branches and how 0:06:20.240 --> 0:06:21.920 they what do they mean for the Wells Fargos and 0:06:21.960 --> 0:06:23.240 the Bank of Americas of the world. 0:06:23.600 --> 0:06:26.920 So banks are still building branches there's two reasons. So 0:06:27.040 --> 0:06:30.719 banks such as like Wells Fargo, Bank of America JP Morgan, 0:06:30.760 --> 0:06:33.720 there is a cap in terms of what you can buy, 0:06:33.760 --> 0:06:36.560 so you have to organically build. So any states that 0:06:36.560 --> 0:06:40.000 they're not in that they think are attractive markets, they 0:06:40.000 --> 0:06:42.360 are building in those markets. But what they have been 0:06:42.480 --> 0:06:46.800 doing is reconfiguring those branches, so focusing. 0:06:46.400 --> 0:06:47.360 More on wealth. 0:06:48.000 --> 0:06:51.120 So the branch may not be that you know, if 0:06:51.160 --> 0:06:53.159 you walked into a branch, you might not recognize it. 0:06:53.800 --> 0:06:56.720 There is a JP Morgan branch in the middle of 0:06:56.839 --> 0:07:02.400 Summit which hasn't changed very much, but but a lot 0:07:02.440 --> 0:07:06.440 of the branches and select markets are just making them smaller, 0:07:06.520 --> 0:07:09.640 more sales focused, focusing more on the wealth management business, 0:07:09.680 --> 0:07:12.880 so not necessarily your your branch of the day of old, 0:07:13.000 --> 0:07:16.920 where the focus was on deposits. Hopefully everyone's doing those 0:07:16.960 --> 0:07:21.040 on their phone because the cost to banks of processing 0:07:21.080 --> 0:07:22.520 those is pennies. 0:07:22.160 --> 0:07:22.600 On the dollar. 0:07:22.680 --> 0:07:24.720 John, you know, you can deposit a check by taking 0:07:24.760 --> 0:07:26.480 a photo of the check and then. 0:07:26.360 --> 0:07:28.960 I actually have done that. But there are things like 0:07:29.440 --> 0:07:32.720 they're doing everything they can to make me go paperless. 0:07:32.960 --> 0:07:34.200 I absolutely refuse. 0:07:34.640 --> 0:07:36.560 Really, I want it to be so much easier. Big 0:07:36.600 --> 0:07:37.600 of a drag. 0:07:38.440 --> 0:07:40.120 And then you wonder why we make you out to 0:07:40.160 --> 0:07:41.960 be a curmudgeon, and we're like, we don't do it, 0:07:42.120 --> 0:07:43.120 you do it to yourself. 0:07:43.240 --> 0:07:44.440 I fully admit it. 0:07:45.960 --> 0:07:47.960 What would be your questions now, so we got to 0:07:48.080 --> 0:07:50.640 this quarter, et cetera, what's your biggest question for JPM 0:07:50.720 --> 0:07:51.560 and for Wells Fargo? 0:07:51.840 --> 0:07:54.360 I mean, when is longerth can you get a little 0:07:54.360 --> 0:07:57.640 bit better? So that is I think one of the 0:07:57.640 --> 0:08:00.560 benefits of interest rate cuts that you're not sartly going 0:08:00.600 --> 0:08:04.040 to see in their projections, right because I think they're 0:08:04.080 --> 0:08:06.560 going to want to see more evidence of that loan demand. 0:08:07.440 --> 0:08:10.800 Card has been really strong, and the reason why we're 0:08:10.800 --> 0:08:13.960 seeing reserves for card is really not we have some 0:08:14.360 --> 0:08:17.360 normalization of credit, but it's really the growth. So when 0:08:17.360 --> 0:08:19.560 are the other areas going to pick up? 0:08:20.680 --> 0:08:20.840 You know? 0:08:20.880 --> 0:08:23.640 The other thing is fees. Fees have been helped by 0:08:23.640 --> 0:08:26.160 the super strong markets, and I think that's if you 0:08:26.160 --> 