WEBVTT - Markets May Have To Adjust To Getting Info Via Twitter

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<v Speaker 1>Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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<v Speaker 1>Along with my co host Lisa Bramowitz. Each day we

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<v Speaker 1>bring you the most important, noteworthy, and useful interviews for

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<v Speaker 1>you and your money, whether you're at the grocery store

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<v Speaker 1>or the trading floor. Find the Bloomberg p m L

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<v Speaker 1>Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Tesla

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<v Speaker 1>shares are down nearly four percent, falling deeper after a

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<v Speaker 1>report from Fox Business UH that the U S as

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<v Speaker 1>you see, sent a subpoena to the carmaker regarding Elon

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<v Speaker 1>Musk's plans to take it private and has claimed to

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<v Speaker 1>have had quote funding secured for the deal. Joining us

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<v Speaker 1>now for more insight is Professor Jill Fish, business law

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<v Speaker 1>professor at the University of Pennsylvania Law School. UH. Professor Fish,

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<v Speaker 1>thank you so much for being with us. Let's just

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<v Speaker 1>start with what are the legal issues as you see

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<v Speaker 1>them that the SEC is likely investigating when it comes

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<v Speaker 1>to Elon Musk and his tweets. Well, just to start um,

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<v Speaker 1>the tweets have gotten a tremendous amount of attention. They've

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<v Speaker 1>obviously had a huge effect on the stock price, and

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<v Speaker 1>so I think it's absolutely expected that the SEC would

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<v Speaker 1>want to probe into this and find out exactly what

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<v Speaker 1>Elon musk knew at the time that he made the statements,

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<v Speaker 1>what his purpose was in making the statements, and what

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<v Speaker 1>exactly he meant by those keywords funding secured. Based on

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<v Speaker 1>your experience, if you were called in to offer legal counsel,

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<v Speaker 1>what would you say two members of the TESLA board

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<v Speaker 1>at this point in time? Yes, Um, I guess I

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<v Speaker 1>would want to have an understanding of the situation. It's really,

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<v Speaker 1>I think, a very rapidly evolving situation. Uh, we as

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<v Speaker 1>the public aren't sure at this point exactly what the

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<v Speaker 1>status of the deal is, what the status of the

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<v Speaker 1>negotiations are. We learned I learned last night that Goldman

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<v Speaker 1>and silver Lake were involved in this. So my first

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<v Speaker 1>step would be to find out what's going on, Um,

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<v Speaker 1>how far along things are, and what the status of

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<v Speaker 1>the various players are. One thing that I'm struggling to

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<v Speaker 1>understand is how long an investigation like this would go

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<v Speaker 1>on by the SEC and what the potential consequences are.

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<v Speaker 1>Can you shed some light there. It's very hard to

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<v Speaker 1>predict because we really don't know what the SEC is

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<v Speaker 1>going to find. I think the SEC's first priority is

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<v Speaker 1>to make sure that the public, that the capital markets

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<v Speaker 1>have accurate information, and so I think the purpose initially

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<v Speaker 1>is to clarify the situation, to find out whether any

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<v Speaker 1>sort of corrective disclosures are necessary, and to move very

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<v Speaker 1>quickly on that. I think at this stage it's much

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<v Speaker 1>too early to try to understand are they going to

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<v Speaker 1>bring an enforcement action? Is there a possibility of some

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<v Speaker 1>sort of sanctions and so forth? We just don't know.

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<v Speaker 1>So if that's the case that I'm trying to understand,

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<v Speaker 1>you know, when I talked to investors in Tesla analysts,

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<v Speaker 1>they say, well, there is this SEC risk. How big

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<v Speaker 1>of a risk is it? If the investigation might take

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<v Speaker 1>a very long time, it might just result to in

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<v Speaker 1>sort of a hand slap of a fine um. I

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<v Speaker 1>think in terms of affecting whether Tesla goes private, the

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<v Speaker 1>SEC investigation is a limited risk. I think it could

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<v Speaker 1>upset the apple cart, so to speak, but I don't

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<v Speaker 1>think that the SEC investigation would prevent the company from

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<v Speaker 1>going private. I think with respect to Elon Musk's personal situation,

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<v Speaker 1>a lot of that is going to depend on these unknowns,

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<v Speaker 1>on what his intent was whether there was some sort

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<v Speaker 1>of purpose to deal with short sellers and manipulate the market,

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<v Speaker 1>or whether he just got ahead of himself. In the

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<v Speaker 1>SEC's view, Professor Fish, is it legal for the CEO

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<v Speaker 1>of a publicly traded company who also owns nearly of

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<v Speaker 1>a company's stock to put out a specific stock price

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<v Speaker 1>for a take private deal unless they have a committed

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<v Speaker 1>end or some kind of documented evidence that such a

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<v Speaker 1>conversation or negotiation is taking place. Um, well, you put

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<v Speaker 1>it very bluntly, and that's kind of a hard statement, right. Um.

