Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
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Speaker 1: The International Monetary Fund has caught its global growth forecast,
Speaker 1: warning that the expansion scene in recent years is losing momentum.
Speaker 1: That contributing to the slowdown, The organization site did increased
Speaker 1: trade tensions, political flashpoints, including a new deal breaks it well.
Speaker 1: The i m F Managing director Kissing joins us. Now,
Speaker 1: we've been talking about this interview all day. Tom and
Speaker 1: I have been like fighting over what we ask you,
Speaker 1: because you're really the high even maybe we push it
Speaker 1: to an hour and a half. But then, my guard
Speaker 1: when you look at the risks of a recession, if
Speaker 1: there are risks to a recession, where would they stand from?
Speaker 1: Is it China? Is it the US? Is it Brexit
Speaker 1: in Europe? Okay, today our forecast is three point five
Speaker 1: three point six next year. And if you ask me,
Speaker 1: do you see a recession? I said no? Okay, So
Speaker 1: if there was to be a materialization of the risks
Speaker 1: that we see on the horizon. And the point is
Speaker 1: that this horizon is getting a little bit closer to
Speaker 1: what we had back in October. That's the reason why
Speaker 1: we slightly revised our growth forecast. If those risks were
Speaker 1: to materialize, then it's a different story. And you asked
Speaker 1: me which one of the risks I rank higher, I
Speaker 1: would say that the trade tension, if unresolved and if
Speaker 1: associated with the big question mark, would be my number
Speaker 1: one risk. I think Brexit uncertainty and the big question
Speaker 1: mark yet again that we have on how it's going
Speaker 1: to be resolved is the time frame, what is the
Speaker 1: after divorce situation? I would put that as number two,
Speaker 1: but with probably um major impact on the UK, impact
Speaker 1: on the European Union, systemic risk risks if the financial
Speaker 1: sector is not addressed um and then I would have,
Speaker 1: as a sort of subset of that first risk, in
Speaker 1: other words, trade tensions continuing to increase, I would have
Speaker 1: an accelerated moderation of growth in China. If you clear
Speaker 1: those starts where that's French schooling for you, m my
Speaker 1: den la guard. When you look at China, how can
Speaker 1: we be so sure that it's not trade. I mean
Speaker 1: it's not you know that is its trade and not
Speaker 1: a more significant structural slowdown that would be much harder
Speaker 1: to deal with, you know, I would I would call
Speaker 1: your attention to one fact. Although we have downgraded our forecast,
Speaker 1: the two countries that we have not downgraded are the
Speaker 1: US and China. So that was partly anticipated number one,
Speaker 1: and it was part lee remedied number two remedied in
Speaker 1: the US because of the tax corporate the corporate tax,
Speaker 1: a major reform that has taken place and that has
Speaker 1: helped fuel additional growth, new jobs, and all the rest
Speaker 1: of it anticipated by China with similar s measures that
Speaker 1: were taken taken in the last few months to compensate
Speaker 1: both the trade threat impact as well as the credit shrinking,
Speaker 1: which was welcome, necessary and hopefully will continue a bit.
Speaker 1: I want to go back to your public service in
Speaker 1: France and to Steve Bannon on the early Trump years
Speaker 1: and his homage to French fascism of nineteen o five nineteen.
Speaker 1: Of course, all of that going over to Hitler and
Speaker 1: Mussolini and another far more troubled time in your blue book,
Speaker 1: your green book, your fistcal book as well there's no
Speaker 1: discussion of the new populism and his rise of the
Speaker 1: far right and elements or shades of fascism. What can
Speaker 1: your institution do to push again this new populism and
Speaker 1: someone is just a new ugly populism. I think what
Speaker 1: we have done and we need to continue to do
Speaker 1: and probably be more vocal about it, is the study
Speaker 1: of inequalities, excessive inequalities, impacts of inequalities on growth. And
Speaker 1: we started that, you know, I began talking about it
Speaker 1: four years ago. I said, watch out inequalities of doing
Speaker 1: claim speech in New York and you went right after Washington.
Speaker 1: And we need to, you know, be vocal about that,
Speaker 1: and we need, I think, to articulate the measures that
Speaker 1: can be taken in order to resist this acceleration of inequalities,
Speaker 1: both in terms of wealth and in terms of income.