0:08:29.320 look at Wells Fargo's stock today, Yes, that interesting comes 0:08:29.400 --> 0:08:32.920 softer in the quorder, but next quarter looks fine and 0:08:33.120 --> 0:08:36.120 the markets are doing better. You know, that's that's not 0:08:36.160 --> 0:08:39.160 necessarily a question that management can answer, but it's something 0:08:39.200 --> 0:08:41.199 that we think is going to continue to benefit the bag. 0:08:41.480 --> 0:08:43.319 I have my checking account what Wells fargos, So I 0:08:43.320 --> 0:08:45.720 don't think I'm prepared to ask this question. Explain to 0:08:45.800 --> 0:08:49.120 us what the regulatory and legal issues are still above 0:08:49.120 --> 0:08:50.640 Wells Fargo and when do they hope to get out 0:08:50.640 --> 0:08:51.120 from under that. 0:08:51.800 --> 0:08:55.640 I mean, the so the asset cap is unprecedented. Is 0:08:55.720 --> 0:08:59.440 an asset basically after you know, if we go way 0:08:59.440 --> 0:09:03.120 way back to twenty sixteen, they were they were fined 0:09:03.200 --> 0:09:07.080 for some different sales practices. They had to make some improvements, 0:09:07.160 --> 0:09:10.679 they weren't making them fast enough. So within about a 0:09:10.800 --> 0:09:13.719 year or so, they got this asset CAUP which said, look, 0:09:13.760 --> 0:09:16.120 you're not allowed to grow from where your assets are 0:09:16.120 --> 0:09:19.240 today until you know, you fix the things that we 0:09:19.280 --> 0:09:23.000 want to fix. And that had never happened before, and 0:09:23.080 --> 0:09:25.800 so initially the thought was, oh, this will be a 0:09:25.840 --> 0:09:30.560 few months. So many many years later they are still 0:09:30.600 --> 0:09:34.640 working to fix that. And you know, since then, you know, 0:09:34.679 --> 0:09:37.760 that was a prior CEO. So we had a change 0:09:37.760 --> 0:09:39.560 at the top in terms of management, we had the 0:09:39.600 --> 0:09:44.120 board turnover, We've had tons of processes changing. There was 0:09:44.120 --> 0:09:49.000 a Bloomberg excuse me, a Bloomberg News article recently about 0:09:49.360 --> 0:09:52.640 you know, sending to regulars, all the changes that they've made, 0:09:53.679 --> 0:09:57.360 but at this point it makes less of a difference. 0:09:58.200 --> 0:10:01.480 The Really it really hurt them during the pandemic because 0:10:01.480 --> 0:10:05.200 they were limited in terms of the deposits they could add. 0:10:06.000 --> 0:10:09.199 But it is really about sentiment and flexibility. Should there 0:10:09.240 --> 0:10:11.920 be another big opportunity for them created, they want to 0:10:11.960 --> 0:10:13.400 make sure that they have that flexibility. 0:10:13.440 --> 0:10:15.839 And if you talk to management, they're like, it's it's 0:10:15.840 --> 0:10:18.120 a process, Like they can't give a data or a 0:10:18.160 --> 0:10:21.160 time because it's about transparency and rules. So like when 0:10:21.679 --> 0:10:24.000 they keep making the transparency and rules happen, at some 0:10:24.080 --> 0:10:28.920 point that will be lifted. Thirty seconds. Which bank now 0:10:28.960 --> 0:10:31.200 that is left to report? Do you think does well 0:10:31.240 --> 0:10:32.120 based on these results? 0:10:32.720 --> 0:10:36.800 Gulben Sachs, Golvin Sachs, and Morgan Stanley. So Morgan Stanley 0:10:36.880 --> 0:10:40.160 is more skewed towards the equity's business right They're trading 0:10:40.200 --> 0:10:44.840 has more exposure there equities trading super strong at JP Morgan. 