Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Right now,
Speaker 1: I want to dig a little bit into the distressed
Speaker 1: debt market. George Schultz is chief executive officer of Schultz
Speaker 1: Asset Management, which oversees about two million dollars and is
Speaker 1: based in Purchase, New York. And George, you know, when
Speaker 1: I talked to distressed debt investors, a lot of them
Speaker 1: are tearing their hair out because the size of the
Speaker 1: distressed debt market is shrunk to about the smallest since
Speaker 1: right before the financial crisis, and it seems like there
Speaker 1: just isn't enough to stress to go around. Are you trying?
Speaker 1: Are you tear in your hair out? What's left of
Speaker 1: it that I've already corned most of it out? But alright, then,
Speaker 1: are there any opportunities right now? There are? There are,
Speaker 1: There are a lot of opportunities, especially in the energy market.
Speaker 1: A lot of companies in the oil and gas space
Speaker 1: and in the coal industry have defaulted in the past
Speaker 1: eighteen months, and many of them have emerged now. So
Speaker 1: there are a lot of post reor equities trading as
Speaker 1: we call them, companies that have restructured, gone through a
Speaker 1: reorganization event and now trade as post reord equities, but
Speaker 1: many of them aren't that well known. UM. Interestingly, many
Speaker 1: of them are very cheap, but they're not in the
Speaker 1: form of debt anymore. They're they're mostly trading as equities now.
Speaker 1: Sure one is Energy twenty one, a company that's interesting
Speaker 1: UH and much cheaper. There's another one, Sampson Resources that
Speaker 1: that was formerly one of the largest natural gas leverage
Speaker 1: bios ever restructured, came out of bankruptcy last year. There's
Speaker 1: a lot of smaller ones, a lot of them aren't
Speaker 1: that well known. And then there are some companies in
Speaker 1: other industries that trade as UH post distress equities as well,
Speaker 1: like for example, came out of restructuring several years ago,
Speaker 1: and there's an interesting news with that today with a
Speaker 1: potential Chinese investor looking to buy the company. Another one,
Speaker 1: Hawaiian Telcom, which is a telecommunications company that restructured several
Speaker 1: years ago and was recently sold to Cincinnati Bell at
Speaker 1: a nice premium. And a third one also in a
Speaker 1: different industry, Tropicana, which is a casino company that's been
Speaker 1: that was restructured several years ago. UM had been trading
Speaker 1: as post distress equity and most recently benefited from a
Speaker 1: huge stock buy back. So there's plenty going on, it's
Speaker 1: just not in the form of distress debt UM. It's
Speaker 1: more post distress equities these days, although I would imagine
Speaker 1: it you have a lot of competition because it seems
Speaker 1: like investors are fighting for any scrap of an opportunity
Speaker 1: they can find, just because of the incredibly high valuations
Speaker 1: and public liquid markets right now. Have you found that
Speaker 1: there is a lot of competition here or are these
Speaker 1: opportunities too small and too speculative to really attract the
Speaker 1: big money. I think they're too small for the big money.
Speaker 1: A lot of the competition recently has been people pumping
Speaker 1: money into big name ets and index funds UM and,
Speaker 1: and there's also been a lot of chasing of returns
Speaker 1: in the sixth income market. Now we're clearly in a
Speaker 1: market where UH there's monetary tightening that's starting. UM interest
Speaker 1: rates are still at very low levels, but we expect
Speaker 1: them to rise. And now coming into the fall, it
Speaker 1: looks like the SAID will be starting to reverse. It's
Speaker 1: it's quantitative using program, and with that we expect six
Speaker 1: income securities to trade off. So we think the best
Speaker 1: opportunity right now is in equities, but but not in
Speaker 1: blindly throwing money at et s and the largest companies
Speaker 1: like Google and Facebook and Microsoft. Rather, I think it's
Speaker 1: going to pay more to work as an active manager
Speaker 1: and look for specific opportunities. And yes, sometimes they're smaller companies,
Speaker 1: but the but the valuation there makes it worthwhile to
Speaker 1: to focus there. How have you changed your mix of
Speaker 1: investments to more heavily weight equities versus debt? I mean,
Speaker 1: you're you completely out of your debt investments in preparation
Speaker 1: for some kind of market disruption in the wake of
Speaker 1: the end of QI or the beginning of the unwine.
