WEBVTT - Kushner’s Affinity Withdraws From Warner Bros. Takeover Battle 0:00:02.520 --> 0:00:10.520 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business 0:00:10.520 --> 0:00:14.400 Week Daily reporting from the magazine that helps global leaders 0:00:14.440 --> 0:00:18.360 stay ahead with insight on the people, companies, and trends 0:00:18.360 --> 0:00:23.360 shaping today's complex economy, plus global business, finance and tech 0:00:23.440 --> 0:00:27.320 news as it happens. The Bloomberg Business Week Daily Podcast 0:00:27.640 --> 0:00:31.720 with Carol Masser and Tim Stenebek on Bloomberg Radio. 0:00:32.440 --> 0:00:35.280 We mentioned some breaking news has been listening just in 0:00:35.280 --> 0:00:39.000 the last few minutes regarding the media deal that we 0:00:39.120 --> 0:00:40.120 just can't stop talking about. 0:00:40.360 --> 0:00:43.160 Yeah, and that just can't seem to get done because 0:00:43.200 --> 0:00:45.240 it goes back and forth. One of brothers Discovery planning 0:00:45.240 --> 0:00:48.920 to reject Paramount Skuidances hostile takeover bid due to concerns 0:00:48.920 --> 0:00:51.880 about financing and other terms. Let's see what our Felix 0:00:51.920 --> 0:00:54.840 Jellette has to say about this. He covers the media 0:00:54.880 --> 0:00:57.840 space for us so closely here at Bloomberg. So I 0:00:58.320 --> 0:00:59.760 do feel like that back and forth, back and forth 0:00:59.800 --> 0:01:01.400 the time to really kind of read the tea leaves. 0:01:01.760 --> 0:01:03.920 What do you make about this latest reporting. 0:01:04.080 --> 0:01:07.320 I mean, I think it's not entirely surprising, right, Paramount 0:01:07.720 --> 0:01:12.440 lost the initial round of bids and to Netflix and 0:01:12.480 --> 0:01:15.240 then came out with the public hostal offer. 0:01:15.000 --> 0:01:16.479 But it was the same offer that the. 0:01:16.440 --> 0:01:19.840 Board had already rejected, essentially, so we're all essentially waiting 0:01:19.880 --> 0:01:22.959 for them to review it again, you know, and then 0:01:23.280 --> 0:01:25.480 essentially say, oh, you know what we actually did, like 0:01:25.520 --> 0:01:29.000 the Netflix a bid more, and that'll toss the ball 0:01:29.120 --> 0:01:31.760 back into Paramount's court, and I think they're going to 0:01:31.840 --> 0:01:34.920 have to come back with a better offer, more money, 0:01:35.280 --> 0:01:39.280 something way of addressing the concerns about financing that Warner 0:01:39.319 --> 0:01:40.600 Brothers board has had all long. 0:01:40.640 --> 0:01:44.200 Does Paramounts Guidance have that money? I mean Larry Ellison's 0:01:44.200 --> 0:01:49.040 worth two hundred and forty billion dollars, Yeah, two hundred 0:01:49.040 --> 0:01:51.440 and nineteen billion dollars of that is tied up in 0:01:51.480 --> 0:01:52.120 Oracle stock. 0:01:52.360 --> 0:01:53.000 Yeah. 0:01:53.040 --> 0:01:56.560 Well, I think there's questions that have not been addressed, 0:01:56.600 --> 0:01:59.640 even though the Ellisons have said one way or another, oh, 0:01:59.680 --> 0:02:02.880 we actually did address all these concerns about the financing. 0:02:02.920 --> 0:02:05.560 You know, initially there was money from ten Cents which 0:02:05.600 --> 0:02:08.880 caused some concern that was taken out or whatever. So 0:02:08.919 --> 0:02:11.720 there were there have been adjustments made, but you know, 0:02:11.840 --> 0:02:14.200 I think at this point it's officially going to go 0:02:14.240 --> 0:02:16.760 back to them again and they'll probably have to come 0:02:16.840 --> 0:02:20.240 up with something more, whether it's more money or whatever, 0:02:20.320 --> 0:02:22.880 addressing those concerns that remain. 0:02:23.160 --> 0:02:25.519 You know, I lost track in terms of feel like 0:02:25.639 --> 0:02:29.519 the Paramount Skydance deal because it was Jared Kushner's investment 0:02:29.600 --> 0:02:33.200 firm and there was I think some Saudi investors and like, 0:02:33.520 --> 0:02:36.200 do you help me understand because it feels like I 0:02:36.240 --> 0:02:39.799 thought that was a lot of the financial offer. 