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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crombie. I'm a senior editor with Bloomberg.

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Speaker 1: This week, we're very pleased to welcome Johnny Fine, global

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Speaker 1: head of investment grade Debt at Goldman Sachs. How are you, Johnny,

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Speaker 1: I'm great, Thanks for having me, appreciate you joining us.

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Speaker 1: So we're very excited to have you on the show

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Speaker 1: and to get your thoughts on all things credit and weightlifting, sportslifting, powerlifting, cookery,

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Speaker 1: all that stuff. Also devices to welcome back Arnold Kakuda

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Speaker 1: with Bloomberg Intelligence. Great to see you and.

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Speaker 2: Arnold, Oh, thanks for having me again.

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Speaker 1: So just to set the scene a bit here, borrowers

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Speaker 1: have been raising money at a furious pace this year,

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Speaker 1: setting records across unibonds, leveraged finance, asset backed securities, and

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Speaker 1: investment grade. A lot of that has been to refinance

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Speaker 1: debt coming due or reprice existing foracilities, and it's not

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Speaker 1: confined to publicly traded bonds and loan markets. Private debt

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Speaker 1: and direct lending and asset based finance have also been

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Speaker 1: going gangbusters. Investors are clearly keen. The FED has started

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Speaker 1: cutting rates the expectation is for lower coupons ahead. And

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Speaker 1: while spreads are very tight, all in, yields on high

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Speaker 1: grade US corporate bonds are still close to five percent,

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Speaker 1: so pretty attractive compared to history. Buyers seem to have

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Speaker 1: a ton of cash, a lot of it sitting in

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Speaker 1: short term money market accounts. Fun Flows have been extremely positive.

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Speaker 1: That's made new issue concessions very tight negative in some

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Speaker 1: cases last week. Also, a pretty bullish economic outlook is

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Speaker 1: becoming the consensus, and that's supporting the buying that we're seeing.

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Speaker 1: So I just want to bring you in, Johnny. I mean,

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Speaker 1: I get the demand side, but on the supply side,

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Speaker 1: why the rush where the extreme push right now? Why

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Speaker 1: not wait till things get cheaper when the FED really

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Speaker 1: does start cutting.

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Speaker 3: Well, there's a.

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Speaker 4: Lot to unpack there. So within that intro, I think

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Speaker 4: emailed everything, but with one exception. And the one exception

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Speaker 4: I think is when you said the expectation is that

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Speaker 4: coupons are going to move lower, because I don't think

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Speaker 4: that's the case at all. We've seen term yields probably

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Speaker 4: at their low point, call it late August, early September,

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Speaker 4: after the volatility, after the unwind of the end carry trade.

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Speaker 4: After the oh my goodness, the Fed's behind the curve.

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Speaker 4: They're going to have to do some emergency cuts to

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Speaker 4: play catch up. And we hit what maybe three seventy

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Speaker 4: three seventy five in tens then, and we're now back

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Speaker 4: at four point fifteen today. Where term yields are is

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Speaker 4: a function of not simply us beginning a cutting cycle,

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Speaker 4: but really how deep and how fast that cutting cycle is.

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Speaker 4: And there's been an incredibly robust relationship all year between

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Speaker 4: where the market expects the FED funds rate to be

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Speaker 4: in a couple three years time, So call that a

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Speaker 4: proxy for the terminal rate, a very robust relationship between

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Speaker 4: that number and tenure yields. In fact, you take that

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Speaker 4: number and add seventy five basis points, you get ten

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Speaker 4: year yields. Today that terminal rate a couple years out

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Speaker 4: early twenty twenty six, there are thereabouts is three forty.

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Speaker 3: Add seventy five basis points four point fifteen. That's where

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Speaker 3: tens are.

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Speaker 4: And that relationship has been so robust, and as the

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Speaker 4: market has digested that, and as issuers have digested that,

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Speaker 4: they thought about financing in a risk paradigm where you know,

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Speaker 4: we may get rate cuts, But there's not necessarily going

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Speaker 4: to be the case the term yields are going to

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Speaker 4: move lower in lockstep.

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Speaker 3: Far from it.

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Speaker 4: So the original question that you posed to me before

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Speaker 4: I went off at a complete tangent and addressed something

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Speaker 4: else was why the rush and the rush really began

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Speaker 4: in the first half of the year. And it was

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Speaker 4: pretty clear and pretty evident to us all that we

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Speaker 4: were going to have a very robust first half of

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Speaker 4: the year, really driven by a corporate issuers desire to

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Speaker 4: de risk and de risking ahead of more than fifty

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Speaker 4: percent of the people will occupy this planet and live

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Speaker 4: in democratic countries going through the polls, and that's a

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Speaker 4: clear and visible risk. You never know where these elections

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Speaker 4: are going to end up. You never know what kind

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Speaker 4: of volatility they might introduce. But if you're sitting there

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Speaker 4: and looking at you're financing needs over the course of

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Speaker 4: the next twelve months and you see one, then you're

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Speaker 4: probably not going to sit there and think, hey, I'm

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Speaker 4: going to wait till October. You're going to finance early.

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Speaker 4: You're going to get ahead of that. And by the way,

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Speaker 4: at the beginning of the year, we had a heavily

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Speaker 4: sharply inverted yield curve. When you have a heavily sharply

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Speaker 4: inverted yield curve, the cost of carry of warehousing long

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Speaker 4: term debt for a corporate is zero or in some

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Speaker 4: cases actually negative and in naturally in a lot of cases.

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Speaker 4: In March of this year, I think the number was

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Speaker 4: something like sixty percent of all investment grade borrowers could

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Speaker 4: issue ten year debt and park the proceeds in six

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Speaker 4: month treasury bills and earn a positive carry. Now I'm

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Speaker 4: not saying that how corporates manage their balance sheet to

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Speaker 4: try and earn that incremental return, but if you're looking

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Speaker 4: to de risk, if you're worried about what the back

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Speaker 4: end of the year might look like, you see that

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Speaker 4: environment presented in front of you, you're kind of incentivized

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Speaker 4: to finance early. And that's really what drove the first

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Speaker 4: six months of the year. Now, we expected come the

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Speaker 4: summer that things would start to tape off and we'd

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Speaker 4: have a much quieter run into the end of the year,

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Speaker 4: and that's actually not been the case. We've actually continued

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Speaker 4: at a frenetic pace. And that pace has continued because

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Speaker 4: of a very sharp compression in credits breads, and so

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Speaker 4: credit spreads at the tightest levels we've seen since they

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Speaker 4: think two thousand and five now in the IG index.

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Speaker 4: And anytime you get a financing environment where you get

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Speaker 4: incredibly tight spreads and as you mentioned James at the top,

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Speaker 4: very low or negative or zero new issue concessions, there'll

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Speaker 4: be supply. And that's they think what's populated the market

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Speaker 4: over the course of the last several months. And there's

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Speaker 4: really not been a pre election slow down as yet.

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Speaker 4: There's not been a pre election burst of volatility, and

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Speaker 4: there's not been a pre election burst of illiquidity in

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Speaker 4: the market as well, so conditions remain really robust.

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Speaker 2: Got no, if I can step in here, this is

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Speaker 2: Arnold Coakuda Bloomberg Intelligence covering banking financials from the credit side.

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Speaker 2: So Johnny, you know, like I covered the banking financials

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Speaker 2: the a lot of the management teams have talked about

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Speaker 2: maybe this is a pull forward right of demand for

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Speaker 2: from maybe from next year and stuff like that. So

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Speaker 2: is that how you see it? Right? You talked about

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Speaker 2: someone was supposed to slow down, but no, we haven't

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Speaker 2: seen that. No, really bouts of illiquidity and stuff like that.

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Speaker 2: You know, are you gonna call it a pull forward

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Speaker 2: or not, or this is this everything looks fine until

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Speaker 2: kind of bonuses are paid and we'll see what happens

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Speaker 2: with twenty twenty by next year.

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Speaker 4: Well, I think the first six months of the year

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Speaker 4: was clearly a pull forward or a significant component of

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Speaker 4: the financing that we saw was a pull forward. But

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Speaker 4: there's also been real growth as well and real economic activity.

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Speaker 4: You kind of think about supply that we've seen in

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Speaker 4: the energy sector, a lot of that's related to m

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Speaker 4: and a supply that we've seen in the utility sector

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Speaker 4: that's been related to capex. There's been growth on bank

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Speaker 4: balance sheets and that's required a pretty substantial amount of

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Speaker 4: bank funding. As we think about how this year has evolved,

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Speaker 4: there's been a lot of international financing in the dollar

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Speaker 4: market as well, so there's plenty of growth to finance

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Speaker 4: as well. I would say that what we're seeing right

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Speaker 4: now I don't think is necessarily a pull forward of

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Speaker 4: twenty twenty five activity. I think what we'll see post

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Speaker 4: election is if conditions remain as they are now, I

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Speaker 4: think will then start to see a pull forward of

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Speaker 4: twenty twenty five financing plans. And I think in particular

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Speaker 4: the frequent finances bank and finance, both domestically and internationally.

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Speaker 3: But if you're asking me.

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Speaker 4: Does the supply that we've seen this year mean that

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Speaker 4: we're going to have a down year next year? I

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Speaker 4: think the answer is no. When I look at the

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Speaker 4: market for next year, there's a trillion and a half

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Speaker 4: dollars that's going to come back to investment grade bond

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Speaker 4: investors from one point two trillion of redemptions and three

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Speaker 4: hundred billion of coupon payments plus minus, just in the

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Speaker 4: US market. I don't believe anywhere near that all of

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Speaker 4: that has been pre financed, And actually kind of when

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Speaker 4: you kind of think about the staggering sum that that represents,

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Speaker 4: and sure, we'll finish this year with the second busiest

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Speaker 4: year ever in US investment grade, the second busiest year

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Speaker 4: ever in global financing, and similar characteristics in left fin

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Speaker 4: If we finish this year in usig at one point

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Speaker 4: six trillion, next year, we've got to print one point

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Speaker 4: five trillion just for the market to kind of wash

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Speaker 4: its face. So I'm not anywhere near thinking that next

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Speaker 4: year is going to be a down year. I think

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Speaker 4: it's going to be just as robust as this.

