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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Now.

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Speaker 1: The International Monetary Fund has caught its global growth forecast,

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Speaker 1: warning that the expansion scene in recent years is losing momentum.

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Speaker 1: That contributing to the slowdown, The organization site did increased

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Speaker 1: trade tensions, political flashpoints, including a new deal breaks it well.

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Speaker 1: The i m F Managing director Kissing joins us. Now,

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Speaker 1: we've been talking about this interview all day. Tom and

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Speaker 1: I have been like fighting over what we ask you,

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Speaker 1: because you're really the high even maybe we push it

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Speaker 1: to an hour and a half. But then, my guard

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Speaker 1: when you look at the risks of a recession, if

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Speaker 1: there are risks to a recession, where would they stand from?

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Speaker 1: Is it China? Is it the US? Is it Brexit

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Speaker 1: in Europe? Okay, today our forecast is three point five

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Speaker 1: three point six next year. And if you ask me,

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Speaker 1: do you see a recession? I said no? Okay, So

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Speaker 1: if there was to be a materialization of the risks

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Speaker 1: that we see on the horizon. And the point is

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Speaker 1: that this horizon is getting a little bit closer to

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Speaker 1: what we had back in October. That's the reason why

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Speaker 1: we slightly revised our growth forecast. If those risks were

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Speaker 1: to materialize, then it's a different story. And you asked

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Speaker 1: me which one of the risks I rank higher, I

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Speaker 1: would say that the trade tension, if unresolved and if

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Speaker 1: associated with the big question mark, would be my number

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Speaker 1: one risk. I think Brexit uncertainty and the big question

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Speaker 1: mark yet again that we have on how it's going

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Speaker 1: to be resolved is the time frame, what is the

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Speaker 1: after divorce situation? I would put that as number two,

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Speaker 1: but with probably um major impact on the UK, impact

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Speaker 1: on the European Union, systemic risk risks if the financial

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Speaker 1: sector is not addressed um and then I would have,

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Speaker 1: as a sort of subset of that first risk, in

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Speaker 1: other words, trade tensions continuing to increase, I would have

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Speaker 1: an accelerated moderation of growth in China. If you clear

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Speaker 1: those starts where that's French schooling for you, m my

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Speaker 1: den la guard. When you look at China, how can

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Speaker 1: we be so sure that it's not trade. I mean

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Speaker 1: it's not you know that is its trade and not

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Speaker 1: a more significant structural slowdown that would be much harder

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Speaker 1: to deal with, you know, I would I would call

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Speaker 1: your attention to one fact. Although we have downgraded our forecast,

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Speaker 1: the two countries that we have not downgraded are the

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Speaker 1: US and China. So that was partly anticipated number one,

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Speaker 1: and it was part lee remedied number two remedied in

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Speaker 1: the US because of the tax corporate the corporate tax,

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Speaker 1: a major reform that has taken place and that has

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Speaker 1: helped fuel additional growth, new jobs, and all the rest

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Speaker 1: of it anticipated by China with similar s measures that

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Speaker 1: were taken taken in the last few months to compensate

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Speaker 1: both the trade threat impact as well as the credit shrinking,

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Speaker 1: which was welcome, necessary and hopefully will continue a bit.

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Speaker 1: I want to go back to your public service in

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Speaker 1: France and to Steve Bannon on the early Trump years

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Speaker 1: and his homage to French fascism of nineteen o five nineteen.

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Speaker 1: Of course, all of that going over to Hitler and

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Speaker 1: Mussolini and another far more troubled time in your blue book,

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Speaker 1: your green book, your fistcal book as well there's no

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Speaker 1: discussion of the new populism and his rise of the

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Speaker 1: far right and elements or shades of fascism. What can

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Speaker 1: your institution do to push again this new populism and

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Speaker 1: someone is just a new ugly populism. I think what

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Speaker 1: we have done and we need to continue to do

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Speaker 1: and probably be more vocal about it, is the study

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Speaker 1: of inequalities, excessive inequalities, impacts of inequalities on growth. And

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Speaker 1: we started that, you know, I began talking about it

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Speaker 1: four years ago. I said, watch out inequalities of doing

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Speaker 1: claim speech in New York and you went right after Washington.

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Speaker 1: And we need to, you know, be vocal about that,

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Speaker 1: and we need, I think, to articulate the measures that

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Speaker 1: can be taken in order to resist this acceleration of inequalities,

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Speaker 1: both in terms of wealth and in terms of income.

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Speaker 1: And they are good sound tags and fiscal measures that

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Speaker 1: can be taken in order to address those issues. Added

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Speaker 1: to that, Tom, I think it's not just a fiscal

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Speaker 1: financial coming, and I think it has lots of other

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Speaker 1: roots ramifications, amongst which I would put cultural disenfranchisement. I

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Speaker 1: would put the threat of technologies and how it's going

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Speaker 1: to take my job, displace me somewhere, and the malaise

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Speaker 1: that people feel. As stated, so many people fear that

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Speaker 1: we're in right now. Then the critical question, and a

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Speaker 1: delicate question for you in your position, is the experience

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Speaker 1: of America, the Trump experience and other populous movements. Can

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Speaker 1: they be at one off where we go back easily

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Speaker 1: to some kind of normalcy or do a leads to

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Speaker 1: leaders have to do something immediate so we get back

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Speaker 1: to normalcy? Is it a one off? We believe that

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Speaker 1: policies have to be taken to address the root causes

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Speaker 1: of what has precipitated those movements. What I mean by

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Speaker 1: that is address excessive inequalities, address the issues of I

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Speaker 1: feel out of my job. The machines are taking over.