0:02:39.680 --> 0:02:43.200 Like it was diversified at I felt like the rather 0:02:43.400 --> 0:02:45.160 of money to come in, well they were ponying up. 0:02:45.160 --> 0:02:46.720 It felt like a lot of money. But I'm not 0:02:46.760 --> 0:02:49.520 quite so sure because if Larry Ellison is still so 0:02:49.600 --> 0:02:52.720 important to this offer, yeah, like is it a much 0:02:52.760 --> 0:02:55.040 smaller portion it was. 0:02:55.240 --> 0:02:56.519 I mean, they've made adjustments. 0:02:56.520 --> 0:02:58.600 So it's like, I think what probably what the Warner 0:02:58.639 --> 0:03:02.919 Brothers Discovery board is saying, they want more assurance that 0:03:03.120 --> 0:03:06.520 it's from Larry Ellison, that that money feels, you know, 0:03:06.680 --> 0:03:09.799 better from a regulatory perspective if you can get the 0:03:09.840 --> 0:03:13.639 money from Ellison, the Ellison family versus these other sources 0:03:13.720 --> 0:03:15.880 that have been part of financing deal from the beginning, 0:03:16.040 --> 0:03:18.359 such as the Middle East you know Middle East money, 0:03:19.080 --> 0:03:21.000 you know money that from Tencent, Like I said that 0:03:21.080 --> 0:03:24.360 was taken out Jared Kushner, which again might help with 0:03:24.360 --> 0:03:26.320 the White House, but might raise other concerns. 0:03:26.520 --> 0:03:28.519 Yeah, I'm glad you brought that up, because Carol brought 0:03:28.600 --> 0:03:30.600 up just a few weeks ago what happened when Rupert 0:03:30.639 --> 0:03:33.600 Murdoch wanted to buy Fox and what a challenge it 0:03:33.680 --> 0:03:36.120 was for him to do that because of foreign ownership 0:03:36.120 --> 0:03:39.120 of a broadcast network and the hoops that he had 0:03:39.160 --> 0:03:42.040 to jump through in order to do that. Okay, so 0:03:42.080 --> 0:03:44.600 we I still have a lot of questions and unanswerable 0:03:44.600 --> 0:03:46.560 at this point about what this deal looks like. Let's 0:03:46.640 --> 0:03:49.840 just say, for the sake of simplicity, Netflix wins out. Yeah, 0:03:49.960 --> 0:03:53.480 Netflix actually gets these assets. Netflix gets HBO. You wrote 0:03:53.520 --> 0:03:56.680 the book on HBO. This is a wild world that 0:03:56.680 --> 0:03:59.560 we're living in. If Netflix actually gets this, what does 0:03:59.600 --> 0:04:01.360 it mean for consumers? I mean, is this is this 0:04:01.400 --> 0:04:02.120 good for us? 0:04:02.320 --> 0:04:02.640 Well? 0:04:02.760 --> 0:04:05.480 Netflix would say, oh, it's going to be great because ultimately, 0:04:05.600 --> 0:04:08.080 with lower prices, you know, we'll have you know, we'll 0:04:08.120 --> 0:04:10.720 be able to be more flexible in terms of bundling. 0:04:10.480 --> 0:04:13.240 Just consolidation, usually lower prices. That's very nice. 0:04:13.280 --> 0:04:16.760 I'm just asking I'm just asking a rhetorical question. 0:04:16.800 --> 0:04:18.960 I think you've seen a lot of voices in Hollywood 0:04:19.040 --> 0:04:23.200 raising concern immediately about Netflix taking winning this deal because 0:04:23.560 --> 0:04:25.680 it's going to be so much consolidation of power. 0:04:25.680 --> 0:04:26.760 Now Netflix has said. 0:04:26.680 --> 0:04:28.680 Well, you know, really you have to look at the 0:04:28.720 --> 0:04:32.200 broader universe of people's attention. And now people are on 0:04:32.240 --> 0:04:34.760 TikTok and they're on YouTube and all these other things. 