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<v Speaker 1>I think there are a bunch of questions that I

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<v Speaker 1>would ask, or that the SEC would ask in terms

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<v Speaker 1>of determining legality. But I think the way the tweet

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<v Speaker 1>was framed in terms of his intention or his goal

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<v Speaker 1>at a specific stock price, I don't think that's necessarily problematic.

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<v Speaker 1>One of the things that we've seen with Elon Musk's tweets,

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<v Speaker 1>and it goes back before this specific incident, is he's

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<v Speaker 1>sort of pushing the envelope. He's using Twitter to communicate

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<v Speaker 1>information more rapidly in something in a in a style

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<v Speaker 1>that's really unconventional compared to your typical CEO. But I

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<v Speaker 1>don't think that's something that's necessarily illegal, and frankly, I

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<v Speaker 1>think it's something that markets may have to adjust to

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<v Speaker 1>as information becomes more time sensitive, as we start to

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<v Speaker 1>see greater use of social media and so forth. Professor Fish,

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<v Speaker 1>do you think you're gonna be teaching your students about

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<v Speaker 1>this particular case? Absolutely? How what capacity? UM? I think

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<v Speaker 1>that number one, the way companies communicate with their investors

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<v Speaker 1>and with the capital markets is evolving, is tremendously important.

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<v Speaker 1>Is something that UM is something that UH students are

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<v Speaker 1>going to have to learn about in their capacity as

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<v Speaker 1>corporate advisors. And I think the evolving use of social

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<v Speaker 1>media is something we want to think about really carefully.

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<v Speaker 1>Thanks very much for being with us. Professor Jill Fish

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<v Speaker 1>is a business law professor at the University of Pennsylvania

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<v Speaker 1>Law School. Talking about Elon Musk and Tesla, and of

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<v Speaker 1>course this all in the wake of those tweets made

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<v Speaker 1>by Elon Musk about taking the car manufacturer private. What

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<v Speaker 1>does the United States really want from China when it

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<v Speaker 1>comes to trade. Here to help answer that question is

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<v Speaker 1>Robert Lawrence. He is the Albert L. Williams Professor of

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<v Speaker 1>Trade and Investment at the John F. Kennedy School of

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<v Speaker 1>Government at Harvard University. He is also a Senior Fellow

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<v Speaker 1>at the Peterson Institute for International Economics. Previously, he served

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<v Speaker 1>as a member of the Council of Economic Advisors under

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<v Speaker 1>President Clinton, and he is the author of the forthcoming

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<v Speaker 1>book Blue Collar Blues. Is Trade to Blame for rising

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<v Speaker 1>US income in equality? I beg your pardon, Professor Lawrence.

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<v Speaker 1>Maybe you could just sort of give us a little

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<v Speaker 1>bit of your perspective before you tell us what you

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<v Speaker 1>believe President Trump's ultimate strategy with trade in China is. Well,

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<v Speaker 1>I am suspicious of I think basically what President Trump

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<v Speaker 1>wants to do is to raise tariffs and increase protection

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<v Speaker 1>in the United States. Uh. And I think he's prepared

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<v Speaker 1>to use the trade rules when it suits him in

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<v Speaker 1>order to accomplish this. UM. And that's why I'm suspicious

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<v Speaker 1>that his um urging China to change its behavior UM

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<v Speaker 1>and UM respect the intellectual property protection of American firms

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<v Speaker 1>in China is really a negotiating demand UM or what

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<v Speaker 1>I believe is actually a pretext for him to raise

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<v Speaker 1>barriers on Chinese products. So this is a really compelling

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<v Speaker 1>point because there are many people who say that President

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<v Speaker 1>Trump's actions so far are negotiating tactics that will ultimately

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<v Speaker 1>lead to a softer end. You're saying that that's not

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<v Speaker 1>the case. What is the end result of what you

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<v Speaker 1>believe President Trump is going for? Well, I I believe

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<v Speaker 1>the end result is high tariffs. Were already seeing them

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<v Speaker 1>in place against stealing an aluminum with no possibilities really

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<v Speaker 1>of them being removed in short in the short run.