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Speaker 1: Artificial intelligence much talked about here in Douvles, is going

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Speaker 1: to um emasculate my brain and my capacity to deal

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Speaker 1: with my destiny. All these issues have to be addressed

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Speaker 1: as well. They're not all of an economic nature, but

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Speaker 1: they have to be addressed because otherwise it's very easy

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Speaker 1: to instill fear, to raise ants, and then anything can go.

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Speaker 1: And I'd like to ask you actually how you deal

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Speaker 1: with that though? Is a tax redistribution. How do you

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Speaker 1: make it more more equal? Is there one country that

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Speaker 1: does it better than others that everyone else could learn from? Well,

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Speaker 1: there are many countries, but each country is going to

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Speaker 1: have to deal with it specifically because some countries are

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Speaker 1: prone to um creating opportunities raising the level of education

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Speaker 1: and health for people to actually aspire to a better future,

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Speaker 1: better jobs, better training. Other countries deal with it with

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Speaker 1: a different tax system. What we're seeing on you know

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Speaker 1: more and more is actually you know, less income going

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Speaker 1: to labor and more income going to capital. At the

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Speaker 1: same time, we see less taxation of capital income than

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Speaker 1: off labor income. So you have a confluence of those

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Speaker 1: factors which need to be looked at because if we

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Speaker 1: want to address some of them big frustrations around there

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Speaker 1: that that is part of the of the remedies. Yes, again,

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Speaker 1: they also want to ask you about Brexit. Do we

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Speaker 1: understand the ramifications of a possible no deal Brexit? Is

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Speaker 1: it a systemic issues it is? How concerning is it

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Speaker 1: for for the UK but also the Europe. What we

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Speaker 1: know is that whatever the outcome, whether it's a no deal,

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Speaker 1: whether it's a Alan Norway, whether it's a custom unions

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Speaker 1: with appropriate adjustment for the Irish border, whether it will

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Speaker 1: not be as good as what it is now. In

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Speaker 1: other words, there will be additional frictions, there will be

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Speaker 1: additional bureaucracy. Is there will be more um slow lane

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Speaker 1: for the traffic coming from Europe to the UK and

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Speaker 1: vice versa. So none of it will be better, but

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Speaker 1: some of the solutions will will be a lot worse.

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Speaker 1: And I think the whole business community here if you

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Speaker 1: talk to them and us from our analytical work, we

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Speaker 1: all agree that a no deal is you know, having

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Speaker 1: very negative effect. We are trying to model and for

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Speaker 1: what it's worth, we're looking at, you know, eight less

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Speaker 1: g d P. In the medium to long term for

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Speaker 1: the UK economy, it will shrink. That's what we see.

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Speaker 1: And that's only at the macro level. If you look

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Speaker 1: at the micro level. You talk to the automobile manufacturers,

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Speaker 1: you talk to the airline industry, you talk to the

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Speaker 1: pharmaceutical industries, you talk to the food retailers of the UK.

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Speaker 1: They will all tell you it's it's it's terrible. We

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Speaker 1: do not know how to deal with it. So it's

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Speaker 1: it's clearly of systemic importance for the UK and it's

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Speaker 1: also having consequences for the EU systemic or not. That

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Speaker 1: will depend on, you know, how in particular the financial

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Speaker 1: sector and its activities are dealt with, how much you

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Speaker 1: know reconciliation there will be between the two systems, who

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Speaker 1: would be allowed to do what and what the licensing

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Speaker 1: system will be. I want to bring it back to

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Speaker 1: the idea of we've all got to get back together.

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Speaker 1: It's a wonderful thing to talk about. It's a lot

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Speaker 1: harder to do. You are the voice of a transatlantic

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Speaker 1: world of follow on too, when that seemed to be

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Speaker 1: an easier process. The President flew to Paris World War

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Speaker 1: One remembrances and couldn't get in a car to go

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Speaker 1: out and see where many many Marines died bravely in

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Speaker 1: World War One. How do we get back the transatlantic

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Speaker 1: conversation that is so shattered right now? I hope we

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Speaker 1: can get back that transatlantic conversation and dialogue and joint

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Speaker 1: approach to some of the critical to take a work.

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Speaker 1: Can we do it in a peaceful manner? I very

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Speaker 1: much hope that we learned from history and that what

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Speaker 1: has happened in the past we'll actually teach us that

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Speaker 1: together collectively, cooperatively, not all of us being exactly on

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Speaker 1: the same page, can actually address those issues. It was

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Speaker 1: Churchill who said, better chat chat than world war, and

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Speaker 1: that's what needs to happen. We are even more so today.

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Speaker 1: We are facing the same issues ranging from pandemics to terrorism,

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Speaker 1: from cybersecurity to a financial market stability. We have to

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Speaker 1: address that together. One final question others talk people, do

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Speaker 1: you did you hired a wonderful new director of economic

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Speaker 1: research to your team. What is going to be the

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Speaker 1: new spirit of the I m of for going forward

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Speaker 1: in your economic research with Geta UM. I think Geta

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Speaker 1: will bring her her energy, her intellect, her youth, her

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Speaker 1: determination to look at all issues, including the processes of

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Speaker 1: putting things together, process putting things together, some of the

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Speaker 1: traditional institutional views that we've had for a long time.