0:04:34.920 --> 0:04:39.280 But really, in this subscription video on demand world, Netflix 0:04:39.320 --> 0:04:41.440 is already the market leader. If you add in all 0:04:41.480 --> 0:04:44.560 of these assets from HBO Max, they're going to be 0:04:44.880 --> 0:04:48.640 you know, more than four hundred million uh subscribers around 0:04:48.640 --> 0:04:52.799 the world. They're going to absolutely, so utterly dominate the 0:04:52.839 --> 0:04:55.920 subscription video business that I think people are going to 0:04:56.000 --> 0:04:57.919 be like, yeah, who are There's going to be no 0:04:57.920 --> 0:05:00.000 one else to sell to, and that's going to be 0:05:00.279 --> 0:05:03.679 for the business overall. Ultimately, it'll cost consumers more money 0:05:03.680 --> 0:05:04.360 down the lone. 0:05:04.880 --> 0:05:07.680 Yeah, that feels about right. Hey, why is this so 0:05:07.760 --> 0:05:11.440 difficult to get this done? Why is this one so difficult? 0:05:11.600 --> 0:05:15.599 Well, I mean people trying to you know, make these 0:05:15.640 --> 0:05:19.160 assets you know, more valuable from Warner Brothers Discovery for 0:05:19.279 --> 0:05:22.160 twenty years. I mean, you're going back to AOL time Warner, 0:05:22.200 --> 0:05:25.760 which again was around what the two thousands, so, you know, 0:05:26.040 --> 0:05:28.239 and then AT and T made a run at trying 0:05:28.240 --> 0:05:29.920 to make these assets work for them. 0:05:30.000 --> 0:05:31.320 Then you had Discovery come in. 0:05:31.720 --> 0:05:35.080 It's a you know, a challenge that has enticed so 0:05:35.120 --> 0:05:38.640 many different people and yet has always proven more difficult 0:05:38.680 --> 0:05:42.279 in reality than on paper for you know, decades. 0:05:42.320 --> 0:05:45.839 Now, what's the risk that somebody overpays ultimately, Like, I 0:05:45.839 --> 0:05:47.760 feel like there's there's been so much in terms of 0:05:47.920 --> 0:05:50.040 media assets, and we know the media landscape, you know 0:05:50.160 --> 0:05:54.280 better than most how it continues to change and evolved. 0:05:54.279 --> 0:05:55.240 So I'm just curious. 0:05:55.320 --> 0:05:57.560 Well, I think the idea is like, you know, you 0:05:57.640 --> 0:06:00.320 have the biggest library, you have the most selection for 0:06:00.440 --> 0:06:03.080 your viewers. It's going to drive subscribers. People are going 0:06:03.160 --> 0:06:05.120 to engage with it. You're going to you know, have 0:06:05.480 --> 0:06:08.080 more subscribers coming in. But the problem is always how 0:06:08.080 --> 0:06:11.200 do you arrange those assets? How do you arrange those 0:06:11.200 --> 0:06:14.279 shows and movies on a small app in a way 0:06:14.320 --> 0:06:17.080 that's enticing and available. I mean, I think the problem 0:06:17.080 --> 0:06:21.160 that Discovery has had with Warner Brothers Discovery is that 0:06:21.200 --> 0:06:24.239 you know, piling and all these reality shows into these 0:06:24.400 --> 0:06:28.800 into HBO, Max didn't actually increase engagement at all. In fact, 0:06:28.920 --> 0:06:31.080 it just kind of like a lot of those shows 0:06:31.080 --> 0:06:33.480 and programs just get lost in the mix and no one, 0:06:33.880 --> 0:06:36.280 no one watches them. So that's the problem is you 0:06:36.400 --> 0:06:38.160 end up paying for a bunch of things that don't 0:06:38.200 --> 0:06:39.360 actually drive engagement. 0:06:39.520 --> 0:06:42.239 Well, here's this Jared Kushner's affinity withdrawing from the Warner 0:06:42.279 --> 0:06:43.440 Brothers Takeover Battle. 0:06:43.760 --> 0:06:46.440 Yeah, okay, I mean again, that would make sense. 0:06:46.760 --> 0:06:51.440 It would lower some of the concerns from state attorney generals, 0:06:51.440 --> 0:06:55.760 anyone that like is worried about what paramount and Nellison's 0:06:55.800 --> 0:06:57.760 would do with things like CNN. 0:06:57.839 --> 0:07:02.000 If so, that makes Paramounts Guidances offer more attractive to 0:07:02.080 --> 0:07:03.200 Warner Brothers Discovery. 0:07:03.680 --> 0:07:06.799 I think it makes it simpler, and that's a little 0:07:06.800 --> 0:07:10.400 bit more attractive in terms of again, if you're willing 0:07:10.480 --> 0:07:13.200 to just if Larry Ellison will just put up the 0:07:13.240 --> 0:07:15.600 money and backs up this whole thing, that that's the 0:07:15.600 --> 0:07:16.560 easiest way. 0:07:16.480 --> 0:07:18.120 For any historical share price. 