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<v Speaker 1>And I actually think that the tariffs against China, which

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<v Speaker 1>have been escalating, are going to be with us for

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<v Speaker 1>a long time. Another thing that really strikes me as

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<v Speaker 1>inconsistent is that, um, when it comes to Mexico, what

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<v Speaker 1>the administration is trying to do is to negotiate a

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<v Speaker 1>man after that makes it much harder to outsource to Mexico,

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<v Speaker 1>and they want the agreement to expire. They don't want

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<v Speaker 1>to give a legal protection to investors in Mexico and

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<v Speaker 1>have the ability to challenge things that the Mexican government does.

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<v Speaker 1>So that's sort of consistent. They don't want outsourcing to Mexico.

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<v Speaker 1>But when it comes to China, ostensibly what they want

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<v Speaker 1>is for the Chinese to protect American investors by ensuring

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<v Speaker 1>their intellectual property. And if the Chinese actually do that,

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<v Speaker 1>it's going to become more attractive to invest in China,

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<v Speaker 1>which isn't really what the administration wants. I think what

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<v Speaker 1>Mr Trump really wants is something he's promised for many years,

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<v Speaker 1>and that is to tax products which are outsourced by

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<v Speaker 1>American firms for production in China and then brought back

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<v Speaker 1>into the US market. Professor Lawrence, can you speak a

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<v Speaker 1>little bit about how tariffs have can can may have

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<v Speaker 1>a long term effect on an industry beyond just increases

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<v Speaker 1>in prices or blocking certain kinds of companies from uh,

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<v Speaker 1>you know, producing their products overseas. And I'm thinking of

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<v Speaker 1>many things you've talked about, including the chicken tax, which

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<v Speaker 1>goes back to four. How to tariffs affect businesses and

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<v Speaker 1>how they really operate well, well, they affect them tremendously

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<v Speaker 1>in today's global economy because increasingly products are not made

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<v Speaker 1>in one country and sold in another, but firms try

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<v Speaker 1>to make their products in the world. They make components

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<v Speaker 1>in one country and then they assemble them in a second,

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<v Speaker 1>and then they bring them in to a third. So

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<v Speaker 1>so many of the products that are manufactured in the

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<v Speaker 1>United States use imported components. What parists do is to

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<v Speaker 1>interfere with the entire system. And today, if you were

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<v Speaker 1>a planner in any corporation, you're going to have a

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<v Speaker 1>huge amount of uncertainty as to whether relying on the

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<v Speaker 1>components that you bring in from other countries is going

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<v Speaker 1>to be a viable economic strategy, because it's quite possible

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<v Speaker 1>either the US will put a tariff on your products

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<v Speaker 1>or the foreigners will also prevent you from doing this

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<v Speaker 1>by retaliating. So what I'm struggling to understand that what

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<v Speaker 1>you're describing as President Trump's goal is that the goal

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<v Speaker 1>of the of the people in the rust belt, Well,

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<v Speaker 1>I think it's ultimately not going to help help them

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<v Speaker 1>very much because of the global nature. Uh, it is

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<v Speaker 1>the goal of some in some industries. So if you're

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<v Speaker 1>in the steel industry, now you have protection from foreign competition,

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<v Speaker 1>and so you're quite happy with what President Trump has done.

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<v Speaker 1>If similarly in the aluminum industry, or or if you

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<v Speaker 1>make dishwashers, you've received more protection. But if you're a

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<v Speaker 1>steel user and you're in the rust belt, if you're

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<v Speaker 1>trying to make machinery, if you, for instance, are working

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<v Speaker 1>for Caterpillar, your firms. Costs have gone up, and you're

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<v Speaker 1>much less competitive in world markets, and you're gonna find

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<v Speaker 1>it tougher to compete. And I think there are more

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<v Speaker 1>people who you steal than produce it. So at the

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<v Speaker 1>end of the day, I think this is a strategy

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<v Speaker 1>that isn't going to work for people in the Rust belt,

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<v Speaker 1>even though it's optics may look good in the short run.

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<v Speaker 1>Professor Robert Lawrence, thank you so much for being with us.

