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Speaker 2: So the Trump administration reportedly and talks with Intel to
Speaker 2: have the US government take a stake in the company.
Speaker 2: What does this all mean. Let's go to someone who
Speaker 2: knows about it. It's Ryan Gold. He's Bloomberg Deals reporter,
Speaker 2: joining us live here in the studio.
Speaker 3: Ryan, Thanks for joining us. What would a deal like
Speaker 3: this do?
Speaker 4: I think this probably should be seen as a way
Speaker 4: to potentially show up Intel's balance sheet. I mean, it's
Speaker 4: a company that's mean struggling, it's losing money. It's really
Speaker 4: got an ambition to return semiconductive manufacturing on mass to
Speaker 4: the United States in a way that we've not seen
Speaker 4: in use. It's all centered around the Ohio plant. The
Speaker 4: Ohio plant has been seen as a way for Intel
Speaker 4: to become a shining light across the world. That he
Speaker 4: said by twenty thirty it was going to be one
Speaker 4: of the biggest and the best in the world. Obviously
Speaker 4: that hasn't been the case. It's been delayed quite a
Speaker 4: few times. So this investment, this proposed investment should probably
Speaker 4: be viewed as a confidence capital type of arrangement for Intel,
Speaker 4: you know, bring give some confidence to investors that this
Speaker 4: is something they should stand behind because it has the
Speaker 4: backing of the most credit worthy institution in the world.
Speaker 5: We don't do this very often. We've been the US government.
Speaker 6: This is a monstrous change in industrial policy. What are
Speaker 6: folks saying out there about this?
Speaker 4: It is I think, you know, certainly among the people
Speaker 4: I've been speaking to, this is something that you know,
Speaker 4: it's a new dawn in a way. I mean, if
Speaker 4: you're a bank or a lawyer, or anyone on Wall
Speaker 4: Street thinking about struggling US companies in quote unquote mission
Speaker 4: critical industries or industries that are sensitive to the United States,
Speaker 4: is the government now an option for you? I mean,
Speaker 4: we think back to the financial crisis, the Cristo GM
Speaker 4: and so on. I mean that's years ago. I mean,
Speaker 4: tied has turned since then, clearly, But it does seem
Speaker 4: as though just given some of these other transactions we've seen,
Speaker 4: like MP materials, like the almost you know, pay per
Speaker 4: play in a way in video agreement with AMD as
Speaker 4: well the fifteen percent that Trump struck to allow China
Speaker 4: to have these chips. It does seem like a new time,
Speaker 4: a new dawn for how to think about, you know,
Speaker 4: the Trump's administration's play with private industry.
Speaker 2: So who's going to pay for the stake? I mean,
Speaker 2: we're hearing the Trump administration eyeing the Chips Act?
Speaker 3: Is that right? Yeah?
Speaker 4: So far? I mean, we just ran a story this morning.
Speaker 4: Our understanding is that at least for now, the funding
Speaker 4: could come from the Chip SECT. I mean, bearing in mind,
Speaker 4: the Chips Act was passed in twenty twenty two, committing
Speaker 4: two hundred and eighty billion dollars in new funding for
Speaker 4: domestic research and manufacturing of semis in the United States.
Speaker 4: Intel was already poised to be the biggest beneficiary of
Speaker 4: the Chip SECT. I mean, I think they were awarded
Speaker 4: seven point nine billion dollars in grants for a commercial
Speaker 4: semi manufacturing program, and they also struck agreement with the
Speaker 4: Pentagon under the Secure Enclay program that was worth around
Speaker 4: three billion. So Intel's already seen quite a bit of
Speaker 4: this money. It remains to be seeing exactly how much
Speaker 4: or what size stake the government will take.
Speaker 3: Does Intel do they welcome a stake by the US government.
Speaker 3: Have they said anything?
Speaker 4: They haven't said anything. I think one of the things
Speaker 4: that was kind of telling yesterday when we went to
Speaker 4: them for comment, they you know, the client to comment
Speaker 4: on what they called rumors in speculation, But they did
Speaker 4: add that they were deeply committed to supporting administration's efforts
Speaker 4: to strengthen US technology and manufacturing leadership. I mean, make
Speaker 4: no mistake, Intel sees itself that it should be the
Speaker 4: leader in semiconductor manufacturing. It has always been in the
Speaker 4: shadow of TSMC as it relates to semiconductor fabs. I
Speaker 4: think they do feel as though this could be a
Speaker 4: potentially very good time for them to change course and
Speaker 4: return to the top of the channel.