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Speaker 1: And I don't think she's going to look at it

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Speaker 1: with an ideological background at all. She is a researcher,

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Speaker 1: She is a very honest person. She will look at data, impact,

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Speaker 1: collateral damage and so on and so forth. And and

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Speaker 1: I very much welcomed that, but I thanks so much

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Speaker 1: for joining us. That was the IMF Managing Director, Christina

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Speaker 1: gad Brian moynahan joining me the Bank of America. See

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Speaker 1: when he joins me on Bloomberg TV. They I want

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Speaker 1: to take the opportunity to welcome in our listeners on

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Speaker 1: Bloomberg Radio as well data with the World Economic Forum

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Speaker 1: in Davil, Switzerland. Very pleased to say the man at

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Speaker 1: the top of Bank of America, It's gonna stick with

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Speaker 1: me for a little while as well. I want to

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Speaker 1: talk about your business and the way investors perceive your

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Speaker 1: business to be working. Right now, a lot of people

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Speaker 1: look at the yield curve and say that this is

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Speaker 1: going to damage bank profitability. What's interesting for me is

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Speaker 1: that then an interest mountain at Bank for America's continue

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Speaker 1: to go up at a time when the yield curve

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Speaker 1: has continued to narrow. Are we looking at the wrong thing? Brian? Well,

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Speaker 1: people people look at banking and get all involved in

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Speaker 1: rate movements at a time time you have to step

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Speaker 1: back and think about what it is we we provide

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Speaker 1: service to clients. They give us their cash for transactional

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Speaker 1: whether companies, whether whether a wealthy individuals and general individuals,

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Speaker 1: and we have a trillon for that. And so what

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Speaker 1: the business model is that we give great services for

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Speaker 1: that care, and therefore people give it to us in

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Speaker 1: industry accounts and checking accounts and low interest accounts because

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Speaker 1: they're getting six in ATMs, four thousand branches, call centers,

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Speaker 1: million UH mobile users, certain five millions. So all those

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Speaker 1: services come together. And so I think people the confusion

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Speaker 1: about the rate cycles because it was so abnormal. We

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Speaker 1: had to we had to recoup a bit of profitability

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Speaker 1: because we are subsidizing, and now we're back in a

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Speaker 1: more normal, closer normal staff status. So I think that

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Speaker 1: you know, our job is to drive more loans, more

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Speaker 1: deposits that will produce more net interest market is that

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Speaker 1: another web saying that you can keep the deposit bits

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Speaker 1: are really low because you offer so many services around

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Speaker 1: the checking accounts. It's it is what the accounts are.

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Speaker 1: They are zero just checking accounts. What beta can be

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Speaker 1: on half Our consumer checking accounts are zero intertaking Beyond that,

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Speaker 1: I'm looking across all the accounts of banks. But the

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Speaker 1: dominant value banking has driven off the transaction accounts low

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Speaker 1: and and so that's what we drive and that's what

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Speaker 1: we grow. So are checking balances and consumer group temper

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Speaker 1: ten percent excuse me twenty billion dollars year over year

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Speaker 1: gross numbers. That's that's a strong growth phrase about in

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Speaker 1: in seven cent or something like that. And so that

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Speaker 1: drives a lot of value at a little cost, not

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Speaker 1: because it's because of service sup providing, And that's that's

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Speaker 1: the business one and the corporate size the same thing.

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Speaker 1: And your cash management deposits. So we can keep driving

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Speaker 1: a profitabilities company in a stable rate and environment. It

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Speaker 1: just it will will be driven by volumes, more loans,

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Speaker 1: more deposits. If the economy is moving along and going

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Speaker 1: at two everything. I think it's look good for you

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Speaker 1: guys right now. I was looking at the Bloomberg terminal

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Speaker 1: before you and I came up here twenty two biased

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Speaker 1: on a single cell on the stock. Overwhelmingly the enthusiasm

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Speaker 1: investors have for the financial sector seems to be there

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Speaker 1: on the surface. Then I can't reconcile record profitability with

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Speaker 1: your stock performance over the last year. Why do you

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Speaker 1: think some people are looking at your stock differently to

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Speaker 1: the way the bottom line looks at Bank for America.

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Speaker 1: The profits look good, the stock performance over the last

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Speaker 1: year less. So why largely industry get caught up in

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Speaker 1: the question? Can we grow runnings in the context of

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Speaker 1: a type economy slowing out, and that that's debate. We

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Speaker 1: can looking at fixed triding, thick trading has been tough.

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Speaker 1: A lot of people will come on a program with

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Speaker 1: me and say, what the bank's need is volatility. They

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Speaker 1: did that for a number of years. Then we've got

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Speaker 1: the volatility and the banks, many of them. And I'm

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Speaker 1: not including you in this, but the word I would

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Speaker 1: always hear is bad band folatility. What is band volatility?

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Speaker 1: We run If you look at our capital markets business

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Speaker 1: several last six seven years, you've had a range of

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Speaker 1: revenue from twelve point nine billion to thirteen point six

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Speaker 1: billion over like six or seven years. All the years,

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Speaker 1: all different environments they called different quarters, come out different ways.

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Speaker 1: We run that business in a way that Tom Montag

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Speaker 1: and the team and do a great job of taking

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Speaker 1: a right risk and just moving and we do in

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Speaker 1: support of our customer base, our issuing customer based companies

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Speaker 1: issue in debt and our investor customer based customer buying debt.

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Speaker 1: And then the equity business fab Gallant team have done

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Speaker 1: a good job and that's come up. So yeah, we

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Speaker 1: we made five hundred million bucks in capital markets after

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Speaker 1: tax in the fourth quarter nearly four billion dollars last year.