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Speaker 2: Year has been, got it, So you heard that twenty

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Speaker 2: twenty five still going to be pretty busy, so you know, yeah, great, great,

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Speaker 2: And then just you talked about this a little bit

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Speaker 2: in terms of the constituents, right, you talked about you know,

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Speaker 2: the frequent financers coming and stuff like that. But also

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Speaker 2: on these management calls we've been hearing about, you know,

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Speaker 2: M and A has been rebounding and stuff like that,

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Speaker 2: and maybe you know, maybe you know, we need some

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Speaker 2: change and some of the regulators and stuff like that.

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Speaker 2: But where does kind of the M and A financing

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Speaker 2: start coming in? Are we going to start seeing more

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Speaker 2: and more of that you think next year? And you know,

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Speaker 2: for those who look at this financials versus non financials,

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Speaker 2: you know, how should we think about that?

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Speaker 4: Yeah, So there's some misconceptions when it comes to M

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Speaker 4: and A and its impact on financing markets because a

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Speaker 4: lot of people look at M and A over a

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Speaker 4: long cycle and they kind of the numbers up and

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Speaker 4: obviously it's significantly lower than it was obviously in twenty

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Speaker 4: twenty one, and it's actually significantly lower than it was

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Speaker 4: in or lower than it was.

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Speaker 3: In like eighteen and nineteen.

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Speaker 4: For example, and that's because M and A captures all

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Speaker 4: sorts of different types of activity in the market overall.

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Speaker 4: What we care about INIG obviously we care about the

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Speaker 4: broad M and A machine because that makes our company

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Speaker 4: more valuable. But when we kind of think about M

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Speaker 4: and A from an IG perspective, we care about corporate

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Speaker 4: to corporate acquisitions with a significant or all cash component

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Speaker 4: to them. And when you look at that time series

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Speaker 4: over a long period of time, it's actually been fairly stable.

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Speaker 4: When people talk about there being a big rebound in

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Speaker 4: M and A, they're really talking about sponsor M and A.

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Speaker 4: And when they're talking about sponsor M and A, they're

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Speaker 4: really talking about reopening in a much greater level of

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Speaker 4: activity in the LBO market in particular, and a lot

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Speaker 4: of that I think is going to require better backdrops

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Speaker 4: overall in the equity capital markets for IPOs and exits, etc.

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Speaker 4: But from an IG perspective, we've had a fairly stable

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Speaker 4: and consistent base of issuance every year that's been made

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Speaker 4: up of acquisition financing of corporate to corporate all cash

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Speaker 4: or significant cash components, and this has been no exception.

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Speaker 4: So it's been great to see some M and A

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Speaker 4: transactions on the docket. It's great to see some backlog

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Speaker 4: and some inquiry and our bridge financing desk is busy

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Speaker 4: and active and spending time looking at options and opportunities.

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Speaker 4: There's never been more liquidity in the bridge financing market.

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Speaker 4: There's never been a greater amount of capital available to

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Speaker 4: ig borrowers in the bridge financing market to go and

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Speaker 4: do very substantial dream deals etc. Obviously, the regulatory environment

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Speaker 4: will prevent there being significant consolidation within industries and probably

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Speaker 4: will prevent some international cross border consolidation from taking place.

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Speaker 4: But even with the headwinds that have been with the

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Speaker 4: existing A disposition towards M and A from a regulatory perspective,

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Speaker 4: plenty of volume and plenty of activity. And it's been

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Speaker 4: a great addition to the calendar this year.

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Speaker 1: So trillion and a half next year, just to quote,

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Speaker 1: wash your face, Yes, just to wash your face. You're

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Speaker 1: adding some M and A and some other stuff. I mean,

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Speaker 1: we're on track to set a new record. Then all

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Speaker 1: the time next year.

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Speaker 4: You think I don't know about that. I mean we

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Speaker 4: came close to two trillion coming out of COVID in

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Speaker 4: twenty twenty. I said one point six is will probably

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Speaker 4: be more or less what we finish up this year.

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Speaker 3: So I think in and.

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Speaker 4: Around one point six maybe one point seven as I

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Speaker 4: kind of think about next year is a very early look,

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Speaker 4: so maybe some modest growth. Look as mentioned like economic

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Speaker 4: activities robust, there's a lot of infrastructure financing that needs

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Speaker 4: to take place, There's a lot of growth in the

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Speaker 4: economy that needs to take place, as well as all

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Speaker 4: of the refire that I'm mentioning. So I think we

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Speaker 4: can be modestly up and maybe it's one seven five,

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Speaker 4: maybe it's ten percent up on this year, but I

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Speaker 4: think it will be an up.

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Speaker 1: Year, right, But on a net basis, it's still quite small,

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Speaker 1: quite small. It's small, and that's going to keep spreads tight.

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Speaker 1: It's going to keep usue concessions presumably very slim, is it.

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Speaker 4: So I think that the spreading so I would expect

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Speaker 4: my personal view around spreads as we think about the

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Speaker 4: next kind of fifteen eighteen months is it's going to

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Speaker 4: be another low volt year. It's been a very low

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Speaker 4: vall year from a spread perspective. There's been plenty of

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Speaker 4: corporate activity from an earnings perspective that's helped to ensure

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Speaker 4: that earnings are robust and therefore leverage remains kind of

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Speaker 4: well contained, so no one's really kind of tripping leverage

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Speaker 4: bands and so on. So credit quality in the IG

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Speaker 4: market has been very robust. Obviously, a high yield environment

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Speaker 4: has been attractive for capital inflows, especially the longer part

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Speaker 4: of the curb, especially some of the nuity writers that

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Speaker 4: you guys have covered and spoken about and written about

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Speaker 4: extensively as well. So I think that we're going to

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Speaker 4: get another low vol year overall in credit, so long

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Speaker 4: as economic activity remains as robust as it has. You

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Speaker 4: kind of think about twenty twenty four, we've only really

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Speaker 4: had a couple of instances where there's been some real

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Speaker 4: credit spread vol One was in June when we had

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Speaker 4: the surprise snap French election called everyone in the US

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Speaker 4: suddenly got very very familiar with bundo at spreads and

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Speaker 4: what that meant in terms of direction of travel for

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Speaker 4: credit and European capital markets, etc. And then the second

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Speaker 4: bount of volatility in August after the July payroll reports

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Speaker 4: and again coming back to the these defect behind the

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Speaker 4: curve et cetera, et cetera. Both of those were pretty

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Speaker 4: short lived. So hard to envisage there being much in

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Speaker 4: the way of credit spread vole and from a concession perspective,

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Speaker 4: I think also a function of overall levels, like generally

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Speaker 4: concessions will be low in robust, low vol environments. I

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Speaker 4: also think that concessions have structurally been able to move lower.

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Speaker 4: I think because of the real significant shift in the

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Speaker 4: market structure of investment grade corporate credit that's developed over

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Speaker 4: the course of the last five to seven years, particularly

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Speaker 4: with respect to liquidity.

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Speaker 1: On the spread. Though, I'm still I mean I always

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Speaker 1: ask people this, so you probably heard me say it,

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Speaker 1: but still a little bit skeptical of the idea that,

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Speaker 1: you know, spreads should be this tight. I mean, I

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Speaker 1: know the all in yield question argument, you know, just

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Speaker 1: look at the yield, don't worry about the spread. But

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Speaker 1: that has got people into trouble in the past. And

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Speaker 1: if you look at the difference between spreads, you know,

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Speaker 1: single aid to double A for example, that's got very

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Speaker 1: very tight. So it seems like there's a little bit

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Speaker 1: of indiscriminate buying. I mean, I think it's more on

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Speaker 1: the leverage side in the IG side, But do you

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Speaker 1: not feel that the investors should be paying a bit

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Speaker 1: more attention to spreads.

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Speaker 4: I mean, it doesn't feel bubbily to me. We've seen

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Speaker 4: instances before where the technicals of the market have really

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Speaker 4: outweighed the fundamentals and the requirement to invest, and that's

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Speaker 4: driven i think spread levels to what historically have been

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Speaker 4: maybe artificially tight. This move feels more sustainable, and it

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Speaker 4: feels more real, and it feels more rational and reasonable.

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Speaker 4: So I'm a little bit less concerned. And by the way, again,

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Speaker 4: it's the inverse of what we talked about a moment

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Speaker 4: ago about the inverted yeld curve driving issuers to want

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Speaker 4: to finance and then part the money in cash. From

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Speaker 4: an investor's point of view, the opportunity cost of not

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Speaker 4: being invested in an inverted yield curve is also low,

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Speaker 4: so they can hide out in short dated instruments and

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Speaker 4: earn incremental carry versus longer duration. So I think it's

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Speaker 4: a little different in this environment, and I'm less concerned

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Speaker 4: about that overall. Look, the reality is you go back

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Speaker 4: on very very long time series whenever you see credit

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Speaker 4: spreads get to these kinds of levels, and they don't

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Speaker 4: get here very often. They bumble around for quite some time,

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Speaker 4: and then there's some exogrenu shock that moves them out

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Speaker 4: in a material manner. And we could spend like the

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Speaker 4: next seventeen hours chatting about what we think that exigent

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Speaker 4: a shock is going to be. And I'm ninety nine

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Speaker 4: percent confident we won't get it right as to what does.

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Speaker 3: Ultimately cause spreads to widen.

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Speaker 4: But I think that ordinary course of business, I find

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Speaker 4: it difficult to see too many clouds on the horizon.

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Speaker 4: There's been periods when we've been worried about are we

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Speaker 4: going to tip over into recession? Are we really going

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Speaker 4: to be able to have a soft landing. There's been

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Speaker 4: periods where we've been worried about the consumer and the

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Speaker 4: strength and the resilience of the consumer. There's been periods

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Speaker 4: where we've been worried about the labor market, obviously notably

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Speaker 4: in the summer. We continue to climb these walls of

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Speaker 4: worry very very effectively.

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Speaker 3: Got it.

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Speaker 2: And then you talked about, you know, when we talk

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Speaker 2: about like private credit, that's the big buzzword, you know,

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Speaker 2: and then maybe the perception is that's more for levered companies,

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Speaker 2: but you know, then again you have these apollo you know,

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Speaker 2: talking about creative solutions for IG companies. So how do

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Speaker 2: you see you know, folks like that in the IgA space.

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Speaker 2: Private credit are they front of these Are they you know,

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Speaker 2: another source of financing for you know, some of these

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Speaker 2: companies that you might have done bound deals with or

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Speaker 2: do you see them as maybe potential buffers right for

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Speaker 2: these potential cases of volatility. It's another tool set that

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Speaker 2: these companies have to get some financing.