0:07:18.600 --> 0:07:20.880 So much of his wealth is tied up or he 0:07:20.920 --> 0:07:23.320 only has twenty billion rights only, but he is basically 0:07:23.320 --> 0:07:26.160 eighteen according to the Bloomberg Billionaire indecks, basically eighteen billion 0:07:26.320 --> 0:07:28.880 dollars worth of net worth that is not tied up. 0:07:28.960 --> 0:07:31.120 Wait to go back to this headline that just crossed 0:07:31.200 --> 0:07:34.400 Jared Kushner's affinity withdrawing from the Warner Brothers takeover battle. 0:07:34.680 --> 0:07:36.000 That you say makes. 0:07:35.840 --> 0:07:39.120 The paramount's guidance potentially more attractive. 0:07:39.160 --> 0:07:44.240 From the Warner Brothers Discovery Boards perspective potentially also, Yeah, 0:07:44.480 --> 0:07:47.680 although at the same time, you know, it's a two 0:07:47.760 --> 0:07:50.720 edged sword because then it's also you know, will that 0:07:50.800 --> 0:07:53.800 make it harder for the regulatory approval down the line 0:07:53.800 --> 0:07:57.280 in terms of getting approval from you know, the Department 0:07:57.320 --> 0:08:00.480 of Justice and Trump's White House. You know, will they 0:08:01.000 --> 0:08:03.760 without the sun and law involved, does that make it harder? 0:08:03.800 --> 0:08:06.440 I mean, I think there's a lot of questions on 0:08:06.480 --> 0:08:10.200 both sides of this, and it's going to continue to 0:08:10.200 --> 0:08:11.160 play out in the week's ahead. 0:08:11.280 --> 0:08:13.120 Okay, So one question that we have is about the 0:08:13.120 --> 0:08:17.720 global linear networks, because Netflix's deal does not include CNN, TNT, 0:08:17.960 --> 0:08:22.320 Cartoon Network. I mean, the list certainly goes on when 0:08:22.360 --> 0:08:25.560 it comes to these assets that not that many people 0:08:25.640 --> 0:08:28.440 really want right now. What's the fate of those If 0:08:28.480 --> 0:08:30.120 Netflix wins this bid. 0:08:30.440 --> 0:08:33.760 Well, it'll be spun off into a separate company before 0:08:34.040 --> 0:08:36.920 the bid, before the acquisition takes place. 0:08:37.040 --> 0:08:38.959 Like a publicly traded company, a separate. 0:08:38.720 --> 0:08:42.840 Publicly traded company discovered, probably called Discovery Global. 0:08:42.840 --> 0:08:43.920 That's the plant at this point. 0:08:45.000 --> 0:08:49.360 And yeah, those assets are still throwing off profits, but 0:08:49.480 --> 0:08:52.680 the viewership is the client across the board. There's a 0:08:52.720 --> 0:08:56.760 lot of other cable networks out there right Comcast is 0:08:56.800 --> 0:08:59.200 in the process of just spinning off a bunch of 0:08:59.240 --> 0:09:02.679 bits additional cable assets. So you know, at some point, 0:09:02.720 --> 0:09:05.080 does somebody come along and roll all of those assets 0:09:05.080 --> 0:09:09.280 into one company. There's probably some you know, synergies if 0:09:09.280 --> 0:09:11.720 you combine them in one place. But yeah, it's managing 0:09:11.800 --> 0:09:13.480 the declining asset over time. 0:09:13.679 --> 0:09:16.360 I just want to mention because a Bloomberg story just crossing. 0:09:16.760 --> 0:09:20.199 So Jared Kushner's Afinity partners exiting from the takeover battle 0:09:20.200 --> 0:09:23.520 for Warner Brothers Discovery. A representative for the firm said, 0:09:23.559 --> 0:09:28.760 Affinity there they say they now believe the dynamics of 0:09:28.760 --> 0:09:31.440 an investment have changed since it became involved in the process. 0:09:31.440 --> 0:09:32.000 In October. 0:09:32.040 --> 0:09:35.480 Here's a quote with two strong competitors vying to secure 0:09:35.520 --> 0:09:39.200 the future this unique American asset, Affinity has decided no 0:09:39.280 --> 0:09:42.120 longer to pursue the opportunity. We continue to believe there 0:09:42.200 --> 0:09:45.560 is a strong strategic rationale for Paramount's offer. 