0:10:45.600 --> 0:10:47.880 Those three banks are the top in the business and 0:10:47.960 --> 0:10:50.680 so we expect to see more strength next week. 0:10:52.480 --> 0:10:56.360 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:10:56.440 --> 0:10:59.520 weekdays at ten am Eastern on Apocarplay and then roud 0:10:59.520 --> 0:11:02.800 Otto with Bloomberg Business app Listen on demand wherever you 0:11:02.840 --> 0:11:05.880 get your podcasts, or watch us live on YouTube. 0:11:07.000 --> 0:11:08.480 So here's a story I don't understand. 0:11:08.559 --> 0:11:10.559 So it's a great story to then talk to Bloomberg 0:11:10.600 --> 0:11:13.440 Intelligence about a TD Bank is going to pay almost 0:11:13.440 --> 0:11:16.240 three point one billion dollars in fines and other penalties 0:11:16.360 --> 0:11:19.720 and face a cap on its US retail banking assets. 0:11:20.040 --> 0:11:22.520 This is after pleading guilty to failing to prevent money 0:11:22.600 --> 0:11:25.560 laundering by drug cartels and other criminals. We got the 0:11:25.640 --> 0:11:28.480 legal side, we got the business equity side for you here. 0:11:28.520 --> 0:11:32.240 Elliot Stein is Bloomberg Intelligence Litigation analyst and Paul Goldberg 0:11:32.360 --> 0:11:35.880 is Bloomberg Intelligence Senior equity analyst. Elliott start with you 0:11:36.280 --> 0:11:38.199 explain to me the legal story here. 0:11:38.480 --> 0:11:42.400 Right, So, yesterday TD Bank became the largest bank in 0:11:42.520 --> 0:11:45.360 US history to plead guilty to money laundry and virations. 0:11:45.800 --> 0:11:48.720 They paid three billion dollars, which is now the most 0:11:48.840 --> 0:11:52.120 any bank has ever paid for money laundry and virations, 0:11:52.480 --> 0:11:54.480 and they are now only the second bank to have 0:11:54.520 --> 0:11:58.199 an asset cap imposed on them, after well as Fargo over. 0:11:58.040 --> 0:11:58.640 Six years ago. 0:11:58.679 --> 0:12:01.320 Although it should be noted that the asset cap on 0:12:01.360 --> 0:12:04.520 TD Bank is only limited to its US retail bank operations, 0:12:04.600 --> 0:12:07.120 so it's sort of a smaller asset cap than one 0:12:07.200 --> 0:12:08.040 imposed on Wills. 0:12:08.360 --> 0:12:11.560 Hey, Paul, how much does this impact what investors kind 0:12:11.600 --> 0:12:14.079 of their view of TD? Three billion dollars is a 0:12:14.080 --> 0:12:16.160 big number, Elliott says, But they got one hundred and 0:12:16.160 --> 0:12:18.560 twenty billion a market cap, So what do you think? 0:12:18.640 --> 0:12:22.520 Yeah, all right, Paul, three billion dollars is not a 0:12:22.600 --> 0:12:25.480 big that big of a deal for them as a bank. 0:12:25.520 --> 0:12:30.360 They have thirteen percent of capital ratio, and they reserved 0:12:30.600 --> 0:12:32.600 most of it for most of it already just shy 0:12:32.640 --> 0:12:36.840 have a few dollars there. The asset cap is a 0:12:36.880 --> 0:12:41.120 bigger issue, and it's going to impede growth the now. 0:12:41.240 --> 0:12:44.280 They gave some ins and outs what they're going to 0:12:44.400 --> 0:12:48.840 do trying to accommodate the new requirements from the regulators. 