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Speaker 4: Yeah, So I think there's plenty of places that private

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Speaker 4: credit will grow and will coexist with the traditional banking sector.

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Speaker 4: And by the way, we will see in USIG this

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Speaker 4: year record volume of issuance from BDC's part of the

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Speaker 4: private credit extension that goes on in the marketplace. They

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Speaker 4: obviously need to finance themselves. We're providing that there's going

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Speaker 4: to be twenty to twenty five billion dollars of supply

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Speaker 4: from an industry that from a capital markets perspective, it

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Speaker 4: didn't really exist up until kind of the last kind

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Speaker 4: of five six years or so in a meaningful way. Obviously,

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Speaker 4: private credit has a role to play in the leverage

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Speaker 4: finance markets. We've seen that especially for sectors or leverage

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Speaker 4: levels the regulated banking sector are unable to lend into

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Speaker 4: because of regulatory reform. So that's natural shift of lending

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Speaker 4: risk outside of the banking sector. And then obviously there's

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Speaker 4: a lot of asset based finance and other types of

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Speaker 4: private credit lending that have been taking place. Some of

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Speaker 4: them have been on large cap corps who have looked

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Speaker 4: at kind of ring fence certain assets. A lot of

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Speaker 4: it has been on smaller corporates similarly looking to ring

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Speaker 4: fence pool of assets or look at single assets and

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Speaker 4: finance them in private markets with a with a credit

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Speaker 4: rating that gets to IG for the nic reasons required

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Speaker 4: for private credit lenders, but the credit profile looks very,

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Speaker 4: very different to what's in the public IG markets. So

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Speaker 4: am I worried about the growth in private credit taking

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Speaker 4: a bite out of what is traditionally financed in global

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Speaker 4: investment grade corporate bond markets. No. I think there'll be

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Speaker 4: some portions of balance sheets that will get financed. I

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Speaker 4: think very little of it will be direct to investment

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Speaker 4: grade corporates, or at least direct to investment grade corporates

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Speaker 4: that typically would have otherwise financed in public markets. I

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Speaker 4: just think it's fishing in a different pond, and as

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Speaker 4: a result, I think it will coexist very very nicely

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Speaker 4: with the rest of the credit providers that are out

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Speaker 4: there in the public markets, whether it be ig levered

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Speaker 4: or otherwise.

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Speaker 2: Got it. And then you had mentioned regulation in there, right,

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Speaker 2: and some of the regulation pushing some of the lending

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Speaker 2: that the banks used to do more to private credit.

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Speaker 2: But then you know, buzzle endgame. I'll just throw it

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Speaker 2: out there. It's a regulation that you know, not loved

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Speaker 2: in the industry. Might see some pullback, or you might

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Speaker 2: even see kind of a total upbending, right if we

387
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Speaker 2: get Trump for president. But I think a lot of

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Speaker 2: this stuff maybe pertains more to the trading side of

389
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Speaker 2: the business. But how about in IG financing. Is that

390
00:21:00,640 --> 00:21:04,200
Speaker 2: any concerns there any if the regulation were to kind

391
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Speaker 2: of go through, is that really an impact at all,

392
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Speaker 2: like the DCM side and an IG or is it

393
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Speaker 2: more kind of on that trading side and capital intensive side.

394
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Speaker 4: I'm not convinced that it's going to have a significant

395
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Speaker 4: impact on global financing markets, global capital markets, global IG financing.

396
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Speaker 4: Like we'll look at all of our businesses that we run,

397
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Speaker 4: every single business that we look at, we look at

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Speaker 4: the capital that gets attributed to those businesses. We look

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Speaker 4: at what the return characteristics of those businesses are on

400
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Speaker 4: a standalone and on a related ancillary basis, and will

401
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Speaker 4: allocate capital accordingly. And as the rules change, we'll look

402
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Speaker 4: to allocate capital as efficiently as we can, understanding it's

403
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Speaker 4: a scarce commodity. Wherever we can generate the strongest returns,

404
00:21:48,280 --> 00:21:50,040
Speaker 4: that's what we'll do. And if the rule, if the

405
00:21:50,119 --> 00:21:55,240
Speaker 4: rules shift, then capital will shift accordingly as well. But

406
00:21:55,320 --> 00:21:58,320
Speaker 4: in so far as this impacting kind of the business

407
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Speaker 4: that I traffic in day in and day out, I'm

408
00:22:02,200 --> 00:22:05,280
Speaker 4: far from being expert in all the ins and outs

409
00:22:05,320 --> 00:22:07,680
Speaker 4: of BARSL three end game. But based on the work

410
00:22:07,680 --> 00:22:09,240
Speaker 4: that the teams have done, and I'm not convinced that

411
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Speaker 4: there's going to be a significant impact to our operations.

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Speaker 1: You don't worry at all, Johnny, about losing a big

413
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Speaker 1: slug of business to these you know, big asset managers

414
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Speaker 1: who are willing to write you know, billion dollar checks

415
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Speaker 1: to large US corporations that would otherwise have gone to

416
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Speaker 1: the bond market. I mean, they seem to be doing

417
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Speaker 1: this increasingly, and they seem to have more appetite for it,

418
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Speaker 1: and they can see, you know, which credits they like.

419
00:22:30,520 --> 00:22:32,320
Speaker 1: They could just call up the CFO and do a

420
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Speaker 1: deal and sell them on the idea that a direct

421
00:22:34,920 --> 00:22:36,680
Speaker 1: deal is going to be better than whatever they could

422
00:22:36,720 --> 00:22:38,680
Speaker 1: do in the in the open markets, which would expose

423
00:22:38,720 --> 00:22:41,879
Speaker 1: them to less volatility, you know, execute very quickly all

424
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Speaker 1: those things. What extent you're going to lose business from that?

425
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Speaker 4: Well, let's let's talk about what the benefits of intermediation.

426
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Speaker 3: Are in the capital markets overall.

427
00:22:53,960 --> 00:22:57,480
Speaker 4: Because when I kind of think about like global IG markets,

428
00:22:57,600 --> 00:23:02,880
Speaker 4: the deepest, most liquid capital markets in the world, extraordinary

429
00:23:03,080 --> 00:23:08,880
Speaker 4: average daily traded volume, extraordinarily low transaction costs, incredibly easy

430
00:23:08,920 --> 00:23:12,960
Speaker 4: to get in and out of. Overall, the benefits to

431
00:23:13,040 --> 00:23:16,800
Speaker 4: intermediation of any large corporate looking to raise some financing

432
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Speaker 4: is to generate a massive competition between a very large

433
00:23:22,359 --> 00:23:28,359
Speaker 4: number of potential buyers of a standardized security. Global IG

434
00:23:28,720 --> 00:23:33,959
Speaker 4: corporate debt is a standard security. It looks and feels

435
00:23:34,040 --> 00:23:39,960
Speaker 4: the same across markets, across offering documents. It trades on

436
00:23:40,000 --> 00:23:44,240
Speaker 4: an incredibly regular, deep and liquid basis, and as a

437
00:23:44,240 --> 00:23:48,760
Speaker 4: result of that standardization and liquidity, it creates a value

438
00:23:48,800 --> 00:23:52,480
Speaker 4: proposition for an issuer the private markets can't compete with.

439
00:23:52,800 --> 00:23:55,600
Speaker 4: Now I know that there'll be some efforts to liquefy

440
00:23:56,160 --> 00:23:59,960
Speaker 4: private credit and private market credit, but I don't see

441
00:24:00,119 --> 00:24:04,080
Speaker 4: that wedge ever being sufficiently closed that it won't be

442
00:24:04,200 --> 00:24:07,680
Speaker 4: more efficient for a large cap corporate in the US

443
00:24:08,160 --> 00:24:11,639
Speaker 4: to come and ask an intermediary like Goldman Sachs to

444
00:24:11,720 --> 00:24:15,600
Speaker 4: stand in between them and literally hundreds, if not thousands

445
00:24:16,040 --> 00:24:20,480
Speaker 4: of global institutional investors and effectively auction off their securities

446
00:24:20,480 --> 00:24:24,639
Speaker 4: to the best bidders overall. And so unless somebody can

447
00:24:24,680 --> 00:24:29,680
Speaker 4: provide a value proposition that says that a standalone investment

448
00:24:29,800 --> 00:24:33,320
Speaker 4: of a security that's going to be a liquid but

449
00:24:33,400 --> 00:24:38,320
Speaker 4: will price at the same level as a public competed security,

450
00:24:39,040 --> 00:24:40,879
Speaker 4: I don't think an issue is going to elect to

451
00:24:40,920 --> 00:24:44,359
Speaker 4: go down that route. And so from that vantage point,

452
00:24:44,680 --> 00:24:46,439
Speaker 4: and look, I could be wrong, and you might have

453
00:24:46,560 --> 00:24:48,159
Speaker 4: me back on here in a couple of years and

454
00:24:48,160 --> 00:24:49,960
Speaker 4: you may say, hey, Johnny, you got that one wrong,

455
00:24:50,000 --> 00:24:52,159
Speaker 4: didn't you. But I only think I will be I

456
00:24:52,200 --> 00:24:58,399
Speaker 4: think that the market premium for standardized liquid distributed risk

457
00:24:58,920 --> 00:25:02,720
Speaker 4: is significant enough that issuers will be willing to pay

458
00:25:03,080 --> 00:25:07,280
Speaker 4: modest fees for intermediaries to go and find that best

459
00:25:07,280 --> 00:25:07,960
Speaker 4: clearing price.

460
00:25:08,359 --> 00:25:10,880
Speaker 1: You also, at your firm, you have a direct lending operation.

461
00:25:11,000 --> 00:25:13,200
Speaker 1: So to what extent when you talk to an issuer,

462
00:25:13,240 --> 00:25:15,080
Speaker 1: do you do you have that in your you know,

463
00:25:15,240 --> 00:25:16,960
Speaker 1: deck of cards. You know that, by the way, you

464
00:25:16,960 --> 00:25:21,399
Speaker 1: could do a direct lending you know, through Goldman. You

465
00:25:21,400 --> 00:25:22,040
Speaker 1: know this price?

466
00:25:22,240 --> 00:25:23,639
Speaker 3: Does it? Does it? You know?

467
00:25:23,720 --> 00:25:24,960
Speaker 1: Is it all included in the pitch?