Speaker 2: So do you see this as just another intervention intervention
Speaker 2: by by President Trump. We had the you know, the
Speaker 2: fifteen percent cut of certain semi doctor sales to China.
Speaker 2: You had this golden share in the United States Steel.
Speaker 3: I mean, can can you dive more into that?
Speaker 7: Yeah?
Speaker 4: I think you know this is certainly I say, I
Speaker 4: just really want to draw a line under how unprecedented
Speaker 4: this is I mean, this is a wacky suggestion what
Speaker 4: we have here, Lipbu Tam By the way, who you know,
Speaker 4: there are very few people who were as qualified as
Speaker 4: him in semi conductors. I mean he sat on the
Speaker 4: board of Intel before he became the CEO. He left
Speaker 4: the board, and then they've had a process and now
Speaker 4: he's back a CEO. I mean he was already making
Speaker 4: the point when he was on the board that in
Speaker 4: telling them to sort out its manufacturing problem. The fact
Speaker 4: that the Trump administration is now coming in and suggesting
Speaker 4: that they could be behind essentially as a as a
Speaker 4: backstop in a way for what the company is looking
Speaker 4: to do there is turning conventional wisdom on its head
Speaker 4: for sure. I think to draw the tension again to
Speaker 4: the MP Materials deal, that was really interesting because it's
Speaker 4: about you know, loans, it's about outside financing. It could
Speaker 4: they mentioned as part of that deal, it could take
Speaker 4: the of partnerships with other customers. I think it's really
Speaker 4: being seen as a blueprint for for what the Trump
Speaker 4: administration is thinking about Intel here.
Speaker 3: It could work, I mean, it could have.
Speaker 6: It be really advantageous because we see Intel investing all
Speaker 6: this money in this new foundry plant in Ohio, but
Speaker 6: they don't have any customers exactly. And if the US
Speaker 6: government was now a part owner of Intel, I think
Speaker 6: I might want to do some business.
Speaker 4: With Intel, exactly. And I think you make a great
Speaker 4: point because we've you know, we've been asking these questions
Speaker 4: since yesterday. If you're one of Intel's competitors looking across
Speaker 4: the way and thinking, okay, sure, we'd love to be
Speaker 4: in this business, what about us? That's the kind of
Speaker 4: scenario we're in now. Is is Intel being seen to
Speaker 4: get preferential treatment from the US government? And what does
Speaker 4: it mean if you're another semi conductor company which has
Speaker 4: ambitions like Global Foundriies. Global Founderies is a major backerd
Speaker 4: is Mubadla, the Sovereign Wealth Fund. But they're a semi
Speaker 4: conductor manufacturer. They have a few sites in the US,
Speaker 4: a few in Germany. You must, you know, penny for
Speaker 4: their thoughts.
Speaker 3: Before you go the timing of this.
Speaker 2: Didn't the Intel's CEO just come back from meeting with the.
Speaker 3: President at the White House? Was was this kind of
Speaker 3: discussed during that time?
Speaker 4: That was Monday? Yeah, and now on Friday? Is it crazy?
Speaker 4: What differences that we can make but yeah that this
Speaker 4: these plans were talked about on Monday between Trump and
Speaker 4: let Bhutan. You'll note that the Trump put out the
Speaker 4: Truth social post after that meeting and said that he
Speaker 4: described him as an amazing man with a really interesting backstory.
Speaker 4: You know, it was an about face given that he
Speaker 4: just the day before called for the guy to be replaced.
Speaker 4: I think another point i'd not just on the on
Speaker 4: the politics of this. Poor you mentioned Ohio. Ohio is
Speaker 4: a massively sensitive state for Donald Trump. It's where he
Speaker 4: has a very deep base of you know, margat Republicans,
Speaker 4: and they won their three He's won there three times.
Speaker 4: So JD. Vans, the Vice President, is also from Ohio. Big, big,
Speaker 4: big social attention. Then stay with us.
Speaker 5: More from Bloomberg Intelligence coming up after this.
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Speaker 2: So, Paul, my daughter and I have these matching bracelets.