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<v Speaker 1>It's always wonderful to get your insights. Professor Robert Lawrence

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<v Speaker 1>of the John F. Kennedy School of Government at Harvard University,

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<v Speaker 1>also a Senior Fellow the Peterson Institute for International Economics,

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<v Speaker 1>joining us from Boston. There has been a lot of

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<v Speaker 1>discussion about ten Cent, which reported its first drop in

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<v Speaker 1>profit in at least a decade. Shares were not happy.

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<v Speaker 1>You could see a decline of more than three and

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<v Speaker 1>a half percent today following a similar decline yesterday. What

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<v Speaker 1>happened here and what are the implications? We're gonna be

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<v Speaker 1>speaking with Brendan Hearn, chief investment officer who joins us

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<v Speaker 1>now for for Crane Shares UM. Brendan, thank you so

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<v Speaker 1>much for being with US. What happened with Tencent, Like

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<v Speaker 1>just start there. Yes, Cent reported disappointing both revenue as

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<v Speaker 1>well as net income, as well as a um um

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<v Speaker 1>concern around some of the regulatory approval within China some

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<v Speaker 1>of their online games. So overall this was it was

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<v Speaker 1>a very disappointing results. Uh. Probably more importantly, it comes

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<v Speaker 1>at a time where you're seeing a little bit of

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<v Speaker 1>kind of cracks in the tech growth fang uh name So,

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<v Speaker 1>so certainly ten cent um is not is not helping

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<v Speaker 1>to US listed both Chinese as well as US listen

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<v Speaker 1>technology companies today, Brendan, I'm looking at the performance of

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<v Speaker 1>the Shanghai Stock Exchange Composite Index. It's down more than

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<v Speaker 1>seventeen so far this year. Is there any indication based

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<v Speaker 1>on your experience, that we're going to see any kind

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<v Speaker 1>of turnaround? Well, I think that the hope one PIM

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<v Speaker 1>as you have mscis inclusion of two thirty six Shanghai

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<v Speaker 1>and Shenzen names. The second inclusion in September one. If

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<v Speaker 1>you take the pe of the s and P five

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<v Speaker 1>hundred and minus it from the Shanghai pe, we're basically

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<v Speaker 1>back to a point where we had the crisis back

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<v Speaker 1>in the summer of twenty fifteen. If you subtract praise

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<v Speaker 1>the book of SMP minus Shanghai, it's the widest ever.

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<v Speaker 1>It's literally never Shanghai stocks have never been at this

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<v Speaker 1>level of a discount to their US equivalence ever. And yeah, wait, wait, wait, wait,

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<v Speaker 1>but how can you compare Chinese stocks to US stocks?

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<v Speaker 1>You can do it using the numbers, but you can't

0:15:24.600 --> 0:15:30.760
<v Speaker 1>use it using governance issues, uh, interference from the central government,

0:15:31.080 --> 0:15:35.200
<v Speaker 1>corporate issues. I mean, how can you compare the two? Well,

0:15:35.240 --> 0:15:37.160
<v Speaker 1>I think you know, we're just we're just looking at

0:15:37.200 --> 0:15:41.120
<v Speaker 1>this mathematically. You know, what are the numbers? And sir I,

0:15:41.120 --> 0:15:45.720
<v Speaker 1>I don't disagree that there are elements to investing not

0:15:45.800 --> 0:15:48.440
<v Speaker 1>only in in any emerging market or any foreign country.

0:15:48.600 --> 0:15:52.840
<v Speaker 1>There there's additional risks associated with that. So certainly, you know,

0:15:52.880 --> 0:15:56.120
<v Speaker 1>what we're doing UM should be part of an overall

0:15:56.200 --> 0:15:58.440
<v Speaker 1>diversified portfolio. What we do think it's a very on

0:15:58.720 --> 0:16:02.240
<v Speaker 1>the Shanghai names, very compelling valuations with the backdrop of

0:16:02.280 --> 0:16:05.320
<v Speaker 1>this coming UM inclusion from m s c I, which

0:16:05.360 --> 0:16:07.760
<v Speaker 1>will continue for the next several years. On on the

0:16:07.840 --> 0:16:11.640
<v Speaker 1>Hong Kong and US names, you do have say, for

0:16:11.680 --> 0:16:14.360
<v Speaker 1>a company like Ali Baba, Uh, they do have to

0:16:14.400 --> 0:16:16.480
<v Speaker 1>adhere to the US gap. They have to have a