468
00:25:25,160 --> 00:25:28,520
Speaker 4: I mean, it's it's it's a growing part of the

469
00:25:28,600 --> 00:25:31,919
Speaker 4: tool kit. Obviously, it's a it's a big growth area

470
00:25:32,080 --> 00:25:36,879
Speaker 4: for us organizationally. But again it's really I think looking

471
00:25:36,920 --> 00:25:40,879
Speaker 4: at a slightly different swimming pool than the one that

472
00:25:40,920 --> 00:25:43,320
Speaker 4: we're all playing in right now, got it?

473
00:25:43,600 --> 00:25:45,920
Speaker 2: Okay, So now you know we've given you a couple

474
00:25:45,960 --> 00:25:48,080
Speaker 2: of layups. We're going to start getting into the reason now.

475
00:25:48,119 --> 00:25:51,040
Speaker 2: So you know, we're all off the sleeves, all right,

476
00:25:51,520 --> 00:25:54,520
Speaker 2: So I gotta ask you so you know, I don't

477
00:25:54,520 --> 00:25:56,040
Speaker 2: know if you'll remember the deal, but it's it's the

478
00:25:56,119 --> 00:26:00,760
Speaker 2: day after the surprise fifty one rate cut Goldman was

479
00:26:00,760 --> 00:26:03,439
Speaker 2: in the market. You guys issued a longer than expect

480
00:26:03,440 --> 00:26:06,360
Speaker 2: you know, usual duration preferred, right, typically it's a non

481
00:26:06,400 --> 00:26:08,919
Speaker 2: call five. You guys did a non call ten. So

482
00:26:09,720 --> 00:26:11,760
Speaker 2: you know, can you kind of give us the thought

483
00:26:11,760 --> 00:26:14,439
Speaker 2: process kind of behind. Maybe not the specific instance, but

484
00:26:14,520 --> 00:26:17,600
Speaker 2: like when you do something, I guess a little bit different, right,

485
00:26:17,640 --> 00:26:20,639
Speaker 2: is it management kind of saying hey, you know, maybe

486
00:26:20,640 --> 00:26:23,080
Speaker 2: maybe the yelds might rise in ten years, So let's

487
00:26:23,080 --> 00:26:24,879
Speaker 2: says that the ten year looks cheap? Or is it

488
00:26:24,960 --> 00:26:27,000
Speaker 2: kind of the investor side saying, hey, you know they

489
00:26:27,080 --> 00:26:29,400
Speaker 2: just cut rates and on duration, Like, can you kind

490
00:26:29,400 --> 00:26:31,400
Speaker 2: of give us some sort of you know, the inner

491
00:26:31,440 --> 00:26:34,240
Speaker 2: thinking you know of how this deal gets formed.

492
00:26:34,359 --> 00:26:36,080
Speaker 4: Man, you want me to pull back the curtain on

493
00:26:36,119 --> 00:26:38,439
Speaker 4: how we make financial decisions at gold Sacks.

494
00:26:38,600 --> 00:26:40,480
Speaker 3: You know you asked me questions going to get me fired?

495
00:26:40,520 --> 00:26:46,560
Speaker 4: Come on, No, it's We have a very robust and

496
00:26:46,720 --> 00:26:51,200
Speaker 4: ongoing dialogue with the treasury team at Goldman Sachs and

497
00:26:51,480 --> 00:26:54,840
Speaker 4: my team in capital markets and syndicate. We provide them

498
00:26:55,200 --> 00:27:01,920
Speaker 4: constant viewpoints from investors market perception, what we think opportunity

499
00:27:02,040 --> 00:27:06,160
Speaker 4: sets are, and that will always intersect with what does

500
00:27:06,960 --> 00:27:08,919
Speaker 4: Dennis want to do, what does Kerry want to do

501
00:27:09,160 --> 00:27:11,879
Speaker 4: from a corporate finance perspective, will always layer that in

502
00:27:11,960 --> 00:27:14,800
Speaker 4: together and we'll look at what the best outcome is

503
00:27:14,840 --> 00:27:19,760
Speaker 4: for the firm overall. In the preferred market. Over the

504
00:27:19,760 --> 00:27:22,840
Speaker 4: course of the summer, there was a clear especially as

505
00:27:22,880 --> 00:27:26,359
Speaker 4: treasury yields were rallying, there was a pretty significant shift

506
00:27:26,440 --> 00:27:30,320
Speaker 4: to longer duration preferences from the buyerbase. That actually created

507
00:27:30,440 --> 00:27:34,840
Speaker 4: an inverted yield curve between preferred or junior sub hybrids.

508
00:27:34,840 --> 00:27:37,720
Speaker 4: The utilities were doing that, howither a non call five

509
00:27:38,200 --> 00:27:41,640
Speaker 4: or a non call ten reset mechanism associated with them,

510
00:27:42,040 --> 00:27:44,840
Speaker 4: And because of that inverted curve, and I think also

511
00:27:45,000 --> 00:27:48,520
Speaker 4: that in conjunction with the view that there will be

512
00:27:48,560 --> 00:27:50,200
Speaker 4: a certain amount of preferred spot we're going to have

513
00:27:50,240 --> 00:27:52,640
Speaker 4: in our capital structure for many, many many years to come,

514
00:27:53,240 --> 00:27:56,480
Speaker 4: I think all of that together drove us towards looking

515
00:27:56,520 --> 00:27:59,600
Speaker 4: at the non call ten segment of the market as

516
00:27:59,600 --> 00:28:02,120
Speaker 4: opposed to the non call five that we'd looked at previously.

517
00:28:02,600 --> 00:28:05,160
Speaker 3: And by the way, if you look at corporate hybrids.

518
00:28:04,680 --> 00:28:07,320
Speaker 4: I mentioned utilities, but also some international hybrids as well

519
00:28:07,320 --> 00:28:12,199
Speaker 4: that come in finance in our markets, also similar subordination

520
00:28:12,320 --> 00:28:15,920
Speaker 4: premium securities. There'd been plenty of supply of non call

521
00:28:16,000 --> 00:28:20,280
Speaker 4: ten product that's out there, So I certainly don't think

522
00:28:20,280 --> 00:28:23,159
Speaker 4: it was an outlier. I don't think it was like

523
00:28:23,359 --> 00:28:26,800
Speaker 4: wildly different from what we might typically issue. Sure, we

524
00:28:26,840 --> 00:28:28,880
Speaker 4: hadn't done a non call ten in quite some time,

525
00:28:29,119 --> 00:28:31,520
Speaker 4: so that made it a little different versus the preferred

526
00:28:32,080 --> 00:28:35,639
Speaker 4: preferred flavors that we had been issuing in the prior

527
00:28:35,920 --> 00:28:37,720
Speaker 4: couple of years. But I wouldn't have said it was

528
00:28:37,720 --> 00:28:39,280
Speaker 4: certainly anything out of the ordinary at all.

529
00:28:39,440 --> 00:28:41,200
Speaker 2: Got it? I got it, okay? And then well how

530
00:28:41,240 --> 00:28:43,320
Speaker 2: about that. You know you have a European you know,

531
00:28:43,360 --> 00:28:46,040
Speaker 2: fig background as well, So let's talk about a little

532
00:28:46,080 --> 00:28:48,680
Speaker 2: bit of a difference I guess between you know, the

533
00:28:48,680 --> 00:28:52,440
Speaker 2: the European Bank eighty one land, where you know, they

534
00:28:52,480 --> 00:28:55,400
Speaker 2: always issue in front of a call, right, it always

535
00:28:55,440 --> 00:28:57,760
Speaker 2: happens like clockwork. But then at the beginning of this

536
00:28:57,880 --> 00:29:00,440
Speaker 2: year we've seen a lot of you know, big US

537
00:29:00,520 --> 00:29:03,640
Speaker 2: banks they kind of let the preferreds, you know, they

538
00:29:03,800 --> 00:29:06,200
Speaker 2: don't call it on first call date, and these coupons

539
00:29:06,280 --> 00:29:08,680
Speaker 2: jumped up really high, right, And so I guess, I

540
00:29:08,720 --> 00:29:12,160
Speaker 2: guess generally, one, can you talk about why there's such

541
00:29:12,160 --> 00:29:14,880
Speaker 2: a big difference between the eighty one European eighty one

542
00:29:14,880 --> 00:29:17,360
Speaker 2: market versus the preferreds and the call and on call?

543
00:29:17,800 --> 00:29:19,960
Speaker 2: And then two kind of what are some of these

544
00:29:19,960 --> 00:29:22,880
Speaker 2: factors that you look at when when when Goldman decides

545
00:29:22,880 --> 00:29:25,720
Speaker 2: whether to refire or preferred or leave it outstanding.

546
00:29:26,480 --> 00:29:27,000
Speaker 3: Yeah, So.

547
00:29:28,960 --> 00:29:35,120
Speaker 4: I would say there's a different perspective from European investors

548
00:29:35,160 --> 00:29:39,560
Speaker 4: writ large versus US investors writ large with respect to

549
00:29:39,920 --> 00:29:45,000
Speaker 4: issue a behavior at call dates on down capital structure securities,

550
00:29:46,000 --> 00:29:51,160
Speaker 4: meaning that European investors generally expect issuers to call these

551
00:29:51,200 --> 00:29:56,200
Speaker 4: securities at the first call date. US investors expect issuers

552
00:29:56,320 --> 00:29:59,880
Speaker 4: to behave economically and commercially with respect to whether or

553
00:29:59,920 --> 00:30:03,400
Speaker 4: not they call the securities or otherwise and so and that,

554
00:30:03,520 --> 00:30:05,680
Speaker 4: by the way, has been around. I've been in this

555
00:30:05,720 --> 00:30:08,400
Speaker 4: business for a long time. That existed coming out of

556
00:30:08,400 --> 00:30:11,560
Speaker 4: the Financial crisis, where you can imagine there are a

557
00:30:11,600 --> 00:30:14,640
Speaker 4: lot of like just pre financial crisis, preferred and cap

558
00:30:14,680 --> 00:30:19,560
Speaker 4: securities issued the floated post initial call in the US

559
00:30:19,720 --> 00:30:23,560
Speaker 4: market and in the European market, any attempts to allow

560
00:30:23,600 --> 00:30:27,880
Speaker 4: those securities to float were met with significant investor pushback.