Speaker 2: They're Pandora bracelets. They're really cute. They have these little
Speaker 2: charms and everything like that, but I think we might
Speaker 2: stop at one because the.
Speaker 3: Price of them might start to go up.
Speaker 2: That's according to its CEO, weighing potential price increases due
Speaker 2: to higher tariffs.
Speaker 3: But we want to go someone who knows more about it.
Speaker 2: It's Deborah Ak and she's Bloomberg Intelligence Luxury Goods analysts.
Speaker 5: Deborah.
Speaker 2: Thanks for joining us this morning via London, coming in
Speaker 2: from zoom So what do we know about these price increases?
Speaker 2: I mean, how much is this going to affect the consumer?
Speaker 7: I think, well, the price increases are still very much
Speaker 7: to go through the market. In the jewelry industry, we
Speaker 7: have already seen the higher end brands As and others
Speaker 7: popping through prices of around five to six percent, and
Speaker 7: then on top of that with this brings some collections
Speaker 7: and extra foccent into the US. So we would expect
Speaker 7: when we did some deep analysis, and because of the
Speaker 7: different tariff situations, we would expect maybe four cent pricing
Speaker 7: additionally to come through from Pandora, for example. And that's
Speaker 7: very much a difficult play when other prices are going
Speaker 7: up and in the value orientated offer.
Speaker 6: Well, how about in the watch business, because that's one
Speaker 6: I'm interested. And I mean Lisa and her daughter have
Speaker 6: the bracelets. I get it, I get it.
Speaker 5: I'm kind of a watch guy, not a crazy one.
Speaker 3: But boy, the arrfs.
Speaker 6: We're talking about thirty nine percent tariffs on stuff coming
Speaker 6: out of Switzerland, little old neutral Switzerland. That could be
Speaker 6: a problem for the watch manufacturers.
Speaker 5: What are they saying?
Speaker 7: Yeah, so I think you know, the watch MANUF and
Speaker 7: the retailers too, because I think they'll take a bit
Speaker 7: of the brunt, a lot of the brunt of some
Speaker 7: of the biggest names. So Richmond and its brands, Swatch
Speaker 7: and all of its brands, Swatches brands are all produced
Speaker 7: on the watchmaker side out of Switzerland, richemon On watches
Speaker 7: and also it's Cartier brand, a lot of that out
Speaker 7: of Switzerland, mostly out of Switzerland. So the idea there
Speaker 7: when we did our analysis. They're not saying anything on
Speaker 7: numbers yet, but in order to try to manage EBIT margin,
Speaker 7: we would say that they would need about nine percent
Speaker 7: from Richmond. They do have very high gross margins, so
Speaker 7: low cost of business that is one thing that will
Speaker 7: help them. But even so, we are going to see
Speaker 7: mid single digger prices expected to be passed on to
Speaker 7: the consumer and the big thing coming from you know,
Speaker 7: the numbers this morning from Pandora were very much that
Speaker 7: actually they haven't been passed on yet in key categories,
Speaker 7: with jewelry being one of them because they're gifting occasions
Speaker 7: and so a lot of that inflation is to come
Speaker 7: into the US market.
Speaker 2: So is Pandora's US exposure lower compared to its rivals.
Speaker 7: If we think about it from a global perspective, No,
Speaker 7: But if we're looking at the US, if we're looking
Speaker 7: at the US consumers, then yes, it's one third of
Speaker 7: sales for Pandora globally, but it is its biggest market
Speaker 7: and it has been the engine for growth through the
Speaker 7: first half of this year. It's of eight percent on
Speaker 7: a constant currency twelve percent including the store opening it's doing,
Speaker 7: and that's versus eight percent overall for the business. So
Speaker 7: it is the key driver. But then otherwise, if you
Speaker 7: think about the business overall on the jewelry side, for
Speaker 7: branded business, it's still hugely fragmented. So Pandora only has
Speaker 7: a two percent market share and it's one of the leaders,
Speaker 7: so a lot of pricing to come through lots from
Speaker 7: India and others also with those tariffs coming into force
Speaker 7: from the beginning of August.
Speaker 6: So, deb you cover all of global luxury here. What
Speaker 6: are your companies generally saying about the US market and
Speaker 6: the tariff situation? Are they suggesting that makes that the
Speaker 6: US market less attractive to them? And what are their
Speaker 6: policies for actually dealing with the tariffs?