0:16:16.680 --> 0:16:20.080
<v Speaker 1>US accounting firm and here to US listening standard, which

0:16:20.080 --> 0:16:22.920
<v Speaker 1>help address some of those concerns. Pim so Brendan, I

0:16:22.920 --> 0:16:25.080
<v Speaker 1>want to talk about what happened with ten Cent, why

0:16:25.160 --> 0:16:28.560
<v Speaker 1>things were so disappointing for them, and sort of tie

0:16:28.640 --> 0:16:31.560
<v Speaker 1>this to what we saw with Facebook when they reported earnings,

0:16:31.600 --> 0:16:33.520
<v Speaker 1>which there was a sense of peak tech or at

0:16:33.600 --> 0:16:37.360
<v Speaker 1>least peak expansion of tech, right, um that everyone who

0:16:37.440 --> 0:16:40.760
<v Speaker 1>has a smartphone has a smartphone, who's who is going

0:16:40.800 --> 0:16:43.080
<v Speaker 1>to have on etcetera, etcetera. I'm just wondering. I mean,

0:16:43.120 --> 0:16:46.880
<v Speaker 1>from a contagions standpoint, is ten cents sending a really

0:16:46.920 --> 0:16:50.520
<v Speaker 1>significant message that can be applied broadly throughout big tech?

0:16:51.800 --> 0:16:53.920
<v Speaker 1>You know, I think it's a it's a really great point.

0:16:53.920 --> 0:16:57.240
<v Speaker 1>And even the comparison you make Lisa around ten Cent,

0:16:57.280 --> 0:16:59.200
<v Speaker 1>because we do, you know, because of their reach at

0:16:59.720 --> 0:17:02.120
<v Speaker 1>over are a billion users of this, you know, this

0:17:02.240 --> 0:17:05.600
<v Speaker 1>social media platform run by ten Cent. Um. But but

0:17:05.720 --> 0:17:09.159
<v Speaker 1>one interesting thing about ten Cent is the core business

0:17:09.240 --> 0:17:12.960
<v Speaker 1>at this point is still online gaming and and there

0:17:12.960 --> 0:17:16.960
<v Speaker 1>were positives on on the social media side. Um, you know,

0:17:17.160 --> 0:17:22.760
<v Speaker 1>video subscription seventy four million up year over year, Mobile

0:17:22.800 --> 0:17:28.000
<v Speaker 1>payments eight hundred million monthly users grew year over year

0:17:28.040 --> 0:17:30.120
<v Speaker 1>for the quarters. So so so as much as we

0:17:30.240 --> 0:17:33.920
<v Speaker 1>kind of call ten Cent and Facebook, we make that comparison,

0:17:34.480 --> 0:17:37.120
<v Speaker 1>you know, it's that online gaming is is still a big,

0:17:37.160 --> 0:17:39.520
<v Speaker 1>big part of the business and that that's that is

0:17:39.640 --> 0:17:43.439
<v Speaker 1>the culprit in ten Cent, and I don't necessarily believe

0:17:43.760 --> 0:17:48.080
<v Speaker 1>that creates issues for UM us or or other say

0:17:48.160 --> 0:17:52.199
<v Speaker 1>Chinese technology companies that even we saw just just from

0:17:52.280 --> 0:17:54.960
<v Speaker 1>very recently Nettie's one of ten cents big competitors and

0:17:54.960 --> 0:17:58.479
<v Speaker 1>online gaming pretty pretty weak outlook. Um a little bit

0:17:58.480 --> 0:18:03.040
<v Speaker 1>of a forebearer of ten cents week online gaming results today,

0:18:03.320 --> 0:18:05.640
<v Speaker 1>Thanks for being with us as always. Brendan or Hearn

0:18:05.760 --> 0:18:09.960
<v Speaker 1>is the chief investment officer for Crane Shares, talking about

0:18:10.000 --> 0:18:27.200
<v Speaker 1>ten cent earnings and the Chinese technology sector. The good

0:18:27.240 --> 0:18:31.119
<v Speaker 1>news for Turkey is that some unconventional measures and intervention

0:18:31.240 --> 0:18:33.919
<v Speaker 1>have it staved off some of the declines from the

0:18:33.920 --> 0:18:37.120
<v Speaker 1>Turkish lira and it is rising a little bit against

0:18:37.200 --> 0:18:39.480
<v Speaker 1>the dollar. The bad news for European banks is some