Speaker 1: And they are good sound tags and fiscal measures that
Speaker 1: can be taken in order to address those issues. Added
Speaker 1: to that, Tom, I think it's not just a fiscal
Speaker 1: financial coming, and I think it has lots of other
Speaker 1: roots ramifications, amongst which I would put cultural disenfranchisement. I
Speaker 1: would put the threat of technologies and how it's going
Speaker 1: to take my job, displace me somewhere, and the malaise
Speaker 1: that people feel. As stated, so many people fear that
Speaker 1: we're in right now. Then the critical question, and a
Speaker 1: delicate question for you in your position, is the experience
Speaker 1: of America, the Trump experience and other populous movements. Can
Speaker 1: they be at one off where we go back easily
Speaker 1: to some kind of normalcy or do a leads to
Speaker 1: leaders have to do something immediate so we get back
Speaker 1: to normalcy? Is it a one off? We believe that
Speaker 1: policies have to be taken to address the root causes
Speaker 1: of what has precipitated those movements. What I mean by
Speaker 1: that is address excessive inequalities, address the issues of I
Speaker 1: feel out of my job. The machines are taking over.
Speaker 1: Artificial intelligence much talked about here in Douvles, is going
Speaker 1: to um emasculate my brain and my capacity to deal
Speaker 1: with my destiny. All these issues have to be addressed
Speaker 1: as well. They're not all of an economic nature, but
Speaker 1: they have to be addressed because otherwise it's very easy
Speaker 1: to instill fear, to raise ants, and then anything can go.
Speaker 1: And I'd like to ask you actually how you deal
Speaker 1: with that though? Is a tax redistribution. How do you
Speaker 1: make it more more equal? Is there one country that
Speaker 1: does it better than others that everyone else could learn from? Well,
Speaker 1: there are many countries, but each country is going to
Speaker 1: have to deal with it specifically because some countries are
Speaker 1: prone to um creating opportunities raising the level of education
Speaker 1: and health for people to actually aspire to a better future,
Speaker 1: better jobs, better training. Other countries deal with it with
Speaker 1: a different tax system. What we're seeing on you know
Speaker 1: more and more is actually you know, less income going
Speaker 1: to labor and more income going to capital. At the
Speaker 1: same time, we see less taxation of capital income than
Speaker 1: off labor income. So you have a confluence of those
Speaker 1: factors which need to be looked at because if we
Speaker 1: want to address some of them big frustrations around there
Speaker 1: that that is part of the of the remedies. Yes, again,
Speaker 1: they also want to ask you about Brexit. Do we
Speaker 1: understand the ramifications of a possible no deal Brexit? Is
Speaker 1: it a systemic issues it is? How concerning is it
Speaker 1: for for the UK but also the Europe. What we
Speaker 1: know is that whatever the outcome, whether it's a no deal,
Speaker 1: whether it's a Alan Norway, whether it's a custom unions
Speaker 1: with appropriate adjustment for the Irish border, whether it will
Speaker 1: not be as good as what it is now. In
Speaker 1: other words, there will be additional frictions, there will be
Speaker 1: additional bureaucracy. Is there will be more um slow lane
Speaker 1: for the traffic coming from Europe to the UK and
Speaker 1: vice versa. So none of it will be better, but
Speaker 1: some of the solutions will will be a lot worse.
Speaker 1: And I think the whole business community here if you
Speaker 1: talk to them and us from our analytical work, we
Speaker 1: all agree that a no deal is you know, having
Speaker 1: very negative effect. We are trying to model and for
Speaker 1: what it's worth, we're looking at, you know, eight less
Speaker 1: g d P. In the medium to long term for
Speaker 1: the UK economy, it will shrink. That's what we see.
Speaker 1: And that's only at the macro level. If you look
Speaker 1: at the micro level. You talk to the automobile manufacturers,
Speaker 1: you talk to the airline industry, you talk to the
Speaker 1: pharmaceutical industries, you talk to the food retailers of the UK.
Speaker 1: They will all tell you it's it's it's terrible. We
Speaker 1: do not know how to deal with it. So it's
Speaker 1: it's clearly of systemic importance for the UK and it's
Speaker 1: also having consequences for the EU systemic or not. That
Speaker 1: will depend on, you know, how in particular the financial
Speaker 1: sector and its activities are dealt with, how much you
Speaker 1: know reconciliation there will be between the two systems, who
Speaker 1: would be allowed to do what and what the licensing
Speaker 1: system will be. I want to bring it back to
Speaker 1: the idea of we've all got to get back together.