Speaker 1: I don't want to make it sound so dramatic, since
Speaker 1: they want to put us to sleep with this unwined. Yeah,
Speaker 1: we we have a decent amount of cash on the
Speaker 1: sidelines ourselves right now. UM typically over a cycle, we
Speaker 1: will our portfolios will evolve from being more heavily weighted
Speaker 1: to distress debt when the default rate is high and
Speaker 1: when the opportunities are plentiful too, when the default rate
Speaker 1: drops and is expected to climb again, to focus more
Speaker 1: on the equity side. So right now we're much more
Speaker 1: focused on the equity side. I expect that going forward
Speaker 1: as the faults start to rise again with with higher
Speaker 1: interest rates, that's where we'll be shorting more equities and
Speaker 1: eventually growing our fixed income book again. But right now
Speaker 1: we're much more focused on equities and and and they
Speaker 1: tend to be event driven because usually when equities traded
Speaker 1: very cheap levels, good things happened to those companies over time,
Speaker 1: and that's what we've seen recently with a few names
Speaker 1: I mentioned earlier. Energy twenty one and Samson Resources caught
Speaker 1: my attention in particular because I remember back in two thousand,
Speaker 1: fourteen and two fifteen, these were just decimated. I mean,
Speaker 1: it was sort of watching a sort of train wreck
Speaker 1: in front of your eyes when you looked at the
Speaker 1: debt prices of these particular companies during that time. I'm
Speaker 1: sure they did go into bankruptcy, how much is your
Speaker 1: wager on their out of bankruptcy equity? How much does
Speaker 1: it depend on oil prices staying where they are or
Speaker 1: going higher. Well, these are commodity companies and they definitely
Speaker 1: are dependent on a good stable price of either natural
Speaker 1: gas or oil depending on the company. But interestingly, for
Speaker 1: those two companies, they benefit from having left behind massive
Speaker 1: amount of debt when they're restructured. For Sampson, I think
Speaker 1: it left behind about six billion of of of debt
Speaker 1: in its restructuring and now there there's there's post re
Speaker 1: or equity, but it is private. It doesn't trade uh
Speaker 1: in too liquid of a fashion. Energy twenty one is
Speaker 1: also a little bit less liquid. That company I believe
Speaker 1: left behind about three billion in debt and other liabilities.
Speaker 1: So the good news with commodity companies when their restructure
Speaker 1: is yes, you're still dependent on a healthy commodity market,
Speaker 1: but fortunately the balance sheet can be much cleaner, and
Speaker 1: you basically get a fresh a fresh star at a
Speaker 1: new lease on life. That you think about it um
Speaker 1: and if you have a little luck over the longer
Speaker 1: term with commodities, you should do well. Another interesting sector
Speaker 1: is the coal space. In the coal industry, there have
Speaker 1: been just practically every major coal company in the US
Speaker 1: filed for bankruptcy in the past twenty four months and
Speaker 1: then came out. So companies like arch Coal and Peabody Energy,
Speaker 1: we're trading at extremely cheap prices. And the the interesting
Speaker 1: thing in the coal market is that there are several
Speaker 1: types of coal, not just steam coal, which gets burned
Speaker 1: to generate electricity, but also metallurgical coal, which is used
Speaker 1: in making steal um, and that market has recovered quite nicely.
Speaker 1: So a number of the coal companies are trading at
Speaker 1: very cheap valuations through their equities as well, and that's
Speaker 1: another area of focus for US lately. George, just in
Speaker 1: thirty seconds when you were talking about your preference for
Speaker 1: equities to bonds, it sounds like you think, I think
Speaker 1: that equities can keep rallying even if benchmark rates sell off.