561
00:30:28,320 --> 00:30:31,520
Speaker 4: So I think just culturally there's a difference between investors

562
00:30:31,600 --> 00:30:36,800
Speaker 4: investor behavior and what is expected of issuers. I think

563
00:30:36,840 --> 00:30:41,960
Speaker 4: when it comes to any issuer making a decision around

564
00:30:42,360 --> 00:30:45,640
Speaker 4: calling an outstanding preferred in the US, you asked me

565
00:30:45,720 --> 00:30:47,840
Speaker 4: to kind of talk about it from a golden sax perspective,

566
00:30:47,840 --> 00:30:49,600
Speaker 4: but I'll just talk about it that generally as to

567
00:30:49,680 --> 00:30:53,160
Speaker 4: how we discuss this without issuing clients, and how we

568
00:30:53,200 --> 00:30:57,040
Speaker 4: advise our issuing clients. Overall, it's obviously got to be

569
00:30:57,080 --> 00:31:00,840
Speaker 4: economic and commercial to call and refile, and that means

570
00:31:00,840 --> 00:31:03,240
Speaker 4: you've got to fully load lots of things in there,

571
00:31:03,720 --> 00:31:07,560
Speaker 4: including the operational costs of going and executing in the market,

572
00:31:07,560 --> 00:31:08,760
Speaker 4: the underwriting.

573
00:31:08,280 --> 00:31:09,120
Speaker 3: Fees, etc.

574
00:31:10,000 --> 00:31:14,120
Speaker 4: But there's also got to be an understanding of is

575
00:31:14,160 --> 00:31:19,200
Speaker 4: there any optionality of having a currently callable preferred security

576
00:31:19,200 --> 00:31:21,720
Speaker 4: on your balance sheet. So an example is that if

577
00:31:21,720 --> 00:31:24,000
Speaker 4: it's a non call five or non call ten that

578
00:31:24,040 --> 00:31:27,320
Speaker 4: then flips the floating post call, it may then be

579
00:31:27,360 --> 00:31:30,440
Speaker 4: callable continuously or quarterly or every six months. There may

580
00:31:30,440 --> 00:31:34,840
Speaker 4: be some real value in having that optionality on your

581
00:31:34,880 --> 00:31:38,480
Speaker 4: balance sheet as opposed to replacing it with something that

582
00:31:38,520 --> 00:31:40,280
Speaker 4: you know you're going to have to live with for

583
00:31:40,400 --> 00:31:43,000
Speaker 4: at least five years, assuming you're replacing it with a

584
00:31:43,000 --> 00:31:44,719
Speaker 4: non call five, which is the shortest that you can

585
00:31:44,800 --> 00:31:48,640
Speaker 4: do from a regulatory perspective, So understanding those puts and takes,

586
00:31:49,200 --> 00:31:53,840
Speaker 4: understanding how the regulatory landscape might develop may mean that

587
00:31:54,480 --> 00:31:58,920
Speaker 4: you may let a security remain outstanding for a quarter

588
00:31:59,120 --> 00:32:02,960
Speaker 4: or two or a six month period or two because

589
00:32:03,000 --> 00:32:04,440
Speaker 4: you're not one hundred percent sure whether or not you're

590
00:32:04,440 --> 00:32:07,120
Speaker 4: going to need it, and if you can call it

591
00:32:07,160 --> 00:32:10,560
Speaker 4: away in three or six months time and you don't

592
00:32:10,640 --> 00:32:13,800
Speaker 4: need it anymore, then that's a much better deal for

593
00:32:13,880 --> 00:32:16,520
Speaker 4: you than replacing it for something that might be out

594
00:32:16,520 --> 00:32:19,600
Speaker 4: there for another five years that you can't do anything about,

595
00:32:19,720 --> 00:32:21,479
Speaker 4: or you'd have to go and do some liability management,

596
00:32:21,480 --> 00:32:24,040
Speaker 4: which will be over very expensive, and then you'd have

597
00:32:24,080 --> 00:32:26,680
Speaker 4: to run that carry cost through overall. That's some of

598
00:32:26,680 --> 00:32:29,560
Speaker 4: the things that go through our minds when we're advising

599
00:32:29,600 --> 00:32:33,280
Speaker 4: clients around to call or not to call, And.

600
00:32:33,800 --> 00:32:35,520
Speaker 2: We did have at the beginning of the year, right

601
00:32:35,520 --> 00:32:38,640
Speaker 2: I guess the rate cut assumptions at the beginning of

602
00:32:38,680 --> 00:32:41,360
Speaker 2: the year were like what six, eight or whatnot? Yep,

603
00:32:41,440 --> 00:32:42,040
Speaker 2: versus now.

604
00:32:42,240 --> 00:32:44,360
Speaker 4: I remember it January twelfth because it was my daughter's

605
00:32:44,400 --> 00:32:47,840
Speaker 4: eighteenth birthday. There were seven rate cuts priced in for

606
00:32:47,920 --> 00:32:49,400
Speaker 4: twenty twenty four yep.

607
00:32:49,560 --> 00:32:51,719
Speaker 2: And a lot of these for those that don't know

608
00:32:51,880 --> 00:32:53,440
Speaker 2: a lot of these prefers right now that are that

609
00:32:53,520 --> 00:32:55,600
Speaker 2: are coming for call, they're kind of you know, three

610
00:32:55,600 --> 00:32:58,600
Speaker 2: months so for you know, based security. So it's really

611
00:32:58,680 --> 00:33:01,240
Speaker 2: the front end really, right, which is where they're flooding

612
00:33:01,240 --> 00:33:04,320
Speaker 2: to on a spread versus the issue at you know

613
00:33:04,480 --> 00:33:06,640
Speaker 2: versus you know spreads versus five and ten years, right,

614
00:33:06,680 --> 00:33:09,440
Speaker 2: So that inverted curve I think kind of screwed around

615
00:33:09,480 --> 00:33:12,600
Speaker 2: with some maybe people thinking about, oh they're going to

616
00:33:12,640 --> 00:33:14,520
Speaker 2: call it an issue and stuff.

617
00:33:14,240 --> 00:33:16,800
Speaker 4: Like that, just made it more complicated. Didn't screw around,

618
00:33:16,880 --> 00:33:18,560
Speaker 4: just made it, just made it more complicated.

619
00:33:19,640 --> 00:33:23,040
Speaker 1: It on the pipeline, Johnny, for next year, I'm interested

620
00:33:23,080 --> 00:33:24,680
Speaker 1: in what you think the drivers are because it looks

621
00:33:24,720 --> 00:33:26,080
Speaker 1: like the US is just going to take care of

622
00:33:26,160 --> 00:33:28,640
Speaker 1: itself with this trillion and a half face wash. But

623
00:33:28,760 --> 00:33:31,640
Speaker 1: the outside of the US, your title is global. Where

624
00:33:31,680 --> 00:33:35,280
Speaker 1: do you travel for opportunity? Where's the big push coming

625
00:33:35,320 --> 00:33:37,440
Speaker 1: from in other parts of the world for issuance?

626
00:33:37,760 --> 00:33:40,720
Speaker 4: Yeah, So I would say that we've invested a lot

627
00:33:40,720 --> 00:33:44,680
Speaker 4: in our European business, and we've had a very successful

628
00:33:45,040 --> 00:33:49,400
Speaker 4: year in our emia credit franchise. I think there's lots

629
00:33:49,400 --> 00:33:51,680
Speaker 4: of opportunities in Europe as we think about playing things

630
00:33:51,680 --> 00:33:54,040
Speaker 4: forward as well. I think there's opportunities just I think

631
00:33:54,040 --> 00:33:58,000
Speaker 4: there'll be natural growth in the financing market. The structure

632
00:33:58,040 --> 00:34:00,240
Speaker 4: of that market is slightly different in terms of of

633
00:34:00,400 --> 00:34:03,080
Speaker 4: what you're able to do. You can do more underwritten,

634
00:34:03,160 --> 00:34:05,720
Speaker 4: fully bought deals that the risk more so than you

635
00:34:05,760 --> 00:34:09,239
Speaker 4: can in the US, or there's more desire from the

636
00:34:09,280 --> 00:34:13,800
Speaker 4: issue aside to do risk transfer transactions. There's the ability

637
00:34:13,840 --> 00:34:17,640
Speaker 4: to do smaller, one off privately placed deals because the

638
00:34:17,680 --> 00:34:22,520
Speaker 4: documentation burden is lighter and easier. And so it's a

639
00:34:22,560 --> 00:34:27,359
Speaker 4: market I think where if we're investing appropriately in good

640
00:34:27,440 --> 00:34:31,880
Speaker 4: risk judgment and good distribution, marrying that with an advisory

641
00:34:31,880 --> 00:34:33,800
Speaker 4: franchise that we have kind of all over the world,

642
00:34:34,040 --> 00:34:36,520
Speaker 4: I think we continue to grow that business. So when

643
00:34:36,560 --> 00:34:40,120
Speaker 4: I think about my own personal allocation of time and capital,

644
00:34:40,760 --> 00:34:43,319
Speaker 4: I'm spending plenty of time in Europe. I think there's

645
00:34:43,320 --> 00:34:46,000
Speaker 4: opportunities there. I don't think it's going to be confined

646
00:34:46,120 --> 00:34:49,360
Speaker 4: to Europe though. I think there'll be plenty of opportunities

647
00:34:49,560 --> 00:34:53,080
Speaker 4: in Japan, that's been a pretty regular visitor to global

648
00:34:53,080 --> 00:34:53,960
Speaker 4: international markets.

649
00:34:53,960 --> 00:34:54,680
Speaker 3: There'll be plenty of.

650
00:34:54,600 --> 00:34:59,080
Speaker 4: Opportunities and probably growing opportunities in Australia as well. That's

651
00:34:59,120 --> 00:35:02,720
Speaker 4: also been a regular fxture in our markets. I'll generally

652
00:35:02,719 --> 00:35:05,719
Speaker 4: spend time in markets around.

653
00:35:05,360 --> 00:35:07,319
Speaker 3: The world that I would view as.

654
00:35:07,320 --> 00:35:10,719
Speaker 4: Like international participants as opposed to going to look at

655
00:35:10,719 --> 00:35:14,720
Speaker 4: like domestic markets around the world. Many colleagues in Tokyo

656
00:35:14,719 --> 00:35:18,560
Speaker 4: who run a very successful Japanese municipal domestic investment grade business.