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Speaker 1: It's a great business. And so yeah, one quarter, actually

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Speaker 1: one months. It was a month in December wasn't too pretty,

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Speaker 1: but you know, you get back to January, people get

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Speaker 1: back to work and things start working through. I remember

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Speaker 1: catching up with Andrew ra Chow. He was at UBS

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Speaker 1: at the time, a couple of years ago, and it

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Speaker 1: was right before we got the first rate hike of

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Speaker 1: the Federal Reserve, and he was nervous that a lot

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Speaker 1: of his trading floor had never seen a tightening cycle

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Speaker 1: from the Fed. They've never experienced a big batter volatility,

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Speaker 1: and how would they be able to operate and generate

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Speaker 1: returns in that environment. Just that there's an argument to

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Speaker 1: make there that maybe some people are struggling with something

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Speaker 1: they've just never seen before because of the age, the

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Speaker 1: average age on the trading floor and our average ages

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Speaker 1: in the trading floor. You know, I don't know exactly

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Speaker 1: what it is, but the people in that trading floor,

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Speaker 1: the good news is a fair amount and went through

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Speaker 1: the crisis. They understand what to do, not to do,

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Speaker 1: and what risk to take and not to take. In

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Speaker 1: our risk manager practices. That's more important then you and

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Speaker 1: understand the rate cycle. So there is a nobody if

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Speaker 1: you think of the rate environment changed. You know at

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Speaker 1: the time of crisis, it's ten ten plus years. There's

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Speaker 1: a lot of people who are any better. The thirty

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Speaker 1: five has really probably never seen this kind of environment change.

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Speaker 1: But the reality is don't learn it quickly. Well, let's

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Speaker 1: talk about risk management. What's your approach the leverage lines

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Speaker 1: at the moment, really competitive space, a lot of people

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Speaker 1: aggressively chasing mandates. There was a signing Q three that

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Speaker 1: you guys were maybe taking less risk, maybe being less aggressive.

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Speaker 1: What's your view now? We we've always been consistent. We

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Speaker 1: haven't changed our risk one way the other way. So

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Speaker 1: we and we have a good, very good business that

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Speaker 1: it's one of our bigger, better businesses on the relative scale. Now,

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Speaker 1: a lot of that business went to other participants in

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Speaker 1: terms of back in the guidance by the occ and stuff,

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Speaker 1: but we really pretty much ducked her in any it's

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Speaker 1: a moving business. We underwrite for those issuers and send

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Speaker 1: healthy investors. That's our postures. So it locked up in

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Speaker 1: the fourth in December and it's not even October. Really

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Speaker 1: December and and so there's no deals done and we'll

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Speaker 1: get them done. Are optimistic in that space specifically for

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Speaker 1: the rest of the year because eighteen was huge going

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Speaker 1: right up towards the end of the year for supplying

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Speaker 1: for underwriting. It was a big boon for the banks

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Speaker 1: as well. Can we have another through nineteen in that space?

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Speaker 1: You know, we'll see it's going to be more high

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Speaker 1: the equity, you know, the participants and the deals and

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Speaker 1: things like that. But it's a it's a market we're in,

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Speaker 1: but we're we're in high grade. The nice thing about

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Speaker 1: our franchises with thirteen billion dollars of markets revenue attached

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Speaker 1: to ninety plus billion dollars is of real revenue from

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Speaker 1: all the other businesses is something someone will go right,

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Speaker 1: something will go wrong, But the idea is just keep

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Speaker 1: flowing through. So if leverage finance is not as strong

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Speaker 1: this year, high grade maybe better, uh FX may be better,

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Speaker 1: all those things playing it out, but the way you

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Speaker 1: played is to just keep serving our clients and moving them.

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Speaker 1: On the vice side, there's some nerves around the space

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Speaker 1: that leverage loans. If you were to have a dashboard,

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Speaker 1: what would you be looking for for certain risk of

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Speaker 1: materialized to to pair back risk to tell some of

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Speaker 1: it seems to be less aggressive on the mandates. My

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Speaker 1: point we don't change our risk posture, though, the is

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Speaker 1: we have risk parameters that we set from the board

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Speaker 1: to UH to the management, all the way down, all

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Speaker 1: the way down to the desk, all the way down

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Speaker 1: to the underwriting, and so we don't we don't take

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Speaker 1: We don't say, oh, let's decide to add more risk

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Speaker 1: today here, some trap more risks. We do more by

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Speaker 1: volume because there's just more activity. But the individual deals

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Speaker 1: and the way we think about underwriting is fairly consistent

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Speaker 1: because the end of the day, leave aside syndication market

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Speaker 1: bigger back in commercial lending, you know those credits are

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Speaker 1: going to live with you for multiple years, and so

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Speaker 1: what you're gonna do in nineteen first quarter will make

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Speaker 1: no difference in nineteen what you did in fifteen makes

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Speaker 1: a difference. And that's why you have to have consistent risk.

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Speaker 1: So final question for you, Brian, I think many of us,

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Speaker 1: and I don't know about yourself when I speak for

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Speaker 1: may have spent much of the last few months talking

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Speaker 1: about downside risk, and we just finished by talking about

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Speaker 1: upside risk, what's the big opportunity for you guys, for

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Speaker 1: our company just continued to drive responsible growth and and

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Speaker 1: and use these capabilities of three billion invest in technology

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Speaker 1: every year, the capabilities that come on, whether it's on

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Speaker 1: the consumer side WIS and wealth management, new digital capabilities

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Speaker 1: and wealth management UH or in a commercial space and

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Speaker 1: cash pro or cash manager price. It's just to drive

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Speaker 1: those products out there. And there's just set and we

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Speaker 1: have We are a big company, but we have small

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Speaker 1: market share, I mean in the relative sense, so we

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Speaker 1: in terms of absolute sense against against the markets, and

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Speaker 1: we have lots of market share to gain. And the

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Speaker 1: upside is just that our success might be better than

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Speaker 1: we project because the competency in ca abilities a team

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Speaker 1: and the and the tools are better for clients. Brunt

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Speaker 1: always great to get your inside the globe of economy

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Speaker 1: and of course on banking in America, bron Monhattan, Big

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Speaker 1: Bank America Chairman and see I thank you very much, Sack.

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Speaker 1: This is always a joy in any number of ways

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Speaker 1: to speak with Steve with Bank Capital, associated with a

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Speaker 1: small basketball team up in Boston as well, and truly

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Speaker 1: one of the most interesting guys in investment in America.