Speaker 1: Thirty seconds. Why, yeah, Again, it's it's not at a
Speaker 1: high level. It's not you know, the biggest of the
Speaker 1: big names. It's not the SMP in general. It's more
Speaker 1: individual companies that are trading at extremely cheap prices. Again,
Speaker 1: you know, good things tend to happen the cheap companies
Speaker 1: over time when they're so cheap because their their distress
Speaker 1: and nobody wants to have anything to do with them.
Speaker 1: That's usually when you find some bargains. George Schultz, thank
Speaker 1: you so much for joining us. Truly, uh fascinating to
Speaker 1: dig into some of these specific names that hold probably
Speaker 1: more promised than broad indices at these incredibly high valuations.
Speaker 1: George Schultz is chief executive officer of Schultz Asset Management,
Speaker 1: which oversees about two hundred million dollars and is based
Speaker 1: in Purchase, New York. Herbal life it is the story
Speaker 1: that just keeps on giving. Met Townsends is here in
Speaker 1: the Bloomberg eleven three our studios. Met Townsend is a
Speaker 1: global business reporter for Bloomberg News. And I know that.
Speaker 1: And all of a sudden, you saw the shares surging
Speaker 1: this morning. You just got this excitement in you in
Speaker 1: pre market, you know, you're shaking your head back. It's back.
Speaker 1: You get to talk about it to get what's going on.
Speaker 1: So so this has to do with Carl I can.
Speaker 1: Of course, herbal life was brought into our consciousness when
Speaker 1: there was a spat between Bill Ackman and Carl Icon
Speaker 1: over at Acman very in a high profile manner departed
Speaker 1: from the company. Now we have carl Icon remaining. Why
Speaker 1: are the shares surging so much this morning? So the
Speaker 1: company came out and said that they are going to
Speaker 1: do a tender offer to buy back roughly six million
Speaker 1: dollars worth of shares um at sixty eight bucks. So
Speaker 1: the stock basically has been trading up towards sixty eight dollars.
Speaker 1: And they also said that they were in buyout talks
Speaker 1: or preliminary biot talks with someone which they didn't name,
Speaker 1: which we're trying to figure out that to think the
Speaker 1: company public. And they had been in talks roughly since November,
Speaker 1: and these talks ended roughly last week. And so the
Speaker 1: company take the company private. Yes, take the company private,
Speaker 1: and which is something that Icon was rumored to be
Speaker 1: looking at as well. Um, So that news kind of
Speaker 1: creates this idea that, oh, maybe this will happen eventually,
Speaker 1: a company will like a private equity firm, will take
Speaker 1: a private another reason for the shares to go up, okay.
Speaker 1: And then there also was this agreement that carl Icon, Yes,
Speaker 1: I agreed to back off, right, so I kind of
Speaker 1: agreed not to buy any shares for two years and
Speaker 1: sort of let this this process play out of their
Speaker 1: sort of strategy and how they're going forward. Um again, Icon,
Speaker 1: biggest shareholder of Verbal Life, has five representatives on the
Speaker 1: Third Team member board, so he's heavily invested in this
Speaker 1: company doing well. Um and you know this is a
Speaker 1: fight that goes back. Actman first short of the stock
Speaker 1: or publicly announced his his short in uh the end
Speaker 1: of two thousand and twelve, so we're four plus years
Speaker 1: now into this. Shortly after Acman disclosed his short, Icon
Speaker 1: came out as a bull on the stock, bought a
Speaker 1: big steak, and they've had this public They've had a
Speaker 1: couple of public sparring matches going back and forth over
Speaker 1: the years. Obviously, Wall Streets loved all this drama. And
Speaker 1: here we are. So so Herbal Life is a company
Speaker 1: that is under this FTC order. This is kind of
Speaker 1: this convoluted story. So into down sixty and the FTC
Speaker 1: came out after an investigation and said, Herbal Life, we
Speaker 1: don't like some parts of your business in the US.