Speaker 1: It's a wonderful thing to talk about. It's a lot
Speaker 1: harder to do. You are the voice of a transatlantic
Speaker 1: world of follow on too, when that seemed to be
Speaker 1: an easier process. The President flew to Paris World War
Speaker 1: One remembrances and couldn't get in a car to go
Speaker 1: out and see where many many Marines died bravely in
Speaker 1: World War One. How do we get back the transatlantic
Speaker 1: conversation that is so shattered right now? I hope we
Speaker 1: can get back that transatlantic conversation and dialogue and joint
Speaker 1: approach to some of the critical to take a work.
Speaker 1: Can we do it in a peaceful manner? I very
Speaker 1: much hope that we learned from history and that what
Speaker 1: has happened in the past we'll actually teach us that
Speaker 1: together collectively, cooperatively, not all of us being exactly on
Speaker 1: the same page, can actually address those issues. It was
Speaker 1: Churchill who said, better chat chat than world war, and
Speaker 1: that's what needs to happen. We are even more so today.
Speaker 1: We are facing the same issues ranging from pandemics to terrorism,
Speaker 1: from cybersecurity to a financial market stability. We have to
Speaker 1: address that together. One final question others talk people, do
Speaker 1: you did you hired a wonderful new director of economic
Speaker 1: research to your team. What is going to be the
Speaker 1: new spirit of the I m of for going forward
Speaker 1: in your economic research with Geta UM. I think Geta
Speaker 1: will bring her her energy, her intellect, her youth, her
Speaker 1: determination to look at all issues, including the processes of
Speaker 1: putting things together, process putting things together, some of the
Speaker 1: traditional institutional views that we've had for a long time.
Speaker 1: And I don't think she's going to look at it
Speaker 1: with an ideological background at all. She is a researcher,
Speaker 1: She is a very honest person. She will look at data, impact,
Speaker 1: collateral damage and so on and so forth. And and
Speaker 1: I very much welcomed that, but I thanks so much
Speaker 1: for joining us. That was the IMF Managing Director, Christina
Speaker 1: gad Brian moynahan joining me the Bank of America. See
Speaker 1: when he joins me on Bloomberg TV. They I want
Speaker 1: to take the opportunity to welcome in our listeners on
Speaker 1: Bloomberg Radio as well data with the World Economic Forum
Speaker 1: in Davil, Switzerland. Very pleased to say the man at
Speaker 1: the top of Bank of America, It's gonna stick with
Speaker 1: me for a little while as well. I want to
Speaker 1: talk about your business and the way investors perceive your
Speaker 1: business to be working. Right now, a lot of people
Speaker 1: look at the yield curve and say that this is
Speaker 1: going to damage bank profitability. What's interesting for me is
Speaker 1: that then an interest mountain at Bank for America's continue
Speaker 1: to go up at a time when the yield curve
Speaker 1: has continued to narrow. Are we looking at the wrong thing? Brian? Well,
Speaker 1: people people look at banking and get all involved in
Speaker 1: rate movements at a time time you have to step
Speaker 1: back and think about what it is we we provide
Speaker 1: service to clients. They give us their cash for transactional
Speaker 1: whether companies, whether whether a wealthy individuals and general individuals,
Speaker 1: and we have a trillon for that. And so what
Speaker 1: the business model is that we give great services for
Speaker 1: that care, and therefore people give it to us in
Speaker 1: industry accounts and checking accounts and low interest accounts because
Speaker 1: they're getting six in ATMs, four thousand branches, call centers,
Speaker 1: million UH mobile users, certain five millions. So all those
Speaker 1: services come together. And so I think people the confusion
Speaker 1: about the rate cycles because it was so abnormal. We
Speaker 1: had to we had to recoup a bit of profitability
Speaker 1: because we are subsidizing, and now we're back in a
Speaker 1: more normal, closer normal staff status. So I think that
Speaker 1: you know, our job is to drive more loans, more
Speaker 1: deposits that will produce more net interest market is that
Speaker 1: another web saying that you can keep the deposit bits
Speaker 1: are really low because you offer so many services around
Speaker 1: the checking accounts. It's it is what the accounts are.
Speaker 1: They are zero just checking accounts. What beta can be
Speaker 1: on half Our consumer checking accounts are zero intertaking Beyond that,
Speaker 1: I'm looking across all the accounts of banks. But the
Speaker 1: dominant value banking has driven off the transaction accounts low
Speaker 1: and and so that's what we drive and that's what
Speaker 1: we grow. So are checking balances and consumer group temper
Speaker 1: ten percent excuse me twenty billion dollars year over year
Speaker 1: gross numbers. That's that's a strong growth phrase about in
Speaker 1: in seven cent or something like that. And so that
Speaker 1: drives a lot of value at a little cost, not
Speaker 1: because it's because of service sup providing, And that's that's
Speaker 1: the business one and the corporate size the same thing.