657
00:35:19,239 --> 00:35:21,359
Speaker 4: I have no business having a point of view on

658
00:35:21,400 --> 00:35:24,200
Speaker 4: that business. But there's a lot of international business that

659
00:35:24,200 --> 00:35:26,919
Speaker 4: comes out of Tokyo where I think I can add

660
00:35:26,920 --> 00:35:30,040
Speaker 4: some value. So that's where I think about my own

661
00:35:30,200 --> 00:35:31,120
Speaker 4: time allocations.

662
00:35:31,200 --> 00:35:34,360
Speaker 1: And what do you mean by Europe? Is it just France, Germany,

663
00:35:35,160 --> 00:35:37,399
Speaker 1: England or is it much broader than that.

664
00:35:37,640 --> 00:35:38,960
Speaker 3: I think it's a little broader than that.

665
00:35:39,520 --> 00:35:44,120
Speaker 4: I think Milan, Madrid, I think the Nordic countries are

666
00:35:44,200 --> 00:35:47,400
Speaker 4: very relevant as well, obviously the Benelux.

667
00:35:47,880 --> 00:35:49,799
Speaker 3: But no, I think there's pretty.

668
00:35:49,520 --> 00:35:52,720
Speaker 4: Broad based opportunities across Europe.

669
00:35:53,160 --> 00:35:55,520
Speaker 1: And is there any particular sector that's focused. I mean,

670
00:35:55,520 --> 00:35:56,960
Speaker 1: we know that you've done a lot of tech deals

671
00:35:56,960 --> 00:35:59,200
Speaker 1: that have been great. Is there anything that you think

672
00:35:59,280 --> 00:36:00,480
Speaker 1: is going to drive it by sector?

673
00:36:01,320 --> 00:36:02,600
Speaker 3: I don't think so. I think it's going to be

674
00:36:02,600 --> 00:36:03,160
Speaker 3: broad based.

675
00:36:03,960 --> 00:36:07,400
Speaker 4: Hard pushed to kind of think about any one particular

676
00:36:07,400 --> 00:36:11,520
Speaker 4: sector that I think will be a stand out in general,

677
00:36:11,560 --> 00:36:15,080
Speaker 4: the way the pie is split across different industry groups

678
00:36:15,600 --> 00:36:19,759
Speaker 4: tends to be fairly stable, fairly consistent. As I mentioned

679
00:36:19,760 --> 00:36:20,960
Speaker 4: this year, like energy has been a kind of a

680
00:36:20,960 --> 00:36:24,080
Speaker 4: bigger fixture. Actually FIG's been a bigger fixture this year

681
00:36:24,360 --> 00:36:28,400
Speaker 4: as well. I would imagine they continue to be growthier

682
00:36:28,960 --> 00:36:34,040
Speaker 4: segments overall. But we'll wait and see and will be

683
00:36:34,200 --> 00:36:37,440
Speaker 4: indifferent and agnostic as to which sector wants to be

684
00:36:37,840 --> 00:36:38,720
Speaker 4: our biggest clients.

685
00:36:39,520 --> 00:36:43,480
Speaker 2: And so for gs, you know, the consumer foray, hasn't

686
00:36:43,520 --> 00:36:46,120
Speaker 2: you know, exactly gone to plan? I guess pull back

687
00:36:46,160 --> 00:36:48,400
Speaker 2: on the kind of lending side there. But I think

688
00:36:48,440 --> 00:36:51,880
Speaker 2: what's underestimated, I think is the funding side, right with

689
00:36:51,920 --> 00:36:54,960
Speaker 2: the deposits, So has that you know, kind of helped

690
00:36:55,120 --> 00:36:58,040
Speaker 2: with some of the financing businesses maybe you know, providing

691
00:36:58,080 --> 00:37:01,040
Speaker 2: some sources of funding for like bridge loans and stuff

692
00:37:01,040 --> 00:37:03,319
Speaker 2: like that, or how has that kind of helped over

693
00:37:03,320 --> 00:37:05,200
Speaker 2: the past few years to kind of help with the

694
00:37:05,239 --> 00:37:06,560
Speaker 2: financing business at all?

695
00:37:06,760 --> 00:37:08,440
Speaker 4: Well, I mean, look at the end of the day,

696
00:37:08,640 --> 00:37:10,760
Speaker 4: in any kind of business where you're looking at NIM

697
00:37:10,920 --> 00:37:12,880
Speaker 4: for any kind of portion of the assets, having the

698
00:37:12,920 --> 00:37:16,120
Speaker 4: lowest cost source of capital against that is going to

699
00:37:16,120 --> 00:37:19,880
Speaker 4: be a creative, and so having a bigger deposit franchise

700
00:37:20,200 --> 00:37:22,120
Speaker 4: and having more of the assets on our balance sheet

701
00:37:22,160 --> 00:37:25,360
Speaker 4: being able to be funded by bank deposits as opposed

702
00:37:25,400 --> 00:37:28,000
Speaker 4: to wholesale funding that we can go and raise in

703
00:37:28,000 --> 00:37:30,200
Speaker 4: the capital markets is going to be more efficient. So

704
00:37:31,160 --> 00:37:32,640
Speaker 4: I think it's been a great benefit to us.

705
00:37:33,200 --> 00:37:36,120
Speaker 2: And then and then so with that, I guess over

706
00:37:36,160 --> 00:37:38,040
Speaker 2: the years, right since, since you do have a bigger

707
00:37:38,040 --> 00:37:40,520
Speaker 2: deposit base, now, do you think that, you know, compared

708
00:37:40,520 --> 00:37:43,960
Speaker 2: to the historical Goldment that had fewer deposits, maybe maybe

709
00:37:44,000 --> 00:37:46,520
Speaker 2: dead issuance for Goldman going forward that could be kind

710
00:37:46,520 --> 00:37:49,000
Speaker 2: of at a lower run rate versus before or.

711
00:37:51,120 --> 00:37:52,520
Speaker 4: I don't know if I have a specific point of

712
00:37:52,560 --> 00:37:54,080
Speaker 4: view on that, because it's really going to depend on

713
00:37:54,280 --> 00:37:57,920
Speaker 4: the growth in the business and the parts of the

714
00:37:57,960 --> 00:38:01,719
Speaker 4: business that grow relative to others. There's obviously portions of

715
00:38:01,719 --> 00:38:03,880
Speaker 4: our business that as they grow, if they can be

716
00:38:03,920 --> 00:38:07,440
Speaker 4: funded by deposits, then great. If they can't be funded

717
00:38:07,440 --> 00:38:09,520
Speaker 4: by deposits, then that will take more of a lean

718
00:38:09,960 --> 00:38:13,279
Speaker 4: on wholesale funding markets overall. But I'm hard pushed to

719
00:38:13,280 --> 00:38:15,799
Speaker 4: give you a strong perspective as to whether or not

720
00:38:15,840 --> 00:38:17,720
Speaker 4: I think that the growth over the next five years

721
00:38:17,760 --> 00:38:21,680
Speaker 4: is going to be more dominated by deposit funding friendly

722
00:38:21,880 --> 00:38:25,000
Speaker 4: assets versus wholesale funding required assets.

723
00:38:25,640 --> 00:38:26,040
Speaker 2: I tried.

724
00:38:26,320 --> 00:38:29,799
Speaker 1: Yeah, we've mentioned the election a couple of times. It's

725
00:38:29,800 --> 00:38:32,720
Speaker 1: on everyone's mind. Obviously, it could be very volatile election.

726
00:38:32,800 --> 00:38:35,520
Speaker 1: It's very close. You know. We talked a little bit

727
00:38:35,520 --> 00:38:39,680
Speaker 1: earlier about how, you know, spreads stay narrow, they bump around,

728
00:38:39,680 --> 00:38:43,200
Speaker 1: and then suddenly something will affect them. They jump a lot.

729
00:38:44,360 --> 00:38:47,000
Speaker 1: How concerned are you at this point that the election

730
00:38:47,480 --> 00:38:50,239
Speaker 1: will cause some volatility event that might close down the

731
00:38:50,239 --> 00:38:51,040
Speaker 1: primary markets.

732
00:38:52,960 --> 00:38:56,960
Speaker 4: I rarely worry, and I'll use some Donald Rumsfield analogies here.

733
00:38:57,000 --> 00:39:01,880
Speaker 4: I really worry about no unknowns, the non unknowns. By definition,

734
00:39:01,960 --> 00:39:04,040
Speaker 4: there has to be some quantum of that no, no

735
00:39:04,239 --> 00:39:06,640
Speaker 4: nun that's in the press. And that's why kind of

736
00:39:06,640 --> 00:39:09,840
Speaker 4: I mentioned earlier. The event that will cause spreads to

737
00:39:09,880 --> 00:39:11,479
Speaker 4: move wider from here will be something that we won't

738
00:39:11,480 --> 00:39:13,560
Speaker 4: be able to guess, because when we look around the

739
00:39:13,560 --> 00:39:15,359
Speaker 4: world and survey all the risks that are out there,

740
00:39:15,719 --> 00:39:17,640
Speaker 4: as we talk about them and we talk about elections,

741
00:39:17,640 --> 00:39:19,720
Speaker 4: we talk about the Middle East, we talk about Russia, Ukraine,

742
00:39:19,880 --> 00:39:22,919
Speaker 4: we talk about French government, we talk about any things

743
00:39:22,920 --> 00:39:26,240
Speaker 4: that are out there that are topical. By definition, they're known,

744
00:39:26,400 --> 00:39:28,960
Speaker 4: but they're unknown, and therefore there's some quantum that's in

745
00:39:28,960 --> 00:39:32,720
Speaker 4: the press. I don't think an election in the US

746
00:39:33,719 --> 00:39:37,520
Speaker 4: has the capacity to create a cessation of activity in

747
00:39:37,560 --> 00:39:42,600
Speaker 4: capital markets. Now, obviously there's three scenarios. There's a clear

748
00:39:42,640 --> 00:39:45,479
Speaker 4: winner that's blue, a clear winner that's red, or there's

749
00:39:45,480 --> 00:39:48,719
Speaker 4: something in the middle that then becomes contested. And the

750
00:39:48,760 --> 00:39:53,680
Speaker 4: amount of time that we have a contested election outcome

751
00:39:54,200 --> 00:39:58,320
Speaker 4: does have the capacity I think to slow down liquidity.

752
00:39:58,360 --> 00:40:03,239
Speaker 4: Formation think just means that there's lower volumes of activity.

753
00:40:03,840 --> 00:40:06,759
Speaker 4: I don't think it necessarily means that there is a

754
00:40:07,400 --> 00:40:13,560
Speaker 4: material weakening in valuations, a material widening in credit spreads.