Speaker 1: You need to change there. In the process of doing that,
Speaker 1: Actmin is still n in their belief that this will
Speaker 1: eventually hurt the company and in the stockwell decline. Well,
Speaker 1: right now, I'm looking at Herbal Life shares that are
Speaker 1: up more than fort so far this year. So uh,
Speaker 1: Acman got out probably rightly so at least based on
Speaker 1: this year's performance when it came to betting against this company.
Speaker 1: Met Towns, and thank you so much for joining us,
Speaker 1: Matt town saying, global business reporter for Bloomberg News. And
Speaker 1: speaking of Carl Icon, he resigned from his special regulatory
Speaker 1: advisory role to President Trump. Tendered his letter of resignation
Speaker 1: on Friday. Sort of odd letter. I want to bring
Speaker 1: in Mario Parker. He's agricultural reporter for Bloomberg News in
Speaker 1: our Chicago bureau. And uh, Mario, can you just tell
Speaker 1: us a little bit about why Carl Icon, a billionaire investor,
Speaker 1: resigned from this position and what this position was? Sure? Absolutely, Lisa,
Speaker 1: so Uh. Carl Icon was named special advisor on regulations
Speaker 1: to President Trump. Um uh a little over a month
Speaker 1: um or so after Trump's victory in November. He was
Speaker 1: an early endorser of President Trump's campaign. Um. Someone that's
Speaker 1: President Trump name checked quite a bit on the stop um,
Speaker 1: particularly about his business acumen, etcetera. And so what was
Speaker 1: happening during the same time was that Icon is a
Speaker 1: major owner of an independent oil refiner, CVR Energy, and
Speaker 1: CVR Energy, among with a select few of other refiners,
Speaker 1: had been pushing for changes to UH the US ethanol
Speaker 1: mandate UM, saying that the cost to comply with the
Speaker 1: program were too onerous, and so Icon had become kind
Speaker 1: of the public face of this campaign as well, UH
Speaker 1: really kind of pushing the Environmental Protection Agency to UM
Speaker 1: to make these changes UM. After President Trump assumed office
Speaker 1: and after again UM Mr Icon's UM designation or appointment
Speaker 1: as a special regulatory Advisor, there was increased scrutiny about
Speaker 1: whether or not he would be using that position to
Speaker 1: kind of influence UM that change that he had been
Speaker 1: advocating for H for the better part of the the
Speaker 1: last year. And UH was there any evidence that this
Speaker 1: increased rutiny and potential legal jeopardy. As a New Yorker
Speaker 1: article kind of put it right after UH Carl Icon
Speaker 1: resigned from the board, that this was the reason for
Speaker 1: his resignation. Well, the letter that Mr Icon sent UM
Speaker 1: sent to President Trump on Friday, you know, referring to
Speaker 1: this departure, he specifically mentioned that he only spoke about
Speaker 1: broad matters of policy affecting the refining industry. UM and
Speaker 1: that UM, you know, he shared, you know, his limited
Speaker 1: knowledge about certain insights with uncertain subjects. But what we
Speaker 1: know and what are reporting has shown. Uh, both myself
Speaker 1: and our colleague Jen de Louis and Washington was that UM.
Speaker 1: Earlier this year, Mr Icon was trying to broke her
Speaker 1: a deal between the administration and the biofuels lobby. What
Speaker 1: happened once that that news broke UM, it had an
Speaker 1: impact on different markets ranging from corn to crude oil
Speaker 1: to gasoline UM out of concern or speculation that Mr
Speaker 1: Icon would prevail in this rule he was trying to
Speaker 1: get changed. Essentially, the rule he was trying to get
Speaker 1: changed would move the owners from refiners like the one
Speaker 1: that he owns closer to the customer UM that that
Speaker 1: delivers the gas, the gas and ethanol to two gasoline stations. Yeah.
Speaker 1: And you guys did some great reporting on how much
Speaker 1: money he made off of just market speculation that the
Speaker 1: rule would be changed. Uh. And his letter is fascinating
Speaker 1: and very odd, and I recommend everybody read it. UH.