Speaker 1: And your cash management deposits. So we can keep driving
Speaker 1: a profitabilities company in a stable rate and environment. It
Speaker 1: just it will will be driven by volumes, more loans,
Speaker 1: more deposits. If the economy is moving along and going
Speaker 1: at two everything. I think it's look good for you
Speaker 1: guys right now. I was looking at the Bloomberg terminal
Speaker 1: before you and I came up here twenty two biased
Speaker 1: on a single cell on the stock. Overwhelmingly the enthusiasm
Speaker 1: investors have for the financial sector seems to be there
Speaker 1: on the surface. Then I can't reconcile record profitability with
Speaker 1: your stock performance over the last year. Why do you
Speaker 1: think some people are looking at your stock differently to
Speaker 1: the way the bottom line looks at Bank for America.
Speaker 1: The profits look good, the stock performance over the last
Speaker 1: year less. So why largely industry get caught up in
Speaker 1: the question? Can we grow runnings in the context of
Speaker 1: a type economy slowing out, and that that's debate. We
Speaker 1: can looking at fixed triding, thick trading has been tough.
Speaker 1: A lot of people will come on a program with
Speaker 1: me and say, what the bank's need is volatility. They
Speaker 1: did that for a number of years. Then we've got
Speaker 1: the volatility and the banks, many of them. And I'm
Speaker 1: not including you in this, but the word I would
Speaker 1: always hear is bad band folatility. What is band volatility?
Speaker 1: We run If you look at our capital markets business
Speaker 1: several last six seven years, you've had a range of
Speaker 1: revenue from twelve point nine billion to thirteen point six
Speaker 1: billion over like six or seven years. All the years,
Speaker 1: all different environments they called different quarters, come out different ways.
Speaker 1: We run that business in a way that Tom Montag
Speaker 1: and the team and do a great job of taking
Speaker 1: a right risk and just moving and we do in
Speaker 1: support of our customer base, our issuing customer based companies
Speaker 1: issue in debt and our investor customer based customer buying debt.
Speaker 1: And then the equity business fab Gallant team have done
Speaker 1: a good job and that's come up. So yeah, we
Speaker 1: we made five hundred million bucks in capital markets after
Speaker 1: tax in the fourth quarter nearly four billion dollars last year.
Speaker 1: It's a great business. And so yeah, one quarter, actually
Speaker 1: one months. It was a month in December wasn't too pretty,
Speaker 1: but you know, you get back to January, people get
Speaker 1: back to work and things start working through. I remember
Speaker 1: catching up with Andrew ra Chow. He was at UBS
Speaker 1: at the time, a couple of years ago, and it
Speaker 1: was right before we got the first rate hike of
Speaker 1: the Federal Reserve, and he was nervous that a lot
Speaker 1: of his trading floor had never seen a tightening cycle
Speaker 1: from the Fed. They've never experienced a big batter volatility,
Speaker 1: and how would they be able to operate and generate
Speaker 1: returns in that environment. Just that there's an argument to
Speaker 1: make there that maybe some people are struggling with something
Speaker 1: they've just never seen before because of the age, the
Speaker 1: average age on the trading floor and our average ages
Speaker 1: in the trading floor. You know, I don't know exactly
Speaker 1: what it is, but the people in that trading floor,
Speaker 1: the good news is a fair amount and went through
Speaker 1: the crisis. They understand what to do, not to do,
Speaker 1: and what risk to take and not to take. In
Speaker 1: our risk manager practices. That's more important then you and
Speaker 1: understand the rate cycle. So there is a nobody if
Speaker 1: you think of the rate environment changed. You know at
Speaker 1: the time of crisis, it's ten ten plus years. There's
Speaker 1: a lot of people who are any better. The thirty
Speaker 1: five has really probably never seen this kind of environment change.
Speaker 1: But the reality is don't learn it quickly. Well, let's
Speaker 1: talk about risk management. What's your approach the leverage lines
Speaker 1: at the moment, really competitive space, a lot of people
Speaker 1: aggressively chasing mandates. There was a signing Q three that
Speaker 1: you guys were maybe taking less risk, maybe being less aggressive.