0:18:39.520 --> 0:18:43.760
<v Speaker 1>of the most exposed continued to drop in equity markets,

0:18:43.760 --> 0:18:47.160
<v Speaker 1>and here to talk about bank exposure to Turkey and

0:18:47.320 --> 0:18:50.399
<v Speaker 1>how bad this could get is Jonathan Tyson, senior banks

0:18:50.440 --> 0:18:54.480
<v Speaker 1>analyst for Bloomberg Intelligence, coming to us from London. Jonathan,

0:18:54.680 --> 0:18:56.800
<v Speaker 1>what's going on here? Why do we continue to see

0:18:56.800 --> 0:19:00.159
<v Speaker 1>declines in the likes of maybe v A and in

0:19:00.240 --> 0:19:03.399
<v Speaker 1>p POI back, well, I think this is just a

0:19:03.640 --> 0:19:07.359
<v Speaker 1>more general risk off. Clearly b B v A. It

0:19:07.440 --> 0:19:10.120
<v Speaker 1>isn't just Turkey. I mean there in six sixty two

0:19:10.240 --> 0:19:14.080
<v Speaker 1>sales may have guarantee, but they're also Latin. I'm exposed

0:19:14.119 --> 0:19:16.200
<v Speaker 1>one of the most exposed to emerging markets of all

0:19:16.359 --> 0:19:20.679
<v Speaker 1>global banks. So the market is trying to assess what

0:19:20.880 --> 0:19:24.680
<v Speaker 1>happens the what ifs and emerging market exposure and currencies

0:19:24.760 --> 0:19:28.600
<v Speaker 1>are clearly very large risk. Jonathan. There are a couple

0:19:28.600 --> 0:19:31.320
<v Speaker 1>of issues with the banks in Turkey. One is their

0:19:31.359 --> 0:19:34.639
<v Speaker 1>asset base, which are their loans. You've got lots of

0:19:34.720 --> 0:19:38.600
<v Speaker 1>loans that are denominated in US dollars or euros, but

0:19:38.720 --> 0:19:43.600
<v Speaker 1>the borrowers are trying to repay those loans as they

0:19:43.600 --> 0:19:47.320
<v Speaker 1>are based in Turkey with Lira. The second thing is

0:19:47.359 --> 0:19:50.240
<v Speaker 1>the funding of the actual banks and how they can

0:19:50.280 --> 0:19:53.320
<v Speaker 1>continue operating. Can you explain a little bit more about

0:19:53.359 --> 0:19:56.080
<v Speaker 1>how they're dealing with these two issues. Well, do you've

0:19:56.119 --> 0:19:58.439
<v Speaker 1>hit the nail on the head. I mean, this is

0:19:58.440 --> 0:20:00.639
<v Speaker 1>one of the reasons that the banks, s happy crateity,

0:20:00.640 --> 0:20:05.520
<v Speaker 1>et cetera. Have sold off more effects lending foreign exchange

0:20:05.600 --> 0:20:08.800
<v Speaker 1>lending traditionally when in Europe we've had a problem, We've

0:20:08.800 --> 0:20:11.000
<v Speaker 1>had it in Hungary, we've had it in Poland, etcetera.

0:20:11.040 --> 0:20:13.200
<v Speaker 1>And they've been fines, but it was to the retail

0:20:13.240 --> 0:20:16.439
<v Speaker 1>base in the same market. In Turkey, these guys have

0:20:16.640 --> 0:20:22.080
<v Speaker 1>borrowed the corporates in dollars and by extension. Clearly their

0:20:22.080 --> 0:20:25.120
<v Speaker 1>interest costs have gone through the roof very recently, so

0:20:25.440 --> 0:20:27.800
<v Speaker 1>bad that will spike. We're already beginning to see that

0:20:27.880 --> 0:20:30.920
<v Speaker 1>in the FX loan MPR ratios that the Bank of

0:20:31.000 --> 0:20:34.720
<v Speaker 1>Turkey provide every week. How are they working through it? Well,

0:20:34.760 --> 0:20:36.240
<v Speaker 1>I think what they're gonna have to do, and the

0:20:36.280 --> 0:20:38.600
<v Speaker 1>foreign banks will be pulling away from f X lending,

0:20:39.000 --> 0:20:41.840
<v Speaker 1>and domestically they're going to have to take up we're

0:20:41.920 --> 0:20:43.960
<v Speaker 1>under a new accounting standard. They but start to take