Speaker 1: Sort of him resigning from a non job where he
Speaker 1: did nothing, but it's not illegal and he's resigning. Well.
Speaker 1: For a number of years we heard quite a bit
Speaker 1: about pure to pure lending. It was going to completely
Speaker 1: disrupt the big financial firms in the industry. Then there
Speaker 1: was some skepticism. Now we're kind of getting to this
Speaker 1: new equilibrium where big banks are trying to incorporate more
Speaker 1: peer to peer type technology into their day to day routines.
Speaker 1: Here to join us is Jared Hecked. He's CEO and
Speaker 1: co founder of Fundera, which is based in New York
Speaker 1: and is an online lender specifically trying to hook up
Speaker 1: businesses with people that have money, whether it's banks, or
Speaker 1: whether it's hedge funds, or whether it's you name it. Jared,
Speaker 1: can you give me a sense of how many transactions
Speaker 1: your platform has been facilitating of late? Uh, it's about
Speaker 1: three years old, right, Yeah, so we're first off, thanks
Speaker 1: for having me, Lisa. Um. So we're around three years old.
Speaker 1: To date, we've done close to half a billion dollars
Speaker 1: in volume through our platform, servicing around eight thousand different
Speaker 1: small business owners. Uh, and currently around twenty five million
Speaker 1: dollars a month is facilitated through our platform. So what's
Speaker 1: the model. Here, a business wants to get a loan,
Speaker 1: how do you come into the picture here. Yeah, So,
Speaker 1: generally speaking, a small business owner has a problem or
Speaker 1: an opportunity, and they think that some form of credit
Speaker 1: can be a viable solution for that. UM they'll do
Speaker 1: a search for something like small business loans or line
Speaker 1: of credit in in search of actually educating themselves on
Speaker 1: what they're eligible for, and they'll they'll stumble on fundera UM.
Speaker 1: We then provide business owners an immense amount of education
Speaker 1: and literature about the different types of products that are
Speaker 1: accessible to business owners and the different types of lenders
Speaker 1: that actually service them. We also provide them what we
Speaker 1: call a common application, so it's a very easy way
Speaker 1: for a business owner to enter in a bit of information,
Speaker 1: provide a little bit of documentation. We then verify some
Speaker 1: of that information and determine which lenders and products in
Speaker 1: our network they're actually eligible for. Those products spanned from
Speaker 1: things like business credit cards that would be provided by
Speaker 1: the American Expresses, Capital, wand and Chases of the world
Speaker 1: old to online loans and lines of credit that are
Speaker 1: provided by companies like Lending Club, on Deck, Cabbage, and
Speaker 1: Swift Capital. So This is something more than just peer
Speaker 1: to peer lending or even pure lending. This is more
Speaker 1: like being an online business advisor, some kind of combination
Speaker 1: between a robo advisor and UH an online platform to
Speaker 1: hook you up with lending. That's exactly right, with the
Speaker 1: core focus on, you know, advisory services and education and
Speaker 1: then the matchmaking and taking a lot of the cumbersome
Speaker 1: issues and applying for a loan and uncertainty out of
Speaker 1: that process. How do you make money? We make money.
Speaker 1: Every time alone is offered and accepted on our platform,
Speaker 1: a lender or an issuer will pay us what is
Speaker 1: essentially the equivalent of a referral fate. And that's largely
Speaker 1: done because we're stripping out a lot of marketing costs
Speaker 1: and operational costs from their system because we really take
Speaker 1: care of all the search for the business owner and
Speaker 1: the packaging process as well. It sounds like kind of
Speaker 1: the business model for some of the middle get lenders,
Speaker 1: of which there are many, and I imagine that the
Speaker 1: competition is pretty fierce. Is that right? Yeah? I think
Speaker 1: the business model is similar to some of the companies
Speaker 1: on the consumer end, like credit Karma or potentially nerd
Speaker 1: wallet UM where We're really focused on orienting a potential
Speaker 1: borrower around what's actually out there for them. UM. But
Speaker 1: the competition, to your point, is fierce, right, there's a
Speaker 1: lot of people that are trying to get in front
Speaker 1: of small business owners. We just take I think, a
Speaker 1: very deliberate and focused approach that's not about selling a
Speaker 1: business owner, but more of oriented around educating a business owner.