Speaker 1: What's your view now? We we've always been consistent. We
Speaker 1: haven't changed our risk one way the other way. So
Speaker 1: we and we have a good, very good business that
Speaker 1: it's one of our bigger, better businesses on the relative scale. Now,
Speaker 1: a lot of that business went to other participants in
Speaker 1: terms of back in the guidance by the occ and stuff,
Speaker 1: but we really pretty much ducked her in any it's
Speaker 1: a moving business. We underwrite for those issuers and send
Speaker 1: healthy investors. That's our postures. So it locked up in
Speaker 1: the fourth in December and it's not even October. Really
Speaker 1: December and and so there's no deals done and we'll
Speaker 1: get them done. Are optimistic in that space specifically for
Speaker 1: the rest of the year because eighteen was huge going
Speaker 1: right up towards the end of the year for supplying
Speaker 1: for underwriting. It was a big boon for the banks
Speaker 1: as well. Can we have another through nineteen in that space?
Speaker 1: You know, we'll see it's going to be more high
Speaker 1: the equity, you know, the participants and the deals and
Speaker 1: things like that. But it's a it's a market we're in,
Speaker 1: but we're we're in high grade. The nice thing about
Speaker 1: our franchises with thirteen billion dollars of markets revenue attached
Speaker 1: to ninety plus billion dollars is of real revenue from
Speaker 1: all the other businesses is something someone will go right,
Speaker 1: something will go wrong, But the idea is just keep
Speaker 1: flowing through. So if leverage finance is not as strong
Speaker 1: this year, high grade maybe better, uh FX may be better,
Speaker 1: all those things playing it out, but the way you
Speaker 1: played is to just keep serving our clients and moving them.
Speaker 1: On the vice side, there's some nerves around the space
Speaker 1: that leverage loans. If you were to have a dashboard,
Speaker 1: what would you be looking for for certain risk of
Speaker 1: materialized to to pair back risk to tell some of
Speaker 1: it seems to be less aggressive on the mandates. My
Speaker 1: point we don't change our risk posture, though, the is
Speaker 1: we have risk parameters that we set from the board
Speaker 1: to UH to the management, all the way down, all
Speaker 1: the way down to the desk, all the way down
Speaker 1: to the underwriting, and so we don't we don't take
Speaker 1: We don't say, oh, let's decide to add more risk
Speaker 1: today here, some trap more risks. We do more by
Speaker 1: volume because there's just more activity. But the individual deals
Speaker 1: and the way we think about underwriting is fairly consistent
Speaker 1: because the end of the day, leave aside syndication market
Speaker 1: bigger back in commercial lending, you know those credits are
Speaker 1: going to live with you for multiple years, and so
Speaker 1: what you're gonna do in nineteen first quarter will make
Speaker 1: no difference in nineteen what you did in fifteen makes
Speaker 1: a difference. And that's why you have to have consistent risk.
Speaker 1: So final question for you, Brian, I think many of us,
Speaker 1: and I don't know about yourself when I speak for
Speaker 1: may have spent much of the last few months talking
Speaker 1: about downside risk, and we just finished by talking about
Speaker 1: upside risk, what's the big opportunity for you guys, for
Speaker 1: our company just continued to drive responsible growth and and
Speaker 1: and use these capabilities of three billion invest in technology
Speaker 1: every year, the capabilities that come on, whether it's on
Speaker 1: the consumer side WIS and wealth management, new digital capabilities
Speaker 1: and wealth management UH or in a commercial space and
Speaker 1: cash pro or cash manager price. It's just to drive
Speaker 1: those products out there. And there's just set and we
Speaker 1: have We are a big company, but we have small
Speaker 1: market share, I mean in the relative sense, so we
Speaker 1: in terms of absolute sense against against the markets, and
Speaker 1: we have lots of market share to gain. And the
Speaker 1: upside is just that our success might be better than
Speaker 1: we project because the competency in ca abilities a team
Speaker 1: and the and the tools are better for clients. Brunt
Speaker 1: always great to get your inside the globe of economy
Speaker 1: and of course on banking in America, bron Monhattan, Big
Speaker 1: Bank America Chairman and see I thank you very much, Sack.
Speaker 1: This is always a joy in any number of ways
Speaker 1: to speak with Steve with Bank Capital, associated with a
Speaker 1: small basketball team up in Boston as well, and truly
Speaker 1: one of the most interesting guys in investment in America.
Speaker 1: Wonderful to have you here today. And you know, like
Speaker 1: Mrs Tom Brady or Mr Jasobncher whatever, he is a
Speaker 1: slave for fashion here in Davos Valley Steve Canada Goose
Speaker 1: and it's a newer coat and you're you're the brand
Speaker 1: ambassador this year. That that'd be aderation. But I love
Speaker 1: the company in the CEO, Danny Reece has done a
Speaker 1: great job in our team him and it's now a
Speaker 1: worldwide global company and it's fitting to wear this in Davos.