Speaker 3: Yeah, I think.
Speaker 7: Twofold or threefold should we say one of them is
Speaker 7: cost safe in. All of these companies are working avidly
Speaker 7: on cost safe in. There are also adapting portfolios, which does
Speaker 7: take a little bit of time, so we see more
Speaker 7: of that in the autumn winter. They're widening price points,
Speaker 7: so prior to for example, had said, we realize we
Speaker 7: need to be more at the top of the price point,
Speaker 7: but equally we need to be further down the architecture.
Speaker 7: So they're going to be one of many companies that
Speaker 7: will do the same into the US market. But generally,
Speaker 7: I would say, actually, the market from the mid luxury
Speaker 7: upwards has been particularly robust, and we've seen the consumer
Speaker 7: confidence are still very much at are low, but it
Speaker 7: is picking up in the higher end income brackets more
Speaker 7: quickly than others. And that's typical and a trend that
Speaker 7: we've seen over the long term from the different income
Speaker 7: bands in the US.
Speaker 2: Yeah, but we've got about a minute left. How is
Speaker 2: a luxury market doing in China? That's been kind of
Speaker 2: a sticking point.
Speaker 7: It has it's very, very slow to recover to the
Speaker 7: things we discussed just this week. We're thinking about the
Speaker 7: fact that there's an extension between US and China and
Speaker 7: the tariff situation until the tenth of November, so another
Speaker 7: ninety day pause, so to speak, and we think that's
Speaker 7: negative because both the US and China are running on
Speaker 7: very low consumer sentiment, with China four years in the
Speaker 7: dold rooms and the numbers that we're seen now today
Speaker 7: on kind of CPI on different retail analysis highlights that
Speaker 7: the Chinese consumer is really resolute on holding onto their
Speaker 7: money or shopping very high end or finding something that's local.
Speaker 7: So there's a lot more localized competition and they're not
Speaker 7: traveling the way that they used to. It's all held
Speaker 7: off until they really know what's going on. So difficult
Speaker 7: outlook for the first half of twenty twenty six for luxury.
Speaker 3: Stay with us.
Speaker 5: More from Bloomberg Intelligence coming up after this.
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Speaker 6: One of the stories in the mortgage market that really
Speaker 6: got my attention is potential IPO of Fanny May Freddie
Speaker 6: macause I'm just thinking about my finance group bankers on
Speaker 6: was shtreet what a boondogle that would be for them,
Speaker 6: but also concern here what it might mean for mortgage
Speaker 6: rates out there. So let's check in with Ben Elliott,
Speaker 6: consumer finance analyst Bloomberg Intelligence.
Speaker 3: So Ben talk to.
Speaker 6: Us about Fannie Mae, Freddie Mac. Is there going to
Speaker 6: be an IPO of these companies and if so, when, Well, Paul.
Speaker 8: It wouldn't really be an IPO since the companies do
Speaker 8: still trade over the counter. But you know, Treasury is
Speaker 8: talking about different options, maybe selling some of the shares
Speaker 8: that they currently own, maybe raising some new equity at
Speaker 8: the market. But I think the core of the issue
Speaker 8: here is we don't know what Treasury is planning to do,
Speaker 8: and so they're talked about timeline, which was by the
Speaker 8: end of twenty twenty five seems to be very optimistic
Speaker 8: because as far as we can tell, none of the
Speaker 8: work has been done.
Speaker 2: So what does this What could this mean for mortgage rates?
Speaker 2: I mean, how much higher could they go?
Speaker 3: If any?
Speaker 8: So there are different estimates out there that you know
Speaker 8: they could go up twenty thirty basis points. Some people
Speaker 8: suggest maybe a percentage point if you sort of sort
Speaker 8: of think about agency nbs. The most of the premium
Speaker 8: there over treasuries that investors get today is because people
Speaker 8: can prepay their mortgage and they have negative convexity, but
Speaker 8: not because of credit risk. Right, So if you re
Speaker 8: reduce credit risk as a result of making the company's
Speaker 8: private and cutting off the federal government guarantee, then that
Speaker 8: could add relatively substantial price there.