0:12:49.200 --> 0:12:51.640 They're going to cut their US assets for those retail 0:12:51.640 --> 0:12:53.840 banks by about ten percent. It's going to be an 0:12:53.840 --> 0:12:57.479 additional one and have billion dollar charge. And even excluding 0:12:57.559 --> 0:13:00.880 that charge, some of the actions that we saw when 0:13:00.880 --> 0:13:02.920 we ran the numbers, it could be as much as 0:13:02.960 --> 0:13:05.720 another thirty cents in the earning, So another few percent 0:13:05.840 --> 0:13:07.480 of the earnings are going to get shaved in the 0:13:07.520 --> 0:13:09.719 next year. And how long is it going to take 0:13:09.760 --> 0:13:11.600 to unwind? It's going to take some time. 0:13:12.080 --> 0:13:14.640 This might be a silly question, Elliott, but like what 0:13:14.720 --> 0:13:17.160 was what did they actually do and how they actually 0:13:17.160 --> 0:13:17.760 fixed that. 0:13:17.800 --> 0:13:18.240 Part of it? 0:13:18.320 --> 0:13:19.560 Like who launders money anymore? 0:13:19.640 --> 0:13:19.920 I know? 0:13:20.000 --> 0:13:24.040 Yeah, so the laundering here was by Chinese drug cartels 0:13:24.040 --> 0:13:26.400 and other drug cartels as well. And I think what's 0:13:26.480 --> 0:13:31.640 notable is that TD Bank employees were accepting bribes from 0:13:31.640 --> 0:13:36.600 these cartels. Yeah, Ale a couple of them were indicted previously, 0:13:36.679 --> 0:13:38.840 a couple of TD Bank employees. So I think that's 0:13:38.880 --> 0:13:40.680 what made this sort of a more egregious case because 0:13:40.840 --> 0:13:43.720 you know, usually with banks, you see that their AML 0:13:44.040 --> 0:13:49.240 processes are deficient. Here you have bank employees participating in 0:13:49.280 --> 0:13:52.240 the crimes and that can get imputed to the bank itself, 0:13:52.280 --> 0:13:53.600 and that's what made it the worst case. 0:13:53.960 --> 0:13:56.240 Paul Goldberg, I'm looking at the stock kind of you know, 0:13:56.360 --> 0:14:00.600 flat on the year. What's the call on a bank 0:14:00.679 --> 0:14:03.200 like TD and maybe just Canadian banks in general. 0:14:04.880 --> 0:14:07.800 Canadian banks are sort of sitting at the crossroads. Has 0:14:07.960 --> 0:14:11.800 the Bank of Canada started cutting the interest rates ahead 0:14:11.800 --> 0:14:15.960 of the Federal Reserve. Here they've done three cuts already. 0:14:17.040 --> 0:14:20.640 They kind of sitting in between the two worlds. One 0:14:20.800 --> 0:14:24.240 is the slower growth and risk of actual recession, which 0:14:24.320 --> 0:14:27.680 is kind of minimized at this point, and the other 0:14:27.800 --> 0:14:31.560 one is a profitability. The long growth slowed quite dramatically 0:14:31.600 --> 0:14:36.320 in Canada and somewhat in the US, and their mortgage 0:14:36.360 --> 0:14:38.480 market is a little bit different than the US when 0:14:38.520 --> 0:14:42.400 mortgage is repriced to a higher rate, which exposes consumer 0:14:42.480 --> 0:14:45.440 to a very different risk. And about seventy five percent 0:14:45.480 --> 0:14:48.720 of mortgages overall, and a lot of them that were 0:14:48.760 --> 0:14:52.440 issued at a very low rates during the pandemic due 0:14:52.480 --> 0:14:54.600 to the price in twenty five and twenty six, So 0:14:55.120 --> 0:14:57.960 a lot of what's going on and what might happen. 0:14:58.160 --> 0:15:00.560 People are looking at the Bank of Canada how well 0:15:00.600 --> 0:15:05.120 it can actually prevent that from spilling over into consumer pains. 