Speaker 1: So what types of businesses have used your platform? Who
Speaker 1: runs the gamut? I'd say the most popular industries are
Speaker 1: somewhat conventional mainstream businesses, whether those are retail shops or restaurants.
Speaker 1: We do a lot of work with independent consultants and
Speaker 1: contractors as well. They might be veterinarians or doctor's offices.
Speaker 1: I think the thing that we've learned is that no
Speaker 1: too small business owners are alike, so we really try
Speaker 1: and provide a comprehensive solution to all the business owners
Speaker 1: that are out there. Interesting, and you said that you
Speaker 1: did raise a twenty million dollars equity financing UM, And
Speaker 1: I'm wondering whether you put any of your own money
Speaker 1: up or is it purely in operations that you have
Speaker 1: to continue as far as having the educational resources and
Speaker 1: arranging all of the connecting lenders to the platform. So
Speaker 1: did I put any of my own personal money? Now?
Speaker 1: I mean, like on an ongoing basis, is there the
Speaker 1: company's money capital up in the platform. We don't lend
Speaker 1: a single dollar. We think that that's really important because
Speaker 1: it enables us to maintain a high degree of objectivity.
Speaker 1: Um the second we start lending capital, all of our
Speaker 1: lender partners would generally believe that we're trying to actually
Speaker 1: be the primary lender of record. And I also think
Speaker 1: it biases us in a way that's unfavorable to the
Speaker 1: business owner because then our intentions may not be quite clear.
Speaker 1: We're really there to help find them the best product
Speaker 1: and lender for their needs. You know, one thing that
Speaker 1: a lot of big banks have complained about is that
Speaker 1: the demand for loans, specifically among size and smaller businesses
Speaker 1: just isn't there. That people aren't investing in UH, in
Speaker 1: their infrastructure or their businesses. Do you find the same thing, Well,
Speaker 1: we're not really talking about mid market loans here at Fondera,
Speaker 1: you know, generally speaking, or the average sized loan that
Speaker 1: a customer wants to our platform is around sixty dollars.
Speaker 1: We don't see any slowdown demand or appetite for business
Speaker 1: owners who are looking for working capital to invest in
Speaker 1: their growth. And what about due diligence? What kind of
Speaker 1: due diligence is there on the system on the platform
Speaker 1: UM SO, I think it's two fold. We do due
Speaker 1: diligence on every single small business owner that comes to
Speaker 1: FUNDERA and starts to submit an application. We work with
Speaker 1: third party credit bureaus and a bunch of third party
Speaker 1: data providers to make sure that the business is real
Speaker 1: UM and that's really done so that we're making sure
Speaker 1: that the business owner has to do as little work
Speaker 1: as possible, and it's a high quality service for our
Speaker 1: lender partners so they know that the information that they're
Speaker 1: getting is real inbedded. And then we also do due
Speaker 1: diligence in regards to the types of lenders that we
Speaker 1: work with. Since we're providing us service to a business owner,
Speaker 1: we want to make sure that the lenders that are
Speaker 1: on our platform are high integrity, you know, technology enabled
Speaker 1: lenders that are going to provide a great service with
Speaker 1: competitive and compelling rates out there. Where do you think
Speaker 1: the peer to peer industry is heading right now? UM
Speaker 1: that's a great question. I think that in the peer
Speaker 1: to peer industry or just online lending, non bank lending,
Speaker 1: I think what we're seeing is the bigger lenders are
Speaker 1: becoming more stable and increasingly big overtime, and I think
Speaker 1: that we're seeing a hyper competitive market for the smaller
Speaker 1: players where it makes them very difficult for them to
Speaker 1: actually get traction and prove that they're sustainable, viable businesses. So,
Speaker 1: like most markets, as they mature, the bigger players are
Speaker 1: getting bigger and becoming increasingly viable and stronger in the market.