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Speaker 1: Wonderful to have you here today. And you know, like

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Speaker 1: Mrs Tom Brady or Mr Jasobncher whatever, he is a

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Speaker 1: slave for fashion here in Davos Valley Steve Canada Goose

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Speaker 1: and it's a newer coat and you're you're the brand

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Speaker 1: ambassador this year. That that'd be aderation. But I love

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Speaker 1: the company in the CEO, Danny Reece has done a

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Speaker 1: great job in our team him and it's now a

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Speaker 1: worldwide global company and it's fitting to wear this in Davos.

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Speaker 1: It's actually the first time I was ever warm a

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Speaker 1: Davos was when our wars cos. Very nice endorsement theory

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Speaker 1: as well. But I want you to explain your Pixie

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Speaker 1: does when you go into a company and you don't

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Speaker 1: tear management apart, you don't blow it up, You assist

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Speaker 1: them to a branding or revenue in an operating income success.

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Speaker 1: Give us an example with Canada Goose. Well, that's a

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Speaker 1: great question. Time I go all the way back to

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Speaker 1: the founding of Baining Capital. We were very unique at

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Speaker 1: it was still unique were unique at the time because

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Speaker 1: no other private equity venture capital shop spawned out of

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Speaker 1: a consulting firm. So the theory Bill Bain had was

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Speaker 1: you could take the consulting skills that were building companies

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Speaker 1: long term, buy them directly and work with managements as

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Speaker 1: a kind of a tool for management to help build

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Speaker 1: those companies. So that was thirty five years ago and

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Speaker 1: at the time no one thought that would work. It

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Speaker 1: took two years to raise thirty six million dollars. It's

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Speaker 1: laughable these days, but two years and I think only

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Speaker 1: one institution, one smart instution with Bessemer put money. The

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Speaker 1: fund come on my closet at home. John Farrell is

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Speaker 1: loaded with Canada Goose. And that's how did that. Let's

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Speaker 1: talk about what's changed changed Back then it was harder

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Speaker 1: to rise capital. It was easier to deploy it. Yeah,

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Speaker 1: it's easy to rise capital, it's how to deploy it.

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Speaker 1: So how do you deploy it right now? Well, it's

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Speaker 1: back back to Tom's story. What we've done in situations

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Speaker 1: numerous times through three years. Like Canada Goose. We first

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Speaker 1: met a great entrepreneur. He wanted to take the business global.

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Speaker 1: He was from from Canada and had been a great

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Speaker 1: business up there. We have a great retail consumer team

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Speaker 1: led by Josh Bekenstein and and Ryan Cotton, and we

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Speaker 1: laid out a vision on how we could help him

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Speaker 1: get global, how we could help him get into storefronts,

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Speaker 1: how we could help him with the supply chain, how

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Speaker 1: we could bring a retail playbook to make this be

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Speaker 1: a large global company. And he really liked that idea,

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Speaker 1: and so he kept a lot of the company and

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Speaker 1: we we bought about sixty percent of the company at

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Speaker 1: the time, and now the company is is a multi

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Speaker 1: billion dollar company in global. The plan has come to fruition.

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Speaker 1: He's still running the company. Yeah, it's so bad that

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Speaker 1: Bill has Canada. My dog has Candidams. Don't let's go

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Speaker 1: for a different dog. It was Canada pooches, copyright issues,

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Speaker 1: pick it up. The main few guys recently took at

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Speaker 1: universities red a state portfolio. A lot of people right

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Speaker 1: some eyebrows and thought, and we had a state portfolio.

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Speaker 1: Now this light in the cycle. Why it was a

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Speaker 1: great match. We had been looking to get into real

433
00:23:22,520 --> 00:23:24,520
Speaker 1: estate for probably thirty years. I was on a project

434
00:23:24,560 --> 00:23:26,200
Speaker 1: thirty years ago to look at it, and we never

435
00:23:26,200 --> 00:23:27,840
Speaker 1: thought it was the right time in the cycle because

436
00:23:27,840 --> 00:23:30,520
Speaker 1: it's it's going up and down. Harvard had an issue

437
00:23:30,520 --> 00:23:33,280
Speaker 1: where they decided they're going to outsource investment management, not

438
00:23:33,320 --> 00:23:35,680
Speaker 1: doing it internally. The Harvard Group had a very similar

439
00:23:35,680 --> 00:23:38,240
Speaker 1: philosophy that we have a bank capital really had value,

440
00:23:38,280 --> 00:23:41,040
Speaker 1: look for unique product line. So they group over there

441
00:23:41,040 --> 00:23:44,520
Speaker 1: was focusing on medical offices, focusing on the biotech industry.

442
00:23:44,800 --> 00:23:46,480
Speaker 1: We saw a lot of growth and profit in that

443
00:23:46,680 --> 00:23:49,280
Speaker 1: doing that selectively. Uh, they were only three miles down

444
00:23:49,320 --> 00:23:52,040
Speaker 1: the road, so this was a seamless transition. One day

445
00:23:52,040 --> 00:23:54,800
Speaker 1: they were at Harvard, all twenty people came came to

446
00:23:54,840 --> 00:23:57,800
Speaker 1: Bank Capital. We understand real estate. We have all companies

447
00:23:57,840 --> 00:24:00,119
Speaker 1: that need real estate, and that this knitche strategy we

448
00:24:00,200 --> 00:24:03,040
Speaker 1: felt could kind of power through the potential recessionary approach

449
00:24:03,040 --> 00:24:05,240
Speaker 1: in real estate. Final question for you stage, what are

450
00:24:05,240 --> 00:24:07,639
Speaker 1: you excited about deploying capital right now? Going back to

451
00:24:07,640 --> 00:24:10,040
Speaker 1: the earlier point that you can write capital great, but

452
00:24:10,080 --> 00:24:12,879
Speaker 1: deploying gets challenging. Where's the big opportunity right now for you?