0:20:44.040 --> 0:20:46.640
<v Speaker 1>up provisions over the next two or three quarters, which

0:20:46.680 --> 0:20:49.680
<v Speaker 1>is why you've seen the big domestic banks fall quite

0:20:49.680 --> 0:20:53.120
<v Speaker 1>heavily over the past two three weeks. Do you think

0:20:53.119 --> 0:20:56.040
<v Speaker 1>that there's a likelihood that one or more of some

0:20:56.119 --> 0:21:01.080
<v Speaker 1>of the major Turkish banks could fail. I don't. Personally,

0:21:01.080 --> 0:21:03.280
<v Speaker 1>I cannot see how that will be allowed to happen.

0:21:03.680 --> 0:21:06.159
<v Speaker 1>But that said, domestic consolidation. If you look at Russia

0:21:06.480 --> 0:21:10.440
<v Speaker 1>post sanctions, post oil slide, et cetera, we have seen

0:21:10.440 --> 0:21:13.160
<v Speaker 1>an awful lot of the smaller banks hoovered up. In Turkey,

0:21:13.240 --> 0:21:17.040
<v Speaker 1>you've got four or five banks that make up the market.

0:21:17.560 --> 0:21:19.639
<v Speaker 1>And yes we've seen a changing of the guard. So

0:21:19.760 --> 0:21:22.320
<v Speaker 1>spare banks sold down lead and is sold it on

0:21:23.160 --> 0:21:26.320
<v Speaker 1>their steak. But I don't think we're there yet. I

0:21:26.359 --> 0:21:30.520
<v Speaker 1>think funding wise it isn't a problem. But growth has gone.

0:21:30.880 --> 0:21:33.560
<v Speaker 1>The domestic banks have to pay back and we are

0:21:33.600 --> 0:21:36.000
<v Speaker 1>approaching a period of pain. But that said as well,

0:21:36.200 --> 0:21:37.960
<v Speaker 1>I think the measures that have been taken so far

0:21:38.040 --> 0:21:42.600
<v Speaker 1>should stem for now the lear's full. That said, we

0:21:42.600 --> 0:21:44.760
<v Speaker 1>still need to understand what Airman is going to do

0:21:44.840 --> 0:21:49.359
<v Speaker 1>and will he allow them to hike rates. Jonathan Three

0:21:49.440 --> 0:21:55.080
<v Speaker 1>industry groups tell our calms, retailers, and energy. The companies

0:21:55.119 --> 0:21:59.000
<v Speaker 1>in those groups operating in Turkey, they get most they

0:21:59.000 --> 0:22:04.399
<v Speaker 1>generate most of their sales their revenue in Lira. Recently,

0:22:04.560 --> 0:22:07.639
<v Speaker 1>I believe the Turkish cell phone operator what is it,

0:22:07.760 --> 0:22:12.719
<v Speaker 1>turk Telecom, the phone operator, they reported a loss because

0:22:12.760 --> 0:22:15.960
<v Speaker 1>of what they described as unfavorable for X movements. It

0:22:16.080 --> 0:22:19.560
<v Speaker 1>erased their entire net income. Are we going to see

0:22:19.600 --> 0:22:22.840
<v Speaker 1>more companies report this this way? Well, you have to

0:22:22.880 --> 0:22:27.040
<v Speaker 1>remember that that's a mismatch between costs and revenues. Uh.

0:22:27.119 --> 0:22:29.399
<v Speaker 1>Our margin is being squeazed, absolutely, But then again for

0:22:29.440 --> 0:22:33.200
<v Speaker 1>some for example, if you're one of the big energy providers,

0:22:34.400 --> 0:22:37.000
<v Speaker 1>chances are your margin is gonna go up. And within

0:22:37.040 --> 0:22:39.720
<v Speaker 1>Bloomberg Intelligence, we've got several examples some of the ANIMs

0:22:39.760 --> 0:22:43.000
<v Speaker 1>have written about where this is ultimately to be positive.

0:22:43.320 --> 0:22:46.919
<v Speaker 1>So remember on every side of this debate depends how

0:22:46.960 --> 0:22:51.280
<v Speaker 1>you're skewed, but there will be profit beneficiaries. And as

0:22:51.320 --> 0:22:54.680
<v Speaker 1>far as the banking system is concerned, capital is still okay.