0:09:49.160 --> 0:09:51.080 Right, Well, I mean that's the thing is. I think 0:09:51.080 --> 0:09:54.720 when you put Jared Kushner in the mix. On the 0:09:54.720 --> 0:09:58.360 one head again, you think, oh, maybe they'll improve their 0:09:58.440 --> 0:10:01.800 ability to get it through regular Tory concerns faster under 0:10:01.920 --> 0:10:04.760 Trump's administration. On the other hand, it raises all these 0:10:04.800 --> 0:10:11.600 other political objections from progressive states, including California and New York, 0:10:11.640 --> 0:10:15.680 where a lot of entertainment assets are located. So yeah, 0:10:15.840 --> 0:10:17.520 there's there's definitely problems of bolt. 0:10:17.720 --> 0:10:20.920 Well, even without Affinity Partners, Paramount's offer is being bankrolled 0:10:20.920 --> 0:10:23.760 by a list of influential Middle Eastern investors, Saudi Arabia's 0:10:23.800 --> 0:10:26.720 public Investment Fund, Qatar Investment Authority, as well as a 0:10:26.720 --> 0:10:30.280 little known group from Abu Dhabi called Limad Holding Company. 0:10:30.320 --> 0:10:32.160 Kushner had does have strong ties to at least he 0:10:32.160 --> 0:10:35.120 founded Affinity in twenty twenty one with funding from sovereign 0:10:35.120 --> 0:10:38.679 wealth funds from the region. Carol, as you say, it's complicated. 0:10:38.200 --> 0:10:41.040 It's complicated this one is, which means it will be 0:10:41.040 --> 0:10:44.800 coming because it ain't over yet either, not Felix Jillette. 0:10:44.800 --> 0:10:47.000 Thank you so much, So appreciated. 0:10:47.000 --> 0:10:50.319 Felix, of course covering the media space for us, as 0:10:50.360 --> 0:10:52.160 we said, wrote the book on HBO. 0:10:52.320 --> 0:10:55.960 Yeah, the book It's Not TV The Spectacular, Rise, Revolution 0:10:56.520 --> 0:10:59.560 and Future of HBO. Get that book now if you 0:10:59.559 --> 0:10:59.959 haven't read. 0:11:00.280 --> 0:11:03.520 Felix is media and entertainment editor. So thank you so much. 0:11:04.200 --> 0:11:07.000 Stay with us. More from Bloomberg Business Week Daily coming 0:11:07.080 --> 0:11:07.960 up after this. 0:11:12.400 --> 0:11:16.280 You're listening to the Bloomberg Business Week Daily Podcast. Catch 0:11:16.320 --> 0:11:19.520 us live weekday afternoons from two to five eastering. Listen 0:11:19.559 --> 0:11:23.120 on Applecarplay and Android Otto with the Bloomberg Business app, 0:11:23.320 --> 0:11:24.080 or watch us. 0:11:24.080 --> 0:11:26.080 Live on YouTube. 0:11:26.480 --> 0:11:28.840 We're going to stay on the macro with a financial 0:11:28.840 --> 0:11:31.080 sector emphasis and great to have back with us. 0:11:31.160 --> 0:11:33.400 Chris Whale and chairman of Whale and Global Advisors. He 0:11:33.440 --> 0:11:34.000 worked at the New. 0:11:34.000 --> 0:11:36.839 York FED in the eighties. He's testified before Congress and 0:11:36.880 --> 0:11:39.240 the SEC. Worked on Wall Street. I forgot that you 0:11:39.280 --> 0:11:42.360 worked at bear Stearns. 0:11:41.200 --> 0:11:42.440 And some other. 0:11:45.160 --> 0:11:48.920 Written many books and also served on the Economic Advisory 0:11:48.960 --> 0:11:51.439 Committee of FINRA for over a decade. 0:11:51.920 --> 0:11:53.439 And you also ward consultants of billions. 0:11:53.480 --> 0:11:53.920 Was that right? 0:11:54.280 --> 0:11:56.280 Yes? It was great fun they were buying a bank. 0:11:56.440 --> 0:11:58.400 They were buying a bank, and they wanted to know. 0:11:58.880 --> 0:12:02.160 Yeah, they were trying to you know, finagle regulators. It 0:12:02.200 --> 0:12:04.600 was a typical billions kind of script. 0:12:05.080 --> 0:12:08.560 Well, out of the entire resume that Carol just mentioned, 0:12:08.600 --> 0:12:10.480 was that the most fun working on Billions? 