755
00:40:13,880 --> 00:40:15,239
Speaker 4: I don't think there's going to be much in the

756
00:40:15,239 --> 00:40:18,959
Speaker 4: way of issuance that takes place in that period, because

757
00:40:18,960 --> 00:40:22,720
Speaker 4: the market will be looking for clarity, and that generally

758
00:40:22,760 --> 00:40:26,759
Speaker 4: kind of will create a cessation of activity that may

759
00:40:26,840 --> 00:40:29,760
Speaker 4: last kind of a few days, maybe a couple of weeks,

760
00:40:30,120 --> 00:40:33,759
Speaker 4: But I don't think that it's going to be shutting

761
00:40:33,840 --> 00:40:38,520
Speaker 4: down capital markets overall. Might just kind of keep create

762
00:40:38,560 --> 00:40:41,160
Speaker 4: a little bit of a temporary slow down, and by definition,

763
00:40:41,960 --> 00:40:44,560
Speaker 4: again a lot of the issuance that we're seeing is

764
00:40:44,600 --> 00:40:48,600
Speaker 4: because nobody is expecting to have to go to market

765
00:40:49,080 --> 00:40:53,600
Speaker 4: in that narrow window between election day and Thanksgiving. And

766
00:40:53,640 --> 00:40:57,120
Speaker 4: so if we do have a contestant election and we

767
00:40:57,200 --> 00:41:01,000
Speaker 4: do have illiquidity, we will have issuers sitting there saying,

768
00:41:01,520 --> 00:41:03,440
Speaker 4: largest wait, and.

769
00:41:03,400 --> 00:41:05,160
Speaker 1: That doesn't really matter becau they've done so much already,

770
00:41:05,200 --> 00:41:07,279
Speaker 1: they're prepared for this, They're ready to go.

771
00:41:07,760 --> 00:41:09,040
Speaker 3: I believe that is indeed the case.

772
00:41:09,080 --> 00:41:13,080
Speaker 4: And by the way, it would not surprise me at

773
00:41:13,120 --> 00:41:16,919
Speaker 4: all even if we do get to a scenario where

774
00:41:16,920 --> 00:41:19,960
Speaker 4: it is contested, and even where we are concerned that

775
00:41:20,000 --> 00:41:22,319
Speaker 4: we don't know which way the outcome is going to go.

776
00:41:22,880 --> 00:41:24,759
Speaker 3: It wouldn't surprise me if there's some deals that come

777
00:41:24,920 --> 00:41:28,440
Speaker 3: and price and they do just fine because the demand,

778
00:41:28,760 --> 00:41:29,960
Speaker 3: because I think people will.

779
00:41:29,840 --> 00:41:32,440
Speaker 4: Just say, Okay, I get it, like, we don't know

780
00:41:32,440 --> 00:41:34,200
Speaker 4: exactly where things are going to go, but at the

781
00:41:34,239 --> 00:41:38,000
Speaker 4: same time, I will put a price on risk in

782
00:41:38,040 --> 00:41:41,080
Speaker 4: the capital markets. I'm not really worried about it, because

783
00:41:41,120 --> 00:41:42,880
Speaker 4: it was certainly going to figure it out in the

784
00:41:42,880 --> 00:41:44,319
Speaker 4: next kind of a couple of weeks or so which

785
00:41:44,360 --> 00:41:47,359
Speaker 4: way the country is heading. And so there'll be people

786
00:41:47,400 --> 00:41:49,920
Speaker 4: that will put price on risk in that period.

787
00:41:49,680 --> 00:41:53,839
Speaker 1: Right, Okay. One of my favorite questions to ask underwriters

788
00:41:53,960 --> 00:41:57,759
Speaker 1: is about league tables, and underwriters often tell me they

789
00:41:57,760 --> 00:41:59,759
Speaker 1: don't care about league tables. But then you know, you

790
00:42:00,239 --> 00:42:01,520
Speaker 1: to the guy at the top of the bank and

791
00:42:01,520 --> 00:42:03,680
Speaker 1: they say, actually, we need to be number you know, one,

792
00:42:03,719 --> 00:42:06,239
Speaker 1: two or three to be relevant in these markets. I'm

793
00:42:06,239 --> 00:42:08,560
Speaker 1: just wondering. You know your view of this. Obviously your

794
00:42:08,880 --> 00:42:12,160
Speaker 1: substantial participant in all markets, but where do you have

795
00:42:12,239 --> 00:42:15,000
Speaker 1: to be? And you know how important is a ranking

796
00:42:15,080 --> 00:42:15,319
Speaker 1: to you?

797
00:42:16,080 --> 00:42:20,520
Speaker 4: So when we put out in our first investeday, pre COVID,

798
00:42:21,840 --> 00:42:25,879
Speaker 4: we actually issued KPIs for a bunch of our league

799
00:42:25,920 --> 00:42:29,320
Speaker 4: table businesses, including my business, and we have a KPI

800
00:42:29,719 --> 00:42:33,800
Speaker 4: that we look at a combination of dollar in euro

801
00:42:34,040 --> 00:42:38,319
Speaker 4: underwriting and we exclude obviously self led financings because that's

802
00:42:38,440 --> 00:42:41,360
Speaker 4: not relevant and we want to be number four in

803
00:42:41,360 --> 00:42:46,160
Speaker 4: that business. It's a business where we know that the

804
00:42:46,239 --> 00:42:48,200
Speaker 4: big three commercial banks in the US are going to

805
00:42:48,239 --> 00:42:51,120
Speaker 4: have bigger balance sheets and bigger lending extension than we are,

806
00:42:52,360 --> 00:42:57,160
Speaker 4: and given the size of our relative relationship lending books,

807
00:42:57,520 --> 00:43:00,360
Speaker 4: we're not trying to get into the top three. Obviously,

808
00:43:00,360 --> 00:43:03,799
Speaker 4: it would love it to happen. But realistically, that's a

809
00:43:03,840 --> 00:43:08,160
Speaker 4: bridge too far absent us materially changing the way that

810
00:43:08,200 --> 00:43:11,319
Speaker 4: we think about relationship lending. And so we target that

811
00:43:11,320 --> 00:43:14,560
Speaker 4: spot behind at number four, just behind the big three

812
00:43:14,680 --> 00:43:18,000
Speaker 4: commercial banks, and that's the KPI that we set ourselves

813
00:43:18,000 --> 00:43:22,960
Speaker 4: at Invested Day. And yeah, if people tell you that

814
00:43:22,960 --> 00:43:26,280
Speaker 4: they're not really focused on league tables, then I'm certainly

815
00:43:26,320 --> 00:43:28,879
Speaker 4: not part of that cohort because I know if I'm

816
00:43:28,920 --> 00:43:31,440
Speaker 4: ever not in that position where we want it to be,

817
00:43:31,680 --> 00:43:33,000
Speaker 4: I'm going to hear it from my bosses.

818
00:43:33,320 --> 00:43:35,799
Speaker 1: But do you care more about the volume league table,

819
00:43:35,840 --> 00:43:37,520
Speaker 1: the revenue league table? The wallets share?

820
00:43:37,760 --> 00:43:38,600
Speaker 3: I care about both?

821
00:43:38,920 --> 00:43:40,680
Speaker 1: Okay, so number four in both.

822
00:43:42,160 --> 00:43:44,759
Speaker 3: I care about both, okay.

823
00:43:45,040 --> 00:43:49,680
Speaker 2: Yeah, And to Johnny's credit, right, like I did try

824
00:43:49,719 --> 00:43:51,960
Speaker 2: to look and see sales doing and I think you

825
00:43:52,040 --> 00:43:54,520
Speaker 2: guys are executing on that, right, Yes we are. And

826
00:43:54,560 --> 00:43:56,680
Speaker 2: then I think I think, you know, financing is kind

827
00:43:56,680 --> 00:43:58,279
Speaker 2: of one of the one of the initiatives that right

828
00:43:58,360 --> 00:44:00,400
Speaker 2: Solomon had really talked about it, maybe even have to

829
00:44:00,719 --> 00:44:03,960
Speaker 2: become CEO and stuff like that. So you know, good, congrats,

830
00:44:04,080 --> 00:44:06,520
Speaker 2: I'm doing that, But big question.

831
00:44:06,520 --> 00:44:08,239
Speaker 3: I won't take congrats until we finished the end of

832
00:44:08,239 --> 00:44:09,319
Speaker 3: the year, but thank you.

833
00:44:11,040 --> 00:44:14,000
Speaker 2: All right, big question from the audience, right, I sent

834
00:44:14,080 --> 00:44:17,400
Speaker 2: out to my distribution list, any any questions for for

835
00:44:17,480 --> 00:44:18,799
Speaker 2: Johnny and you know, if you have any, and then

836
00:44:18,920 --> 00:44:20,759
Speaker 2: if we can get a studio drum roll, It was

837
00:44:21,880 --> 00:44:23,960
Speaker 2: all right, how do I get in on the bonds

838
00:44:24,000 --> 00:44:25,399
Speaker 2: and burgers? You know deal?

839
00:44:25,680 --> 00:44:27,719
Speaker 4: The bonds and burgers deal? You know kind of you

840
00:44:27,800 --> 00:44:30,160
Speaker 4: got to set it up, you guys, like know I

841
00:44:30,239 --> 00:44:32,640
Speaker 4: love to cook. If you ever kind of want to

842
00:44:32,640 --> 00:44:34,480
Speaker 4: do a show where I'm kind of showing you how

843
00:44:34,520 --> 00:44:36,759
Speaker 4: to make a good homemade burger and at the same time,

844
00:44:36,800 --> 00:44:39,040
Speaker 4: I'm talking about rates developments and kind of where I

845
00:44:39,080 --> 00:44:40,480
Speaker 4: think the corporate bond market is going to go.

846
00:44:41,000 --> 00:44:41,520
Speaker 3: I'm all in.

847
00:44:41,640 --> 00:44:43,759
Speaker 4: I mean, there'll be an audience of maybe kind of

848
00:44:43,760 --> 00:44:45,440
Speaker 4: ten or fifteen people that I think that will be

849
00:44:45,440 --> 00:44:47,640
Speaker 4: fascinated by that. But if you want to make it,

850
00:44:47,680 --> 00:44:48,160
Speaker 4: I'm down.