Speaker 6: So, just like rewind back to the terrible time of
Speaker 6: the Great Financial Crisis, the government basically bailed out Fannie
Speaker 6: Mae Freddie Mack, and they now have significant equity ownership
Speaker 6: of those two entities. And the question is is now
Speaker 6: the time to sell down some of that equity interest
Speaker 6: is at the story?
Speaker 8: Yeah, that's part of the story. So they own warrants
Speaker 8: to purchase eighty percent of the common stock but they
Speaker 8: also own a senior class of preferred shares and that
Speaker 8: has a par value around two hundred and something billion,
Speaker 8: But it also has a liquidation preference which rises each
Speaker 8: quarter along with Fanny and Freddy's earnings that's hovering around
Speaker 8: three hundred and fifty billion. So when you hear different
Speaker 8: people on the street talk about the potential to raise
Speaker 8: you know, three hundred billion dollars, you know that's actually
Speaker 8: from writing down the senior prefers. That's actually not enough
Speaker 8: really to pay back the stated value or the liquidation
Speaker 8: preference of the senior prefers. So a lot of the
Speaker 8: uncertainty here is what will Treasury do with its senior
Speaker 8: ownership stake as opposed to just its commons.
Speaker 2: Hey Ben, can you dig into what are some of
Speaker 2: the pros and cons of making these companies private?
Speaker 6: Yeah?
Speaker 8: Sure, So, I mean the obvious con right is that
Speaker 8: if any of ready work extremely well, they're providing a
Speaker 8: ton of liquidity to us home buyers. We have a
Speaker 8: unique financial product in this country, which is a thirty
Speaker 8: year fixed rate mortgage at incredibly low rates. The credit
Speaker 8: quality is fantastic, it's better than really it's ever been,
Speaker 8: and so you have to ask yourself what is the
Speaker 8: benefit of disturbing that and going back to sort of
Speaker 8: the pre two thousand and eight status quo that led
Speaker 8: to what occurred with the companies in the financial crisis.
Speaker 8: But if you sort of, you know, take a sort
Speaker 8: of thirty thousand foot view as a more theoretical observer, right,
Speaker 8: maybe there's some benefit in getting the government out of
Speaker 8: private capital markets. Maybe introducing competition could increase innovation, but
Speaker 8: it would have to be done in a really careful
Speaker 8: way that ensured that we never sort of returned to
Speaker 8: the risks that we're inherent in the business model prior
Speaker 8: to the financial crisis.
Speaker 6: So, Ben, you cover the consumer finance industry. What are
Speaker 6: the companies that you cover? What are they telling you
Speaker 6: about the health of the consumer. There's a lot of
Speaker 6: places I like to go to get kind of first
Speaker 6: hand information. Restaurants for examples. I talked to Mike Haalen
Speaker 6: and he gives you a view. But also for you
Speaker 6: like the consumer finance companies because they bank everybody and
Speaker 6: not just the big blue chips. They bank you know,
Speaker 6: the small and some of the more questionable credits.
Speaker 3: What are they telling you?
Speaker 8: Yeah, so our credit card companies put out a really
Speaker 8: interesting data set every month with their delinquencies they're net
Speaker 8: charge offs and their growth. And the story is sort
Speaker 8: of two part. Loan growth is slowing, people are spending
Speaker 8: less money on their credit cards. Maybe consumer confidence is
Speaker 8: declining a little bit at the margins, but credit is
Speaker 8: still fantastic. It's still you know, write at about twenty
Speaker 8: nineteen levels. It's trending sort of down as though it
Speaker 8: might eclipse those levels, and buy and large borrowers are
Speaker 8: are very resilient. But if you sort of look down
Speaker 8: into the weeds of some of the more marginal lenders
Speaker 8: who are doing things like store credit cards, you know
Speaker 8: those people. Those companies say that they see some of
Speaker 8: their consumers struggling and managing through things like inflation, and
Speaker 8: so there's a potential at the margin of the economy
Speaker 8: worsens for that to create some trouble.
Speaker 2: But the question is are they paying off the credit
Speaker 2: card dead?
Speaker 8: Are they're paying it off? They are, Yeah, they're And delinquency, importantly,
Speaker 8: which is a leading indicator of charge offs, is still improving.
Speaker 8: And that gives you about a six month view into
Speaker 8: charge offs because of how they work and how long
Speaker 8: it takes, and so right now of the trend work
Speaker 8: to continue. Credit would keep improving over the next six months.
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