0:15:05.440 --> 0:15:06.920 So then based on that, when you take a look 0:15:06.920 --> 0:15:10.640 at the stock is down by about over two percent today, 0:15:10.800 --> 0:15:12.560 do we see it was down about six percent? I 0:15:12.560 --> 0:15:15.720 think yesterday. What part of this is reflected in the stock, 0:15:15.920 --> 0:15:18.240 How much of the macro Bank of Canada, and then 0:15:18.280 --> 0:15:20.280 how much of this kind of legal fees, etc. 0:15:21.920 --> 0:15:24.080 So I think the macro has been reflected in the 0:15:24.120 --> 0:15:28.240 stock for quite a while because the relative to Peers 0:15:28.280 --> 0:15:32.200 has been under performing all year, and the story on 0:15:32.280 --> 0:15:37.480 the whole kind of DML story has been around for 0:15:37.520 --> 0:15:39.440 over a year as well, so a lot of been 0:15:39.760 --> 0:15:43.040 reflected as well. I think what people were not really 0:15:43.080 --> 0:15:46.000 expecting is the asset cap. And even though as Elliott said, 0:15:46.040 --> 0:15:49.280 it's only the US retail operations, so the assets of 0:15:49.320 --> 0:15:51.640 those two operations are only about thirty percent of the 0:15:51.680 --> 0:15:55.480 total bank assets, it's still kind of unexpected and that's 0:15:55.520 --> 0:16:00.240 what's pressing the stock. They gave sort of claire in 0:16:00.360 --> 0:16:02.520 what might be the pressure in twenty five, But the 0:16:02.640 --> 0:16:04.680 question is, and this is kind of goes back to 0:16:04.720 --> 0:16:07.680 Wells Fargo where every quarterly poll people are asking when 0:16:07.680 --> 0:16:09.320 they're going to be down with the cap. And we've 0:16:09.320 --> 0:16:13.680 been out there for seven years already, So what's priced 0:16:13.720 --> 0:16:17.160 in there in that respect is kind of hard to tell. 0:16:17.360 --> 0:16:21.120 Hey, Elliet this asset cap, which I just learned about 0:16:21.240 --> 0:16:23.320 like fifteen minutes ago, and Alison Williams explained it to 0:16:23.360 --> 0:16:25.080 me the context to Wells Fargos, and now I think I. 0:16:25.040 --> 0:16:26.120 Know all about it. 0:16:26.160 --> 0:16:30.280 This seems like a real deterrent for regulators to rein 0:16:30.360 --> 0:16:35.640 in banks behavior here. I mean, writing a check is easy, 0:16:35.640 --> 0:16:37.720 they can reserve for it, no big deal. This seems 0:16:37.760 --> 0:16:39.120 like it could really have some tea. 0:16:39.240 --> 0:16:41.040 Yeah, and I think it's sort of a new wave 0:16:41.440 --> 0:16:46.520 of enforcement weapons that regulators are bringing because you did 0:16:46.640 --> 0:16:49.360 have Wells Fargo's asset cap almost seven years ago, but 0:16:49.400 --> 0:16:54.880 more recently we've seen the OCC imposed different business limitations 0:16:54.920 --> 0:16:59.640 on Wells by requiring them to get OCC approval if 0:16:59.640 --> 0:17:02.760 they're going to expand into new products or new markets. 0:17:02.400 --> 0:17:05.439 And we saw that with TD Bank yesterday as well, 0:17:05.600 --> 0:17:09.440 because in addition to the asset cap, if TD's US 0:17:09.480 --> 0:17:12.240 operations want to expand into new markets or open new branches, 0:17:12.240 --> 0:17:14.560 they have to get OCC approval as well. So we're seeing, 0:17:15.280 --> 0:17:18.280 you know, new tools that regulators are using beyond just 0:17:18.359 --> 0:17:21.600 monetary penalties, which you know, critics say, are you know, 0:17:21.720 --> 0:17:23.280 just the cost of doing business. 