Speaker 1: It's actually the first time I was ever warm a
Speaker 1: Davos was when our wars cos. Very nice endorsement theory
Speaker 1: as well. But I want you to explain your Pixie
Speaker 1: does when you go into a company and you don't
Speaker 1: tear management apart, you don't blow it up, You assist
Speaker 1: them to a branding or revenue in an operating income success.
Speaker 1: Give us an example with Canada Goose. Well, that's a
Speaker 1: great question. Time I go all the way back to
Speaker 1: the founding of Baining Capital. We were very unique at
Speaker 1: it was still unique were unique at the time because
Speaker 1: no other private equity venture capital shop spawned out of
Speaker 1: a consulting firm. So the theory Bill Bain had was
Speaker 1: you could take the consulting skills that were building companies
Speaker 1: long term, buy them directly and work with managements as
Speaker 1: a kind of a tool for management to help build
Speaker 1: those companies. So that was thirty five years ago and
Speaker 1: at the time no one thought that would work. It
Speaker 1: took two years to raise thirty six million dollars. It's
Speaker 1: laughable these days, but two years and I think only
Speaker 1: one institution, one smart instution with Bessemer put money. The
Speaker 1: fund come on my closet at home. John Farrell is
Speaker 1: loaded with Canada Goose. And that's how did that. Let's
Speaker 1: talk about what's changed changed Back then it was harder
Speaker 1: to rise capital. It was easier to deploy it. Yeah,
Speaker 1: it's easy to rise capital, it's how to deploy it.
Speaker 1: So how do you deploy it right now? Well, it's
Speaker 1: back back to Tom's story. What we've done in situations
Speaker 1: numerous times through three years. Like Canada Goose. We first
Speaker 1: met a great entrepreneur. He wanted to take the business global.
Speaker 1: He was from from Canada and had been a great
Speaker 1: business up there. We have a great retail consumer team
Speaker 1: led by Josh Bekenstein and and Ryan Cotton, and we
Speaker 1: laid out a vision on how we could help him
Speaker 1: get global, how we could help him get into storefronts,
Speaker 1: how we could help him with the supply chain, how
Speaker 1: we could bring a retail playbook to make this be
Speaker 1: a large global company. And he really liked that idea,
Speaker 1: and so he kept a lot of the company and
Speaker 1: we we bought about sixty percent of the company at
Speaker 1: the time, and now the company is is a multi
Speaker 1: billion dollar company in global. The plan has come to fruition.
Speaker 1: He's still running the company. Yeah, it's so bad that
Speaker 1: Bill has Canada. My dog has Candidams. Don't let's go
Speaker 1: for a different dog. It was Canada pooches, copyright issues,
Speaker 1: pick it up. The main few guys recently took at
Speaker 1: universities red a state portfolio. A lot of people right
Speaker 1: some eyebrows and thought, and we had a state portfolio.
Speaker 1: Now this light in the cycle. Why it was a
Speaker 1: great match. We had been looking to get into real
Speaker 1: estate for probably thirty years. I was on a project
Speaker 1: thirty years ago to look at it, and we never
Speaker 1: thought it was the right time in the cycle because
Speaker 1: it's it's going up and down. Harvard had an issue
Speaker 1: where they decided they're going to outsource investment management, not
Speaker 1: doing it internally. The Harvard Group had a very similar
Speaker 1: philosophy that we have a bank capital really had value,
Speaker 1: look for unique product line. So they group over there
Speaker 1: was focusing on medical offices, focusing on the biotech industry.
Speaker 1: We saw a lot of growth and profit in that
Speaker 1: doing that selectively. Uh, they were only three miles down
Speaker 1: the road, so this was a seamless transition. One day
Speaker 1: they were at Harvard, all twenty people came came to
Speaker 1: Bank Capital. We understand real estate. We have all companies
Speaker 1: that need real estate, and that this knitche strategy we
Speaker 1: felt could kind of power through the potential recessionary approach
Speaker 1: in real estate. Final question for you stage, what are
Speaker 1: you excited about deploying capital right now? Going back to
Speaker 1: the earlier point that you can write capital great, but
Speaker 1: deploying gets challenging. Where's the big opportunity right now for you?