0:22:55.240 --> 0:22:58.680
<v Speaker 1>Funding liquidity costs will go up, consensus needs to come down.

0:22:59.040 --> 0:23:01.879
<v Speaker 1>But is this a stomach crisis for the financial system

0:23:01.920 --> 0:23:04.720
<v Speaker 1>at the moment? No? Is Is there a good reason

0:23:04.720 --> 0:23:06.560
<v Speaker 1>why only credit, for example, of sold off at least

0:23:06.560 --> 0:23:09.159
<v Speaker 1>as much. Yes, because the happy credit is the weakest,

0:23:09.200 --> 0:23:12.480
<v Speaker 1>the BBV has the most exposure. But are we calling

0:23:12.520 --> 0:23:16.520
<v Speaker 1>time on the bank system now? Absolutely not? Okay, Jonathan,

0:23:16.800 --> 0:23:19.560
<v Speaker 1>But let's dig into the liabilities of the four banks

0:23:19.600 --> 0:23:22.040
<v Speaker 1>that you really pinpointed as having the most risk. You

0:23:22.080 --> 0:23:25.159
<v Speaker 1>said that foreign bank claims on Turkey total two hundred

0:23:25.160 --> 0:23:29.080
<v Speaker 1>and twenty billion dollars in the first quarter. What do

0:23:29.160 --> 0:23:32.879
<v Speaker 1>those claims consist of? Are those UH loans made in

0:23:32.920 --> 0:23:36.639
<v Speaker 1>dollars and euros too smaller and mid sized companies and

0:23:36.720 --> 0:23:41.040
<v Speaker 1>could this lead to some significant rightdowns? Well, two things. One,

0:23:41.080 --> 0:23:43.879
<v Speaker 1>the b I esday so that everybody goes to tends

0:23:43.880 --> 0:23:45.240
<v Speaker 1>to be a bit out of date, and we don't

0:23:45.240 --> 0:23:49.480
<v Speaker 1>have much granularity. And also, as we know, balance sheet

0:23:49.520 --> 0:23:52.159
<v Speaker 1>dates can be quite a long way back in history,

0:23:52.240 --> 0:23:55.320
<v Speaker 1>so we have very little idea at the moment how

0:23:55.400 --> 0:23:58.200
<v Speaker 1>much has been rolled over forbear and something that in America,

0:23:58.240 --> 0:24:01.720
<v Speaker 1>you guys be very very comfortable and away with about

0:24:01.840 --> 0:24:07.040
<v Speaker 1>bank systems, it's pretty difficult. Certainly, liquidity provision will be

0:24:07.080 --> 0:24:10.399
<v Speaker 1>continuing at the moment for the most key businesses and

0:24:10.640 --> 0:24:13.320
<v Speaker 1>SMME is a very large part of Turkey. So do

0:24:13.400 --> 0:24:16.680
<v Speaker 1>I think that we're already saying mpls for f X

0:24:16.760 --> 0:24:19.000
<v Speaker 1>loans ticking out, but they're still only a two percent.

0:24:19.400 --> 0:24:21.760
<v Speaker 1>Do I think we're going to see anything that tangibly

0:24:21.760 --> 0:24:24.200
<v Speaker 1>as an analysts I can point to and say, here's

0:24:24.240 --> 0:24:26.680
<v Speaker 1>the data point. They're all in trouble in the next

0:24:26.680 --> 0:24:30.960
<v Speaker 1>six to nine months. Very unlikely. All Right, we gotta

0:24:31.040 --> 0:24:32.840
<v Speaker 1>leave it there. Thanks very much for being with us.

0:24:32.880 --> 0:24:38.320
<v Speaker 1>Jonathan Tys, Senior banks analyst for Bloomberg Intelligence, speaking about

0:24:38.480 --> 0:24:44.960
<v Speaker 1>Turkish banks. Thanks for listening to the Bloomberg p m

0:24:45.080 --> 0:24:48.080
<v Speaker 1>L podcast. You can subscribe and listen to interviews at

0:24:48.160 --> 0:24:52.600
<v Speaker 1>Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm

0:24:52.640 --> 0:24:56.080
<v Speaker 1>pim Fox. I'm on Twitter at pim Fox. I'm on

0:24:56.119 --> 0:24:59.359
<v Speaker 1>Twitter at Lisa Abramo. It's one before the podcast. You

0:24:59.400 --> 0:25:05.080
<v Speaker 1>can always match us worldwide on Bloomberg radioh