0:17:23.080 --> 0:17:25.679 Which so for Wells Fargo, part of it is for 0:17:25.760 --> 0:17:29.000 the broader asset cap lift. It's sort of like you know, 0:17:29.119 --> 0:17:30.880 when you see it like it's nothing, you can point 0:17:30.920 --> 0:17:32.280 to that like they're going to fix this and then 0:17:32.320 --> 0:17:35.040 all will be well that that's sort of just transparency 0:17:35.160 --> 0:17:36.840 and rules. They have just clean up and they have 0:17:36.880 --> 0:17:40.640 to do better. What is it for TD It's. 0:17:40.440 --> 0:17:42.720 Similar to what Wells Fargo went through, but you know, 0:17:42.800 --> 0:17:46.520 there's no that that's the problem moments sort of exactly, 0:17:46.560 --> 0:17:49.439 it's up to the OCC. There are steps that the 0:17:49.440 --> 0:17:51.159 bank has to take along the way, right, They have 0:17:51.200 --> 0:17:53.600 to put in the plan that the OCC approves, Then 0:17:53.600 --> 0:17:55.080 they have to implement a plan. Then they have to 0:17:55.119 --> 0:17:58.120 get a third party independent reviewer to sort of sign 0:17:58.160 --> 0:18:01.240 off on it, and then that third part already presents 0:18:01.240 --> 0:18:04.320 it to the OCC, and then the OCC signs off 0:18:04.359 --> 0:18:08.560 on it. But there's no crystal clear moment. It's interesting, yeah, 0:18:08.600 --> 0:18:09.439 where it gets lifted. 0:18:09.640 --> 0:18:10.159 It's interesting. 0:18:10.160 --> 0:18:12.560 Also, it's like, how do you prove that your workers 0:18:12.600 --> 0:18:13.800 are no longer taking bribes? 0:18:13.840 --> 0:18:14.320 Like what is that? 0:18:14.800 --> 0:18:14.879 Like? 0:18:14.960 --> 0:18:15.639 What does that look like? 0:18:15.720 --> 0:18:19.000 Right? No, we promise, Yeah, it's like proving a negative exactly. Guys, 0:18:19.040 --> 0:18:20.639 a really interesting story. We thank you both. That was 0:18:20.680 --> 0:18:24.320 really fun. Elliott Stein, Bloomberg Intelligence Litigation analyst and Paul Goldberg, 0:18:24.600 --> 0:18:29.160 Bloomberg Intelligence Senior equity analyst, talking about TD Bank. 0:18:30.760 --> 0:18:34.639 You're listening to the Bloomberg Intelligence podcast Catch US live 0:18:34.720 --> 0:18:38.240 weekdays at ten am Eastern on applecar Play and Android 0:18:38.280 --> 0:18:41.040 Otto with the Bloomberg Business at You can also listen 0:18:41.160 --> 0:18:44.240 live on Amazon Alexa from our flagship New York station 0:18:44.640 --> 0:18:47.399 Just Say Alexa playing Bloomberg eleven thirty. 0:18:49.119 --> 0:18:51.760 So we had the PPI which seemed pretty benign. You 0:18:51.800 --> 0:18:53.719 have nothing really happening in the front end. Long end 0:18:53.720 --> 0:18:56.440 though still selling off joining us now as Priam isra 0:18:56.720 --> 0:19:00.600 chief fixed income portfolio manager at JP Moore again asset 0:19:00.640 --> 0:19:01.679 management joining us. 0:19:01.680 --> 0:19:04.720 There prea what is going on with the long end? 0:19:05.080 --> 0:19:08.199 Why the selloff? Is there something fundamental? Is it repositioning? 0:19:08.520 --> 0:19:09.359 Is it something else? 0:19:10.440 --> 0:19:12.320 I think it's a combination of a couple of things. 0:19:12.320 --> 0:19:14.200 So we have this really strong jobs report. 0:19:14.240 --> 0:19:17.680 Now I know it's one report, it is subject to revisions, 0:19:17.680 --> 0:19:20.480 but I think the broad based strength of that report 0:19:20.880 --> 0:19:24.119 I think is making the market consider exactly where is 0:19:24.200 --> 0:19:26.720 neutral rate? And I think that neutral rate if you 0:19:26.760 --> 0:19:29.199