453
00:24:12,880 --> 00:24:15,240
Speaker 1: What do you excited it about. Well, it's really challenging

454
00:24:15,320 --> 00:24:16,880
Speaker 1: right now since the markets have been at the top,

455
00:24:16,880 --> 00:24:18,720
Speaker 1: although we've seen a little bit come down the last

456
00:24:18,760 --> 00:24:21,680
Speaker 1: few months. But look, I've talked to you guys from

457
00:24:21,720 --> 00:24:25,120
Speaker 1: in the eighties and the nineties two thousands and every time,

458
00:24:25,680 --> 00:24:27,760
Speaker 1: literally in all those years, every question is too much

459
00:24:27,800 --> 00:24:30,119
Speaker 1: money changing too few deals. So what really has happened

460
00:24:30,160 --> 00:24:33,240
Speaker 1: globally is private equity has gone global. It's a model

461
00:24:33,280 --> 00:24:36,080
Speaker 1: that works. Certainly, the bank capital model with vertical markets

462
00:24:36,080 --> 00:24:38,280
Speaker 1: and helping management teams grow does work. You just got

463
00:24:38,280 --> 00:24:40,480
Speaker 1: to be selective this environment. Selective is the key now

464
00:24:40,520 --> 00:24:48,360
Speaker 1: for the tension of Davos. Rams are patriots absolutely patriots

465
00:24:48,240 --> 00:24:51,159
Speaker 1: of surveillance BREA exclusively. We're gonna get the headline across

466
00:24:51,200 --> 00:24:53,479
Speaker 1: the bottom of the screen that song and we can

467
00:24:53,480 --> 00:24:55,399
Speaker 1: get it. Has been has been a great It has

468
00:24:55,400 --> 00:24:57,119
Speaker 1: been a great twenty years to be here. We go.

469
00:24:57,240 --> 00:25:02,720
Speaker 1: This is this interview will be it's in the commercial

470
00:25:00,840 --> 00:25:06,399
Speaker 1: right to catch up with you from my staff Jonathan

471
00:25:06,400 --> 00:25:23,840
Speaker 1: Farrow and Selan Caine. It is ultimately about the markets

472
00:25:23,840 --> 00:25:26,720
Speaker 1: and the positioning of global Wall Street within those markets.

473
00:25:26,920 --> 00:25:29,400
Speaker 1: There's no one better to speak to than Scott Minor

474
00:25:29,480 --> 00:25:31,280
Speaker 1: of good and I'm of course joining us on our

475
00:25:31,680 --> 00:25:34,359
Speaker 1: FED days with more of a Wall Street perspective on

476
00:25:34,359 --> 00:25:36,639
Speaker 1: the FED. I wanna avoid the FED talk Scott. To

477
00:25:36,680 --> 00:25:40,080
Speaker 1: get started. Mr moynihan just darkened the door and talked

478
00:25:40,119 --> 00:25:43,720
Speaker 1: to John Farrell about banking forward. Let's take American Wall

479
00:25:43,760 --> 00:25:47,440
Speaker 1: Street right now. How bad will the cost rationalizations be?

480
00:25:47,640 --> 00:25:50,479
Speaker 1: Guys like you have to make tough decisions. Are they

481
00:25:50,520 --> 00:25:52,560
Speaker 1: going to be made in this quarter? I think so.

482
00:25:52,760 --> 00:25:56,240
Speaker 1: I think everybody sees the window open because we've had

483
00:25:56,280 --> 00:25:58,280
Speaker 1: the big people like black Rock come out and say

484
00:25:58,320 --> 00:26:01,359
Speaker 1: they're going to do staff reductions. So I think that

485
00:26:01,680 --> 00:26:03,879
Speaker 1: everybody in the industry sees their moment and they're going

486
00:26:03,920 --> 00:26:05,880
Speaker 1: to take advantage of How lean are you guys right

487
00:26:05,880 --> 00:26:08,760
Speaker 1: now into those cost cuts? I mean, is it is it?

488
00:26:08,800 --> 00:26:10,719
Speaker 1: There's divisions that can be moved out there, Is there

489
00:26:10,720 --> 00:26:13,120
Speaker 1: going to be micro cuts here and there? I think

490
00:26:13,160 --> 00:26:16,520
Speaker 1: that it's going to be more micro cuts strategic, you know,

491
00:26:16,760 --> 00:26:19,159
Speaker 1: or surgical. I mean you know that you know we

492
00:26:19,280 --> 00:26:22,320
Speaker 1: sold our E t F business last year, so you

493
00:26:22,359 --> 00:26:25,199
Speaker 1: know there's a bit of redundancy, but we're not going

494
00:26:25,240 --> 00:26:27,399
Speaker 1: to take it like some of the big guys. To Scott,

495
00:26:27,440 --> 00:26:28,800
Speaker 1: I want to talk about what you were doing in

496
00:26:28,800 --> 00:26:31,919
Speaker 1: the depths of December when things looked really ugly and

497
00:26:31,960 --> 00:26:34,960
Speaker 1: we saw some really gappy moves in places where maybe

498
00:26:35,080 --> 00:26:37,520
Speaker 1: you shouldn't be getting big moves like that, right What

499
00:26:37,560 --> 00:26:39,159
Speaker 1: did you guys do for a cook and high. It

500
00:26:39,240 --> 00:26:42,399
Speaker 1: was tough, John, because you know, you wanted to h

501
00:26:42,840 --> 00:26:46,879
Speaker 1: adjust the risk based upon the volatility, and unless you

502
00:26:46,960 --> 00:26:50,479
Speaker 1: were trading really liquid on the run stuff, you just

503
00:26:50,640 --> 00:26:54,280
Speaker 1: couldn't get good prices. Uh. You know, the bank loan

504
00:26:54,359 --> 00:26:57,440
Speaker 1: market would gap on very little supply. A couple of

505
00:26:57,480 --> 00:27:00,439
Speaker 1: million dollars of bank loans would move the price by

506
00:27:00,480 --> 00:27:04,520
Speaker 1: a point or two. The same thing in asset back securities.