0:12:11.080 --> 0:12:13.480 No, I think the most fun was early days working 0:12:13.520 --> 0:12:16.480 at bear Stearns in London, you know, selling bonds. That 0:12:16.600 --> 0:12:18.199 was a lot of fun. We had a blast. 0:12:18.559 --> 0:12:20.400 Well tell us about like it's funny. 0:12:20.679 --> 0:12:22.600 You know, I love talking with someone like you because 0:12:22.640 --> 0:12:25.480 you have seen just kind of how the financial sector 0:12:25.520 --> 0:12:27.760 has changed a lot, Chris right, and the stress points 0:12:27.800 --> 0:12:31.120 that we've seen, certainly the financial crisis and elsewhere when 0:12:31.160 --> 0:12:32.760 you look at We just talked with Mike about some 0:12:32.760 --> 0:12:35.360 of the macro backdrop, and we've talked with you about 0:12:35.400 --> 0:12:36.120 specific risks. 0:12:36.120 --> 0:12:39.000 But does it feel comfortable today. 0:12:38.840 --> 0:12:41.080 Kind of the environment in your view compared to what 0:12:41.120 --> 0:12:42.000 we've seen in the past. 0:12:42.200 --> 0:12:42.240 No. 0:12:42.640 --> 0:12:45.480 I was going through the third quarter numbers for the 0:12:45.480 --> 0:12:48.480 big bank holding companies, which the FED just released. Yeah, 0:12:48.559 --> 0:12:51.200 day seventy five after the quarter closed. That's the best 0:12:51.200 --> 0:12:55.320 that they can do, and it's eerie. The credit costs 0:12:55.320 --> 0:12:59.319 are trending down the asset returns, thank god, or getting 0:12:59.360 --> 0:13:02.520 back to normal about one point five percent. But there's 0:13:02.559 --> 0:13:05.640 a lot we don't see, and that's what's worrying people. 0:13:05.720 --> 0:13:09.040 Whether you talk about oracle, where you talk about private credit, 0:13:09.360 --> 0:13:11.760 what people are worried about today is what they don't 0:13:11.800 --> 0:13:14.160 see in the data because they know that a lot 0:13:14.200 --> 0:13:16.800 of this is being fudged. And that's what worries me 0:13:16.960 --> 0:13:20.160 as well. What do you think is being fudged things 0:13:20.200 --> 0:13:23.360 like loan losses. There's a lot of forbearance here in 0:13:23.360 --> 0:13:26.760 New York City for multi family apartments. Our new mayor 0:13:26.880 --> 0:13:30.360 is threatening to start taking over buildings the landlords are 0:13:30.400 --> 0:13:32.760 not keeping up to his standards. Well, the city in 0:13:32.800 --> 0:13:34.760 New York can't afford to take care of them either, 0:13:35.320 --> 0:13:38.920 and so we have this accumulation of pressures, mostly caused 0:13:38.960 --> 0:13:42.480 by inflation, mostly caused by our friends at the FED. 0:13:43.240 --> 0:13:45.800 But in their defense, why did they do that? Because 0:13:45.880 --> 0:13:48.199 we told everybody they didn't have to pay their loans 0:13:48.200 --> 0:13:52.079 and their rent for two years during COVID. People forget that. 0:13:52.360 --> 0:13:55.080 In the mortgage industry. In March of twenty twenty, we 0:13:55.080 --> 0:13:57.600 were all looking at one another going, what are we 0:13:57.679 --> 0:14:00.240 going to do. This is after President Trump the player 0:14:00.240 --> 0:14:01.960 of the emergency and said you don't have to pay 0:14:01.960 --> 0:14:05.319 your bills. Yeah, well, the FED came to to rescue 0:14:05.480 --> 0:14:08.480 by dropping raised to zero because of a surge of home 0:14:08.920 --> 0:14:13.840 lending activity record volumes, and that float was borrowed to 0:14:13.880 --> 0:14:15.400 help everybody pay their bills. 0:14:15.559 --> 0:14:17.280 So why aren't we seeing more stress in the credit 0:14:17.320 --> 0:14:19.480 markets and why are we seeing records on Wall Street? 0:14:19.520 --> 0:14:22.080 And like it sounds like then some disconnect. 