Speaker 1: What do you excited it about. Well, it's really challenging
Speaker 1: right now since the markets have been at the top,
Speaker 1: although we've seen a little bit come down the last
Speaker 1: few months. But look, I've talked to you guys from
Speaker 1: in the eighties and the nineties two thousands and every time,
Speaker 1: literally in all those years, every question is too much
Speaker 1: money changing too few deals. So what really has happened
Speaker 1: globally is private equity has gone global. It's a model
Speaker 1: that works. Certainly, the bank capital model with vertical markets
Speaker 1: and helping management teams grow does work. You just got
Speaker 1: to be selective this environment. Selective is the key now
Speaker 1: for the tension of Davos. Rams are patriots absolutely patriots
Speaker 1: of surveillance BREA exclusively. We're gonna get the headline across
Speaker 1: the bottom of the screen that song and we can
Speaker 1: get it. Has been has been a great It has
Speaker 1: been a great twenty years to be here. We go.
Speaker 1: This is this interview will be it's in the commercial
Speaker 1: right to catch up with you from my staff Jonathan
Speaker 1: Farrow and Selan Caine. It is ultimately about the markets
Speaker 1: and the positioning of global Wall Street within those markets.
Speaker 1: There's no one better to speak to than Scott Minor
Speaker 1: of good and I'm of course joining us on our
Speaker 1: FED days with more of a Wall Street perspective on
Speaker 1: the FED. I wanna avoid the FED talk Scott. To
Speaker 1: get started. Mr moynihan just darkened the door and talked
Speaker 1: to John Farrell about banking forward. Let's take American Wall
Speaker 1: Street right now. How bad will the cost rationalizations be?
Speaker 1: Guys like you have to make tough decisions. Are they
Speaker 1: going to be made in this quarter? I think so.
Speaker 1: I think everybody sees the window open because we've had
Speaker 1: the big people like black Rock come out and say
Speaker 1: they're going to do staff reductions. So I think that
Speaker 1: everybody in the industry sees their moment and they're going
Speaker 1: to take advantage of How lean are you guys right
Speaker 1: now into those cost cuts? I mean, is it is it?
Speaker 1: There's divisions that can be moved out there, Is there
Speaker 1: going to be micro cuts here and there? I think
Speaker 1: that it's going to be more micro cuts strategic, you know,
Speaker 1: or surgical. I mean you know that you know we
Speaker 1: sold our E t F business last year, so you
Speaker 1: know there's a bit of redundancy, but we're not going
Speaker 1: to take it like some of the big guys. To Scott,
Speaker 1: I want to talk about what you were doing in
Speaker 1: the depths of December when things looked really ugly and
Speaker 1: we saw some really gappy moves in places where maybe
Speaker 1: you shouldn't be getting big moves like that, right What
Speaker 1: did you guys do for a cook and high. It
Speaker 1: was tough, John, because you know, you wanted to h
Speaker 1: adjust the risk based upon the volatility, and unless you
Speaker 1: were trading really liquid on the run stuff, you just
Speaker 1: couldn't get good prices. Uh. You know, the bank loan
Speaker 1: market would gap on very little supply. A couple of
Speaker 1: million dollars of bank loans would move the price by
Speaker 1: a point or two. The same thing in asset back securities.
Speaker 1: I want to emphasize that the conversation that John and
Speaker 1: Scott Miner having right now is really really important because
Speaker 1: there's all the economic bladder in the reality. I'm gonna
Speaker 1: promote your show in a moment, but but this is
Speaker 1: really serious, folks. This is the reality. As you heard
Speaker 1: Mr Miner there talks John about liquidity and you lose
Speaker 1: a point and everything changes away from what GDP is doing.