Speaker 1: Jared hec thank you so much for joining me. Thank you.
Speaker 1: It's a fascinating time for online lending and uh, frankly
Speaker 1: online advising and kind of margically two is really interesting.
Speaker 1: Jared Hect is chief executive officer and co founder of Fondero,
Speaker 1: which is based in New York and has been around
Speaker 1: since two thousand fourteen. Well, starting at the beginning of
Speaker 1: next year, a new regime of regulations will go into
Speaker 1: effect in Europe that potentially could vastly change the way
Speaker 1: that European investment managers consume research. But the changes may
Speaker 1: be more profound than that. Here to talk about that
Speaker 1: is Sarah Jones, UK finance reporter for Bloomberg News, coming
Speaker 1: to us from our London bureau. Sarah, can you give
Speaker 1: us just a sense, a very quick brief overview of
Speaker 1: what these MITED regulations are and what some of the
Speaker 1: big concerns are about its implementation at this point? Hid
Speaker 1: there sure? The I mean I can see outsets regulators.
Speaker 1: What regulators are trying to do is make the system
Speaker 1: more transparent and make individual industry players, whether it be
Speaker 1: asset managers or the sales side, more accountable us to
Speaker 1: how money has been invested in how you know client
Speaker 1: what clients are actually paying for. So it's starting off
Speaker 1: to make more transparent, make it safer. But of course
Speaker 1: see consequence of that as is you start to enforce
Speaker 1: some of this regulation and starts become more prescriptive. Is
Speaker 1: you start to get these other unintended effects. Um So,
Speaker 1: you know, an obvious one is job losses within the
Speaker 1: research part. But it's not just research. That's I mean,
Speaker 1: research is more controversial part of the of the new rules,
Speaker 1: but it's it's it's it's going to affect everything from
Speaker 1: creating volumes to um to you know, how how many
Speaker 1: funds were sold by a distributor on the continent. It's
Speaker 1: very far reaching, and then those consequences aren't yet known yet.
Speaker 1: Talking about the implementation of this rule, my understanding is
Speaker 1: that a lot of investment firms are quite behind under
Speaker 1: the implementation. Is there any chance that, I don't know,
Speaker 1: people might get a bit of a extra cushion of
Speaker 1: time to implement this or do you expect a rush
Speaker 1: of changes to happen in the next few months. Well,
Speaker 1: I think all firms, whether it's self side to buy side,
Speaker 1: aiming to be compliant. But I think given the vast
Speaker 1: impact it's going to have, I think regulators are going
Speaker 1: to give a sort of a buffer period. I mean,
Speaker 1: certainly in research for example. UM I think the UK
Speaker 1: regulator at least has said, well, you don't have to
Speaker 1: determine prices for the next you know, you've got three
Speaker 1: months before you figure out exactly how you're going to
Speaker 1: price for research, which has it's been a good because
Speaker 1: at this stage and I'll be really, I mean everybody
Speaker 1: is still keeping their cards quite close to their chest.
Speaker 1: So that's one example. I mean, as for others, UM,
Speaker 1: I think it's it's it's going to be a work
Speaker 1: in progress. Sarah, you were talking about potential slowdowns in trade.