0:14:22.440 --> 0:14:24.360 I think part of the reason that the Street has 0:14:24.360 --> 0:14:27.240 been doing well listed stocks is because you have a 0:14:27.280 --> 0:14:30.840 lot of liquidity coming out of private markets. Going back 0:14:30.840 --> 0:14:35.520 into more liquid markets makes sense, right. Private equity, private 0:14:35.560 --> 0:14:37.960 credit is a mess, and we all know this. Something 0:14:38.040 --> 0:14:41.280 like fifteen percent of private equity companies in the US 0:14:41.400 --> 0:14:43.960 are paying in cond rather than in cash. 0:14:44.440 --> 0:14:47.480 So you notice waiting for the year to like the 0:14:47.600 --> 0:14:49.000 exits and for things to move on. 0:14:49.360 --> 0:14:52.880 There's a lack of demand from banks for loans except 0:14:52.880 --> 0:14:57.120 in one category, non depository financial companies, which is another 0:14:57.160 --> 0:15:00.720 way of saying private equity funds, credit shops like Areas 0:15:00.720 --> 0:15:04.359 and Apollo. They're the ones that have been aggressively expanding 0:15:04.680 --> 0:15:07.720 their business using money in part from banks. So the 0:15:07.760 --> 0:15:10.600 banks are now the facilitators. And what does this remind 0:15:10.680 --> 0:15:13.720 us of Carol the two thousands? Right right, it's the 0:15:13.760 --> 0:15:17.680 same thing. You have non bank intermediation, relying on the 0:15:17.680 --> 0:15:20.720 bond market, equity markets, and bank credit, and the thing 0:15:20.840 --> 0:15:23.720 is eventually they're going to stumble, and that's what everybody's 0:15:23.760 --> 0:15:24.280 worried about it. 0:15:24.400 --> 0:15:25.840 So what does that stumble look like? 0:15:25.960 --> 0:15:27.480 What is the shoe that drops? 0:15:27.600 --> 0:15:32.080 It looks like First Brands, Hello, we're defaulting. And most 0:15:32.080 --> 0:15:34.840 people had never focused on that company. It was a private, 0:15:35.360 --> 0:15:40.120 totally institutional play. The same thing with Tricolor auto lender 0:15:40.200 --> 0:15:43.640 that you know half of their customers were illegal aliens. 0:15:44.160 --> 0:15:46.800 Nobody had ever focused on this. It was an institutional 0:15:46.840 --> 0:15:48.320 story that suddenly surged. 0:15:48.600 --> 0:15:52.000 So you think those two instances are canaries in the 0:15:52.000 --> 0:15:52.680 coal mine. 0:15:52.840 --> 0:15:54.800 I think they are typical of what we're going to 0:15:54.800 --> 0:15:57.120 see more in the future, which is you're going to 0:15:57.200 --> 0:16:01.720 see more of the missteps in the institutional, non public market, 0:16:02.000 --> 0:16:05.280 which was supposedly better. Remember everybody was selling us the 0:16:05.360 --> 0:16:08.280 idea that private was better than public. No, we have 0:16:08.360 --> 0:16:11.600 public markets because they were open and relatively liquid. 0:16:11.960 --> 0:16:15.120 Chris, you know, after the Jamie Diamond cockroach comment that 0:16:15.160 --> 0:16:18.080 there were many members in the private world that came 0:16:18.080 --> 0:16:19.760 out or a few, I should say that came on 0:16:19.840 --> 0:16:24.080 our air, and that seemed to say, hey, listen, things 0:16:24.080 --> 0:16:27.080 are fine, and I understand many would say they're talking 0:16:27.120 --> 0:16:29.480 their book, But you know, are. 0:16:29.320 --> 0:16:30.800 They systemic risks? 0:16:30.840 --> 0:16:34.560 Like what's the exposure with the traditional financial sector when 0:16:34.560 --> 0:16:36.880 it comes to the private markets, Because I think that's 0:16:36.920 --> 0:16:38.800 what we care most about right now. 0:16:38.960 --> 0:16:43.600 I think the private players can fail tomorrow. It will 0:16:43.600 --> 0:16:47.440 cause a bit of kurfluffle and volatility in the markets. 0:16:47.560 --> 0:16:50.600 But are they systemic like a big bank. No, But 0:16:50.640 --> 0:16:53.360 the big banks will take their lumps too, because they 0:16:53.400 --> 0:16:57.520 are lending indirectly into these structures. They tend to take 0:16:57.560 --> 0:17:00.680 the most senior positions, but that may not save them. 0:17:01.080 --> 0:17:04.440 You see the assumption that Okay, I'm senior and three 0:17:04.480 --> 0:17:08.080 quarters of the stack is below me, and therefore I'm okay. 0:17:08.640 --> 0:17:10.800 That may not work this time around because you have 0:17:10.920 --> 0:17:13.760 leverage on leverage on leverage in some of these deals. 