507
00:27:04,880 --> 00:27:07,679
Speaker 1: I want to emphasize that the conversation that John and

508
00:27:07,760 --> 00:27:12,240
Speaker 1: Scott Miner having right now is really really important because

509
00:27:12,240 --> 00:27:15,320
Speaker 1: there's all the economic bladder in the reality. I'm gonna

510
00:27:15,320 --> 00:27:17,240
Speaker 1: promote your show in a moment, but but this is

511
00:27:17,280 --> 00:27:20,280
Speaker 1: really serious, folks. This is the reality. As you heard

512
00:27:20,359 --> 00:27:23,639
Speaker 1: Mr Miner there talks John about liquidity and you lose

513
00:27:23,680 --> 00:27:27,640
Speaker 1: a point and everything changes away from what GDP is doing.

514
00:27:27,960 --> 00:27:30,520
Speaker 1: But you know, it's really amazing anytime is to watch

515
00:27:30,720 --> 00:27:34,680
Speaker 1: in the wake of that less Fed meeting that how

516
00:27:34,840 --> 00:27:38,199
Speaker 1: crowded and congested the exit Scott, when people started to

517
00:27:38,240 --> 00:27:41,560
Speaker 1: move in that direction. It really is a warning sign

518
00:27:41,600 --> 00:27:44,840
Speaker 1: because when we get to a recession, it's gonna be tough. Scott,

519
00:27:44,840 --> 00:27:47,320
Speaker 1: you and I talk about things like leverage loans and

520
00:27:47,359 --> 00:27:50,639
Speaker 1: your ability to get m and out communicate to our listeners,

521
00:27:50,640 --> 00:27:53,320
Speaker 1: our audience of you is right now, how difficult it

522
00:27:53,400 --> 00:27:55,399
Speaker 1: is actually to trade loans? How long it takes to

523
00:27:55,480 --> 00:27:59,520
Speaker 1: actually close that trade? Well, I mean, on a good day,

524
00:27:59,560 --> 00:28:02,520
Speaker 1: you can ows it in two weeks, you know, typically weeks,

525
00:28:02,840 --> 00:28:06,080
Speaker 1: something delays it, so it'll take maybe three weeks, uh

526
00:28:06,400 --> 00:28:09,639
Speaker 1: even four weeks to clear alone. I mean that's a

527
00:28:09,680 --> 00:28:11,760
Speaker 1: real challenge when you get into some of these more

528
00:28:11,800 --> 00:28:15,840
Speaker 1: liquid products like e t f s, because the ets

529
00:28:15,920 --> 00:28:19,840
Speaker 1: provide you next day liquidity. So if you're trying to

530
00:28:20,000 --> 00:28:24,200
Speaker 1: liquidate loans and e t F to get out, uh

531
00:28:24,520 --> 00:28:26,679
Speaker 1: you and we did see it in the sell off,

532
00:28:26,800 --> 00:28:28,879
Speaker 1: you can start to see gaps of n A V

533
00:28:29,119 --> 00:28:32,320
Speaker 1: below the price. How is it different than what you

534
00:28:32,359 --> 00:28:34,959
Speaker 1: experienced in August of oh seven and into bear Sterns

535
00:28:34,960 --> 00:28:36,879
Speaker 1: and the rest of oh eight o nine? What was

536
00:28:37,000 --> 00:28:40,640
Speaker 1: unique this time versus what everyone remembers? Well, I mean

537
00:28:40,640 --> 00:28:43,120
Speaker 1: this time around, Tom, I think the E t F

538
00:28:43,240 --> 00:28:45,680
Speaker 1: market in the mutual fund market has become a much

539
00:28:45,720 --> 00:28:50,600
Speaker 1: bigger player in these more exotic than official player. Well

540
00:28:51,200 --> 00:28:55,720
Speaker 1: beneficial from the standpoint that uh one, it gave asset

541
00:28:55,760 --> 00:28:58,880
Speaker 1: manager and firms an opportunity to make more money to

542
00:28:59,520 --> 00:29:02,920
Speaker 1: It allows retail investors to get into a market that

543
00:29:03,080 --> 00:29:07,800
Speaker 1: is traditionally an institutional market. But having said that, given

544
00:29:07,800 --> 00:29:11,520
Speaker 1: the amount of money that is concentrated in some of

545
00:29:11,560 --> 00:29:14,360
Speaker 1: these more exotic fixed income products now that are in

546
00:29:14,480 --> 00:29:17,960
Speaker 1: mutual funds and ets to be hot there before, it's

547
00:29:18,160 --> 00:29:23,000
Speaker 1: making the volatility in these down drafts much more. Who's

548
00:29:23,000 --> 00:29:27,720
Speaker 1: holding the risk? That's a great question, not for surveillance,

549
00:29:27,720 --> 00:29:29,640
Speaker 1: that would be a correct question for the real yield.

550
00:29:29,720 --> 00:29:32,800
Speaker 1: You can see it with John Farrell Fridays. What did

551
00:29:32,800 --> 00:29:36,440
Speaker 1: you say the risk? Who that jar? I love that jargon.