Speaker 1: Can you talk about can you sort of walk us
Speaker 1: through how that would transpire and what in the regulations
Speaker 1: would lead to that outcome. So this particular reporting was
Speaker 1: done by our London based regulator reporter Celebrush. So, I mean,
Speaker 1: I didn't do the number crunchy on this, but the
Speaker 1: gist of what his report was about was very conflicting
Speaker 1: rules between let's say the US and the UK, and
Speaker 1: it sees rules and around how you trade that that
Speaker 1: could potentially um have an impact. Now how long that
Speaker 1: impact will last? I mean, I'm sure you know it's
Speaker 1: the dust settle, it all go back to normal, but
Speaker 1: it could be quite disruptive um and so much so
Speaker 1: that some of the lobby groups are coming out and
Speaker 1: begging that, you know, they could delay these regulations as
Speaker 1: it pertains to say derivatives trading until after the regime
Speaker 1: sort of sorry, the regulators between individual companies that of
Speaker 1: reconcile because at the moment they're rather conflicting and and
Speaker 1: so and hence the confusion. I mean, these are question
Speaker 1: marks and whether that you know, it might be it
Speaker 1: might be just it might be settled before January. But
Speaker 1: it's only five months out, so you have to wonder
Speaker 1: how how how quickly they're going to resolve this problem,
Speaker 1: you know, sir, I have to wonder, we've already seen
Speaker 1: thousands of cuts from research departments across street over the
Speaker 1: past number of years. Have all of the sort of
Speaker 1: job productions been baked in because these regulations are no secret? Yeah? Quite,
Speaker 1: I don't think so. Um as this. I think every
Speaker 1: analyst still has a job as it stands now. I
Speaker 1: haven't heard of any you know, job cuts and analysts,
Speaker 1: you know, certainly this year. Um. I mean, I'm sure
Speaker 1: there have been. Maybe people are starting to sort of
Speaker 1: read the you know, the writings on the wall and
Speaker 1: do other things. McKinsey put McKinsey put out a decent report.
Speaker 1: So it's quite interesting that since the crisis, you know,
Speaker 1: in sales and and and sales trading, you know, you've
Speaker 1: seen the head counts drop by something like what is
Speaker 1: it forty in sales and trading, and for research it's
Speaker 1: sort of a cash equity research we're talking about. This
Speaker 1: is not even including credit research. It's fallen by just
Speaker 1: twelve percent since twenty eleven, So, you know, and next
Speaker 1: coupled with the with the the data that they expect,
Speaker 1: you know, investment spending in research for investment banks to
Speaker 1: sort of dropped by thirty So I mean, I mean,
Speaker 1: you know, I don't there's any hard numbers about how
Speaker 1: many how many job losses there will be, but I
Speaker 1: think less demand for research surely that's going to mean
Speaker 1: less demand for analysts. Yeah. Well, one thing that I've
Speaker 1: heard when I've talked to people about this is that
Speaker 1: they're expecting the top banks to continue with their staff.
Speaker 1: In other words, the Bank of America is the GP
Speaker 1: Morgans of the world. Uh, it's the sort of mid
Speaker 1: tier banks that are probably going to suffer the biggest
Speaker 1: job losses because you're going to have sort of nothing
Speaker 1: between the top tier research shops and the sort of
Speaker 1: niche specialists that could potentially charge less because they've got
Speaker 1: lower overhead. And then the middle is what's going to
Speaker 1: get really crunched. Um. And so I've seen that yet exactly.
Speaker 1: So it's the sort of barbel between you know, the
Speaker 1: bold brackets and sort of the bespoke specialist housing houses
Speaker 1: rather and so what happens in the middle, I guess
Speaker 1: the conversations that I was having in Again, this is
Speaker 1: all anecdotal as yet because its actually happen. There's no
Speaker 1: hearten of us data yet. Um, if you're not ranked
Speaker 1: in the top I mean as the managers are going
Speaker 1: through a moment of okay, well how do how do
Speaker 1: we've your research? And we have to be more discerning.
Speaker 1: So if you're not ranked in the top three or
Speaker 1: four and you it happened to fall out of it
Speaker 1: in five seven, you know, why would you keep paying
Speaker 1: for that research? It's expensive? So and that's yeah, Thank
Speaker 1: you so much and I'm sure that we will continue
Speaker 1: to follow this. Sarah Jones, UK finance reporter with Bloomberg News,
Speaker 1: coming to us from London. Thank you so much. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. You can always catch us
Speaker 1: worldwide on Bloomberg Radio.