0:17:13.840 --> 0:17:16.320 So when so when like the big banks report again, 0:17:16.359 --> 0:17:17.840 we're getting ready for another earning. 0:17:17.640 --> 0:17:19.639 Cycle, right, you know, we'll get that, you know, in 0:17:20.160 --> 0:17:21.720 early early January. 0:17:21.920 --> 0:17:24.080 So what do we look for for things like that, 0:17:24.200 --> 0:17:25.159 like what do you look for The. 0:17:25.240 --> 0:17:28.840 New yors are going to be wonderful. That's what worries me, 0:17:29.240 --> 0:17:31.159 you know, just as an analyst. We were supposed to 0:17:31.200 --> 0:17:35.440 have a recession last year. Credit losses largely peaked last 0:17:35.480 --> 0:17:39.000 year third fourth quarter. Yeah, they've been coming down since then. 0:17:39.320 --> 0:17:41.360 So if you look at the picture, you say, God, 0:17:41.440 --> 0:17:44.600 everything is great. You don't see a lot of utilization. 0:17:44.960 --> 0:17:47.280 You don't see a lot of demand from the banks 0:17:47.280 --> 0:17:50.200 for credit. They've got a ton of unused credit out 0:17:50.200 --> 0:17:52.879 there that they wish people would use. But so you 0:17:52.920 --> 0:17:56.160 don't see stress in the published numbers, where you see 0:17:56.160 --> 0:17:59.280 stresses when you talk to professionals, when you read the 0:17:59.720 --> 0:18:03.560 really interesting media like Bloomberg and others to cover some 0:18:03.600 --> 0:18:05.800 of these stories. There was a great piece in the 0:18:05.880 --> 0:18:09.560 Ft over the last week talking about Altus, a company 0:18:09.600 --> 0:18:12.720 that Jamie Dimond came to the rescue of paid off 0:18:12.760 --> 0:18:15.720 their most restrictive loans so that they go out and 0:18:15.720 --> 0:18:18.879 borrow more money. So like and all of the credit 0:18:18.960 --> 0:18:21.320 guys that you're talking about looked at Jamie Dimond and 0:18:21.320 --> 0:18:24.919 they're going, hello, what are you doing. Yeah, so he's 0:18:24.960 --> 0:18:28.359 an enabler of bad behavior. Because Jamie has to go 0:18:28.400 --> 0:18:30.760 out and make money too, in a market where there 0:18:30.800 --> 0:18:33.040 isn't a lot of you know what I would call 0:18:33.119 --> 0:18:35.080 quality demand, Which reminds me of. 0:18:35.080 --> 0:18:37.760 What would happen in the Great Financial Crisis. 0:18:37.440 --> 0:18:40.600 Of people saying, I know it's getting messy and ugly, 0:18:40.680 --> 0:18:43.480 but there was it. The CEO of City at the time, 0:18:43.480 --> 0:18:45.040 I think who I came out and made some comment 0:18:45.080 --> 0:18:46.679 about I got to be in it. 0:18:46.600 --> 0:18:49.840 Like, oh no, that's right, Yeah, that was the I 0:18:49.880 --> 0:18:50.800 can't think of the. 0:18:50.680 --> 0:18:54.160 Temporary CEO Whoah, you know replaced John Reid. 0:18:55.040 --> 0:18:57.679 But I'm just saying, like this idea of like feeling 0:18:57.720 --> 0:18:59.560 like you have to be in it the pressure of it, 0:19:00.320 --> 0:19:00.879 yes and no. 0:19:01.240 --> 0:19:04.720 I think that some institutions have the common sense to 0:19:05.119 --> 0:19:08.440 pull back and say no, others don't. I'll give you 0:19:08.480 --> 0:19:10.879 an example P and C. P and C has the 0:19:10.880 --> 0:19:13.720 lowest loss rate in the top seven banks. They've always 0:19:14.040 --> 0:19:16.720 also got one of the lowest funding costs. That's a 0:19:16.800 --> 0:19:21.359 fairly well run half trillion dollar bank that has managed 0:19:21.359 --> 0:19:24.280 to avoid risk. I think often by saying no, the 0:19:24.320 --> 0:19:26.840 street wanted them to get more involved in certain things 0:19:26.880 --> 0:19:30.360