851
00:44:48,560 --> 00:44:51,720
Speaker 2: Got I got it sounds good And then uh, just James. Actually,

852
00:44:51,760 --> 00:44:55,800
Speaker 2: so I'm in the studio here with you know, athlete, athlete,

853
00:44:55,840 --> 00:44:59,719
Speaker 2: I guess chef and then also a running right right,

854
00:44:59,800 --> 00:45:01,480
Speaker 2: je You're doing the marathon for the first time.

855
00:45:01,560 --> 00:45:04,600
Speaker 1: So wow, but it's not as impressive as Johnny's powerlifting,

856
00:45:04,920 --> 00:45:06,040
Speaker 1: So we need to get back to that.

857
00:45:06,320 --> 00:45:07,560
Speaker 3: I don't know, that's impressive.

858
00:45:07,800 --> 00:45:10,120
Speaker 4: Anybody who can anyone who can do something that boring

859
00:45:10,160 --> 00:45:12,120
Speaker 4: for that long, I will tell you it is really impressive.

860
00:45:12,400 --> 00:45:14,319
Speaker 4: I don't I don't have the I don't have the

861
00:45:14,360 --> 00:45:17,799
Speaker 4: mental capacity to do something quite as enduring as that.

862
00:45:18,080 --> 00:45:21,520
Speaker 1: I listened to podcasts on the way. But getting back

863
00:45:21,560 --> 00:45:24,160
Speaker 1: to the things, you know, you mentioned known unknowns and

864
00:45:24,480 --> 00:45:28,080
Speaker 1: this don Donald rum Feldian way of responding, Are there

865
00:45:28,120 --> 00:45:31,000
Speaker 1: any known knowns you are particularly worried about? You know

866
00:45:31,040 --> 00:45:32,720
Speaker 1: what keeps you up at night worrying about?

867
00:45:32,760 --> 00:45:32,960
Speaker 3: You know?

868
00:45:33,000 --> 00:45:36,000
Speaker 1: The state of credit markets, which we have discussed are

869
00:45:36,120 --> 00:45:39,080
Speaker 1: very very tight, and we're heading into some potentially very

870
00:45:39,160 --> 00:45:41,000
Speaker 1: volatile events, anything that concerns you.

871
00:45:41,480 --> 00:45:44,560
Speaker 4: So my concern, it was a concern I kind of

872
00:45:44,560 --> 00:45:49,040
Speaker 4: had May June time, kind of went away July August

873
00:45:49,080 --> 00:45:52,840
Speaker 4: when it looked like the economic activity was certainly softening.

874
00:45:52,880 --> 00:45:54,920
Speaker 4: Albeit I think that was somewhat of a forced flag.

875
00:45:56,280 --> 00:45:59,680
Speaker 4: That concern, which I have now probably more intently, is

876
00:45:59,719 --> 00:46:04,080
Speaker 4: that this may be a far from traditional rate cutting cycle,

877
00:46:05,280 --> 00:46:07,319
Speaker 4: rate cutting cycles that get us back to kind of

878
00:46:07,320 --> 00:46:10,080
Speaker 4: a neutral rate, which some people might say, is three

879
00:46:10,120 --> 00:46:13,920
Speaker 4: to three in a quarter right now, at which point

880
00:46:13,960 --> 00:46:17,120
Speaker 4: then we reassess economic activity and move forward from there.

881
00:46:17,920 --> 00:46:20,160
Speaker 3: I think this may be a far from traditional cutting cycle.

882
00:46:20,760 --> 00:46:22,920
Speaker 4: We may get another one or two cuts for the

883
00:46:22,960 --> 00:46:25,879
Speaker 4: remainder of this year, we may get one or two

884
00:46:25,920 --> 00:46:28,359
Speaker 4: cuts in the first half of next year.

885
00:46:29,239 --> 00:46:30,799
Speaker 3: But I think that the.

886
00:46:30,760 --> 00:46:33,560
Speaker 4: Thing I'm really kind of focused on and concerned about

887
00:46:34,360 --> 00:46:40,359
Speaker 4: is that if inflation stops moving towards target, as we've

888
00:46:40,400 --> 00:46:44,080
Speaker 4: taken our foot off the gas, sorry, as we're putting

889
00:46:44,080 --> 00:46:45,759
Speaker 4: our foot on the gas a little bit from a

890
00:46:45,800 --> 00:46:48,800
Speaker 4: monetary policy perspective, then I'm going to put the brakes

891
00:46:48,800 --> 00:46:51,240
Speaker 4: back on pretty quickly. And then all of a sudden,

892
00:46:52,000 --> 00:46:54,480
Speaker 4: the market's thinking that three and a quarter three and

893
00:46:54,480 --> 00:46:57,480
Speaker 4: a half is where the FED stop. They might repress

894
00:46:57,560 --> 00:47:00,080
Speaker 4: that to four to four and a quarter percent, and

895
00:47:00,080 --> 00:47:01,640
Speaker 4: then all of a sudden, that's going to take tenure

896
00:47:01,719 --> 00:47:04,880
Speaker 4: yields out to five percent. And then that's before we

897
00:47:04,920 --> 00:47:08,240
Speaker 4: even start thinking about term premium, which has been largely

898
00:47:08,280 --> 00:47:12,600
Speaker 4: absent this year because the market's been much less focused

899
00:47:12,640 --> 00:47:17,919
Speaker 4: on treasury financing requirement. There's been much less, much less

900
00:47:17,920 --> 00:47:19,719
Speaker 4: focused on auctions and.

901
00:47:19,760 --> 00:47:21,879
Speaker 3: Tails, etc. Because it has been a big deal.

902
00:47:22,640 --> 00:47:25,560
Speaker 4: As we wind things forward into next year, I think

903
00:47:25,600 --> 00:47:28,600
Speaker 4: both of those things could intersect and the yield curve

904
00:47:28,600 --> 00:47:31,399
Speaker 4: could look quite different. So there's anything that I'm worried about,

905
00:47:31,440 --> 00:47:31,920
Speaker 4: it's that.

906
00:47:32,400 --> 00:47:34,920
Speaker 1: Could any of that affect credit fundamentals in IG I

907
00:47:34,960 --> 00:47:37,080
Speaker 1: mean the assumption noise is that this is a solid market.

908
00:47:37,160 --> 00:47:39,680
Speaker 1: Earning is the good. The economy's strung, and then you know,

909
00:47:39,719 --> 00:47:41,920
Speaker 1: if you push people very hard, they'll say, well, actually

910
00:47:42,360 --> 00:47:44,200
Speaker 1: there's a FED backstop as well, so you'll be fine

911
00:47:44,239 --> 00:47:46,799
Speaker 1: whatever happens. Do you think there's any worry that that

912
00:47:46,920 --> 00:47:48,840
Speaker 1: you know there could be downgrades? There could be I

913
00:47:48,880 --> 00:47:51,440
Speaker 1: mean we're talking about a big potential fallen angel in

914
00:47:51,480 --> 00:47:53,239
Speaker 1: Boeing right now, But are there any kind of things

915
00:47:53,280 --> 00:47:55,880
Speaker 1: on the horizon that could push credit quality down in

916
00:47:55,880 --> 00:47:56,960
Speaker 1: an investment grade?

917
00:47:57,200 --> 00:47:58,600
Speaker 3: I mean that scenario.

918
00:47:59,160 --> 00:48:01,360
Speaker 4: I mean, if it's copper with a weak thing of

919
00:48:01,360 --> 00:48:03,719
Speaker 4: economic activity, then yeah. I mean if earnings are coming

920
00:48:03,760 --> 00:48:08,239
Speaker 4: down in that scenario, then that's the negative outcome for

921
00:48:08,280 --> 00:48:11,160
Speaker 4: the US. I describe all of that are low probability.

922
00:48:11,160 --> 00:48:12,600
Speaker 4: I think that's kind of like a ten to fifteen

923
00:48:12,719 --> 00:48:19,480
Speaker 4: percent type probability. Beyond that, the longer that rates remain

924
00:48:19,600 --> 00:48:24,000
Speaker 4: more elevated, the more relevant the interest expense becomes on

925
00:48:24,040 --> 00:48:27,480
Speaker 4: the cash flow statement. Obviously, rates have been elevated for

926
00:48:27,680 --> 00:48:30,960
Speaker 4: several years, there's been an assumption that that's been temporary,

927
00:48:31,320 --> 00:48:33,160
Speaker 4: or there's been an assumption that the levels that we've

928
00:48:33,360 --> 00:48:36,399
Speaker 4: migrated to on average over the course of the last

929
00:48:36,440 --> 00:48:39,200
Speaker 4: six months might be the ones that are around for

930
00:48:39,280 --> 00:48:42,120
Speaker 4: a longer period of time. If that resets another hundred

931
00:48:42,120 --> 00:48:46,280
Speaker 4: basis points higher, then that's going to start to impact

932
00:48:46,320 --> 00:48:49,920
Speaker 4: some financing costs, refinancing costs, interest expense, and so on.

933
00:48:50,000 --> 00:48:53,320
Speaker 4: It will take some time for that to bleed through. Similarly,

934
00:48:53,320 --> 00:48:55,200
Speaker 4: by the way, on the consumer balance sheet as well

935
00:48:55,239 --> 00:48:59,640
Speaker 4: as mortgages get refinanced at higher yields. But those are

936
00:48:59,680 --> 00:49:00,800
Speaker 4: things that I think about.

937
00:49:01,520 --> 00:49:04,719
Speaker 1: Great stuff, Johnny Fine, Global head of investment grade Debt

938
00:49:04,760 --> 00:49:06,920
Speaker 1: at Goldman Sachs. Thank you very much for coming on

939
00:49:06,920 --> 00:49:07,480
Speaker 1: the credit edge.

940
00:49:07,480 --> 00:49:09,200
Speaker 3: It's been a pleasure. Thank you for having me.

941
00:49:09,480 --> 00:49:11,480
Speaker 1: And to Nold Cocuda with Bloomberg Intelligence, thank you so

942
00:49:11,560 --> 00:49:14,239
Speaker 1: much for joining us today. Had a great time freed

943
00:49:14,320 --> 00:49:16,160
Speaker 1: More Analysis. Read all of Ronold's great work on the

944
00:49:16,200 --> 00:49:19,920
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945
00:49:20,160 --> 00:49:23,280
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952
00:49:41,880 --> 00:49:46,360
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953
00:49:46,400 --> 00:49:48,319
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954
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Speaker 1: week on the Credit Edge