552
00:29:36,480 --> 00:29:38,880
Speaker 1: That's great, Scott, Please held the risk? Well, I mean

553
00:29:39,320 --> 00:29:41,720
Speaker 1: it depends on how you define risk. If you look

554
00:29:41,760 --> 00:29:44,560
Speaker 1: at the leverage loan market, if you're an institutional player,

555
00:29:44,760 --> 00:29:47,600
Speaker 1: you're just going to ride this out. But if you're

556
00:29:47,680 --> 00:29:52,200
Speaker 1: someone who is trying to rebalance your portfolio, like a

557
00:29:52,720 --> 00:29:55,440
Speaker 1: retail investor. Somebody has a four oh one K plan

558
00:29:55,840 --> 00:29:57,680
Speaker 1: and you want to get out, you hold the risk

559
00:29:57,720 --> 00:29:59,840
Speaker 1: is critical. This goes back almost a reserve fund in

560
00:29:59,840 --> 00:30:02,920
Speaker 1: my market funds of thirty and forty years ago. Someone

561
00:30:02,920 --> 00:30:04,960
Speaker 1: who is going to have to heads outwards. Regulators, the

562
00:30:05,000 --> 00:30:06,840
Speaker 1: government's going to come in and say this is not

563
00:30:06,920 --> 00:30:10,280
Speaker 1: appropriate for retail. So how do we work through this? Well,

564
00:30:10,440 --> 00:30:12,960
Speaker 1: I think that the regulators need to take another look

565
00:30:12,960 --> 00:30:15,920
Speaker 1: at these products, not to get rid of them, but

566
00:30:16,040 --> 00:30:20,160
Speaker 1: to to try to get rid of the liquidity transformation

567
00:30:20,560 --> 00:30:23,520
Speaker 1: that's occurring of taking something that's a fairly a liquid

568
00:30:23,600 --> 00:30:26,920
Speaker 1: security and turning it into something that's highly liquid with

569
00:30:27,000 --> 00:30:29,360
Speaker 1: next day cash. So I want to know where we're

570
00:30:29,400 --> 00:30:31,800
Speaker 1: going in the leverage loan space and who's going to

571
00:30:31,880 --> 00:30:33,880
Speaker 1: get the buying pass out of speaker? Is it the

572
00:30:33,880 --> 00:30:35,520
Speaker 1: sale is still with the power. We've seen a lot

573
00:30:35,560 --> 00:30:38,720
Speaker 1: of these increasingly come to market covenant light. We've seen

574
00:30:38,800 --> 00:30:41,600
Speaker 1: the banks and this this space become very competitive, so

575
00:30:41,600 --> 00:30:44,680
Speaker 1: they're aggressively chasing a mandate. What does this look like

576
00:30:44,760 --> 00:30:46,920
Speaker 1: later this year? Is it does it become a bias market,

577
00:30:46,960 --> 00:30:48,880
Speaker 1: Do we start to get better covenants in some of

578
00:30:48,920 --> 00:30:51,000
Speaker 1: these deals, or does it get even worse? No, I

579
00:30:51,040 --> 00:30:53,440
Speaker 1: think it gets even worse. Shot when you look at

580
00:30:53,520 --> 00:30:56,480
Speaker 1: last year and you see the incremental issuance of new

581
00:30:56,560 --> 00:31:00,880
Speaker 1: leverage loans versus the incremental issuance of c l os,

582
00:31:01,920 --> 00:31:05,400
Speaker 1: they basically all the new incremental supply of loans and

583
00:31:05,480 --> 00:31:09,400
Speaker 1: went to clos Those people, in many cases have sold

584
00:31:09,400 --> 00:31:13,000
Speaker 1: the risk away. So all they are looking for is

585
00:31:13,160 --> 00:31:15,760
Speaker 1: to get the assets so they can charge them. What

586
00:31:15,840 --> 00:31:17,920
Speaker 1: you just said, there is an O seven oh eight

587
00:31:18,040 --> 00:31:22,000
Speaker 1: memory they sold the risk away, right. Are you just

588
00:31:22,040 --> 00:31:26,040
Speaker 1: suggesting that we're gonna fold ourselves into another oh seven

589
00:31:26,040 --> 00:31:30,120
Speaker 1: O eight oh nine set of events, non sequential, non

590
00:31:30,240 --> 00:31:33,560
Speaker 1: linear events like we did then? I think so, Tom.

591
00:31:33,600 --> 00:31:37,520
Speaker 1: I think it won't be hopefully nearly as extreme, but

592
00:31:38,040 --> 00:31:41,120
Speaker 1: you know, let's let's be careful too. Relative to the

593
00:31:41,120 --> 00:31:44,000
Speaker 1: subprime market, the c l O market is much smaller

594
00:31:44,040 --> 00:31:46,000
Speaker 1: and it's largely held in the hands of it. There's

595
00:31:46,000 --> 00:31:50,280
Speaker 1: no yeah, that's right. But I do think that, uh,

596
00:31:50,600 --> 00:31:54,040
Speaker 1: the price gaps are going to be justice nauseating as

597
00:31:54,080 --> 00:31:59,760
Speaker 1: they were in the O eight experience conversation. I think

598
00:31:59,760 --> 00:32:01,920
Speaker 1: it's I think that's what made have a great conversation

599
00:32:02,280 --> 00:32:05,240
Speaker 1: because it wasn't a very devils conversation con in a

600
00:32:05,280 --> 00:32:07,040
Speaker 1: cooking hunt. Great to see if I it grites a

601
00:32:07,080 --> 00:32:17,840
Speaker 1: catch up As a thanks for listening to the Bloomberg

602
00:32:17,840 --> 00:32:23,800
Speaker 1: Surveillance podcast, Subscribe and listen to interviews on Apple podcasts, SoundCloud,

603
00:32:24,160 --> 00:32:28,400
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

604
00:32:28,440 --> 00:32:32,640
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.

605
00:32:33,160 --> 00:32:34,240
Speaker 1: I'm Bloomberg Radio