Speaker 1: But you know, it's really amazing anytime is to watch
Speaker 1: in the wake of that less Fed meeting that how
Speaker 1: crowded and congested the exit Scott, when people started to
Speaker 1: move in that direction. It really is a warning sign
Speaker 1: because when we get to a recession, it's gonna be tough. Scott,
Speaker 1: you and I talk about things like leverage loans and
Speaker 1: your ability to get m and out communicate to our listeners,
Speaker 1: our audience of you is right now, how difficult it
Speaker 1: is actually to trade loans? How long it takes to
Speaker 1: actually close that trade? Well, I mean, on a good day,
Speaker 1: you can ows it in two weeks, you know, typically weeks,
Speaker 1: something delays it, so it'll take maybe three weeks, uh
Speaker 1: even four weeks to clear alone. I mean that's a
Speaker 1: real challenge when you get into some of these more
Speaker 1: liquid products like e t f s, because the ets
Speaker 1: provide you next day liquidity. So if you're trying to
Speaker 1: liquidate loans and e t F to get out, uh
Speaker 1: you and we did see it in the sell off,
Speaker 1: you can start to see gaps of n A V
Speaker 1: below the price. How is it different than what you
Speaker 1: experienced in August of oh seven and into bear Sterns
Speaker 1: and the rest of oh eight o nine? What was
Speaker 1: unique this time versus what everyone remembers? Well, I mean
Speaker 1: this time around, Tom, I think the E t F
Speaker 1: market in the mutual fund market has become a much
Speaker 1: bigger player in these more exotic than official player. Well
Speaker 1: beneficial from the standpoint that uh one, it gave asset
Speaker 1: manager and firms an opportunity to make more money to
Speaker 1: It allows retail investors to get into a market that
Speaker 1: is traditionally an institutional market. But having said that, given
Speaker 1: the amount of money that is concentrated in some of
Speaker 1: these more exotic fixed income products now that are in
Speaker 1: mutual funds and ets to be hot there before, it's
Speaker 1: making the volatility in these down drafts much more. Who's
Speaker 1: holding the risk? That's a great question, not for surveillance,
Speaker 1: that would be a correct question for the real yield.
Speaker 1: You can see it with John Farrell Fridays. What did
Speaker 1: you say the risk? Who that jar? I love that jargon.
Speaker 1: That's great, Scott, Please held the risk? Well, I mean
Speaker 1: it depends on how you define risk. If you look
Speaker 1: at the leverage loan market, if you're an institutional player,
Speaker 1: you're just going to ride this out. But if you're
Speaker 1: someone who is trying to rebalance your portfolio, like a
Speaker 1: retail investor. Somebody has a four oh one K plan
Speaker 1: and you want to get out, you hold the risk
Speaker 1: is critical. This goes back almost a reserve fund in
Speaker 1: my market funds of thirty and forty years ago. Someone
Speaker 1: who is going to have to heads outwards. Regulators, the
Speaker 1: government's going to come in and say this is not
Speaker 1: appropriate for retail. So how do we work through this? Well,
Speaker 1: I think that the regulators need to take another look
Speaker 1: at these products, not to get rid of them, but
Speaker 1: to to try to get rid of the liquidity transformation
Speaker 1: that's occurring of taking something that's a fairly a liquid
Speaker 1: security and turning it into something that's highly liquid with
Speaker 1: next day cash. So I want to know where we're
Speaker 1: going in the leverage loan space and who's going to
Speaker 1: get the buying pass out of speaker? Is it the
Speaker 1: sale is still with the power. We've seen a lot
Speaker 1: of these increasingly come to market covenant light. We've seen
Speaker 1: the banks and this this space become very competitive, so
Speaker 1: they're aggressively chasing a mandate. What does this look like
Speaker 1: later this year? Is it does it become a bias market,
Speaker 1: Do we start to get better covenants in some of
Speaker 1: these deals, or does it get even worse? No, I
Speaker 1: think it gets even worse. Shot when you look at
Speaker 1: last year and you see the incremental issuance of new
Speaker 1: leverage loans versus the incremental issuance of c l os,
Speaker 1: they basically all the new incremental supply of loans and
Speaker 1: went to clos Those people, in many cases have sold
Speaker 1: the risk away. So all they are looking for is
Speaker 1: to get the assets so they can charge them. What
Speaker 1: you just said, there is an O seven oh eight
Speaker 1: memory they sold the risk away, right. Are you just
Speaker 1: suggesting that we're gonna fold ourselves into another oh seven
Speaker 1: O eight oh nine set of events, non sequential, non
Speaker 1: linear events like we did then? I think so, Tom.
Speaker 1: I think it won't be hopefully nearly as extreme, but
Speaker 1: you know, let's let's be careful too. Relative to the
Speaker 1: subprime market, the c l O market is much smaller
Speaker 1: and it's largely held in the hands of it. There's
Speaker 1: no yeah, that's right. But I do think that, uh,
Speaker 1: the price gaps are going to be justice nauseating as
Speaker 1: they were in the O eight experience conversation. I think
Speaker 1: it's I think that's what made have a great conversation
Speaker 1: because it wasn't a very devils conversation con in a
Speaker 1: cooking hunt. Great to see if I it grites a
Speaker 1: catch up As a thanks for listening to the Bloomberg
Speaker 1: Surveillance podcast, Subscribe and listen to interviews on Apple podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio