WEBVTT - Bloomberg Intelligence: Goldman Boosts Solomon Pay, Nike Job Cuts 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, Podcasts, radio news. You're listening to the 0:00:10.880 --> 0:00:15.040 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:15.080 --> 0:00:18.079 Eastern on Apple Card playing Android Otto with the Bloomberg 0:00:18.120 --> 0:00:21.440 Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:24.040 or watch us live on YouTube. 0:00:24.880 --> 0:00:28.960 Here is just the headline that just basically writes itself, 0:00:29.160 --> 0:00:33.200 Golden Goldman boosts Solomon's paid twenty four percent after firm's 0:00:33.200 --> 0:00:38.320 profits slumps twenty four percent. I meant beautiful pay for 0:00:38.440 --> 0:00:40.960 performance When I saw that headline, I figured it has 0:00:41.000 --> 0:00:43.120 to be the work of Schreieden on o Rogen because 0:00:43.120 --> 0:00:45.640 he covers Goldman Sacks like no one else out there, 0:00:45.880 --> 0:00:47.479 and we're kind of have to get a few minutes 0:00:48.080 --> 0:00:51.120 from Shreeden, not a Rogen Bloomberg News. So Shree Goldman 0:00:51.200 --> 0:00:55.440 Sacks boosted David Solomon CEO his compensation twenty four percent 0:00:55.480 --> 0:00:57.760 to an even thirty one million dollars. Good for him 0:00:58.160 --> 0:01:00.640 for a year when earning slumped at the Walls Tree Giant. 0:01:01.040 --> 0:01:01.960 What's the story behind this? 0:01:02.680 --> 0:01:06.000 It's interesting, right because for years we've always heard, and 0:01:06.040 --> 0:01:08.720 we always keep hearing that it's a pay for performance 0:01:08.760 --> 0:01:11.640 culture on Wall Street. But it is fascinating how some 0:01:11.720 --> 0:01:14.880 of these numbers come together. It's not science. It's always hard, 0:01:15.880 --> 0:01:18.080 you know. Sometimes you look at what happened in the year. 0:01:18.160 --> 0:01:22.560 Sometimes you look at what happens in the forward. Goldman's 0:01:22.600 --> 0:01:25.520 compensation committee, the board said there were a lot of 0:01:25.520 --> 0:01:28.039 strategic changes that were made in twenty twenty three. That 0:01:28.160 --> 0:01:31.679 is true. Solomon had initially leaned in on his retail 0:01:31.760 --> 0:01:35.080 banking aspirations for the Wall Street Giant, then tried to 0:01:35.280 --> 0:01:37.880 unwind it and spend much of the last day focused 0:01:37.920 --> 0:01:40.200 on that so that they're well set up for twenty 0:01:40.240 --> 0:01:43.360 twenty four and beyond on a strategy that resembles the 0:01:43.400 --> 0:01:46.400 Goldman sacs we've known for the last twenty twenty five years. 0:01:46.680 --> 0:01:50.320 The board is saying that means he deserves a big race. 0:01:51.240 --> 0:01:53.920 The number is a bit poetic. A twenty four percent 0:01:54.000 --> 0:01:56.280 jump when the profit is down twenty four percent to 0:01:56.400 --> 0:01:58.360 just go with it that twenty. 0:01:58.200 --> 0:02:00.720 Four years ago. If we just go to so it's 0:02:00.720 --> 0:02:02.920 getting a twenty four percent increased to do what they 0:02:02.920 --> 0:02:05.840 did decades ago. How do we think people inside the 0:02:05.880 --> 0:02:06.560 bank feel about this? 0:02:08.000 --> 0:02:10.160 I had been talking to a number of people even 0:02:10.200 --> 0:02:12.800 before the filing hit, and everyone was laser focused on 0:02:12.840 --> 0:02:15.079 what the number was likely to be. Remember, he took 0:02:15.120 --> 0:02:17.480 a near thirty percent cut last year when his pay 0:02:17.560 --> 0:02:20.360 was down to twenty five million dollars. That sounds like 0:02:20.800 --> 0:02:25.200 severe punishment, but that year profit was also down significantly 0:02:25.480 --> 0:02:29.120 in the forties. Everyone this year was focused and interested 0:02:29.160 --> 0:02:31.320 to see if he actually hit the thirty million dollar 0:02:31.360 --> 0:02:34.520 mark again, because it is fair to say, across the 0:02:34.520 --> 0:02:37.200 top ranks of Goldman sacks, most people did not get 0:02:37.200 --> 0:02:39.520 a twenty five percent jump. Their paid did not increase 0:02:39.600 --> 0:02:41.640 by a quarter. So they were focused on this. And 0:02:41.680 --> 0:02:43.680 one of the interesting parts is last year the pay 0:02:43.680 --> 0:02:46.120 announcement was made in January. Goldman has this habit of 0:02:46.120 --> 0:02:48.839 gathering it's roughly four hundred or so partners the top 0:02:48.880 --> 0:02:50.720 rank of the firm for this annual offside. They've been 0:02:50.720 --> 0:02:52.440 doing it in Miami for the last couple of years, 0:02:52.560 --> 0:02:54.919 and last year it came out in January before the 0:02:54.960 --> 0:02:58.320 pig disclosure came out before that meeting. This year, the 0:02:58.360 --> 0:03:01.160 pay disclosure was made off to that animal off side, 0:03:01.200 --> 0:03:02.440 which is interesting in itself. 0:03:02.840 --> 0:03:05.359 You know, I'm just trying to look for a benchmark 0:03:05.400 --> 0:03:07.119 comparison here, and I almost look at the Bloomberg terminal 0:03:07.200 --> 0:03:09.720 for Jamie Diamond, and what we have disclosed is his 0:03:09.800 --> 0:03:13.400 twenty twenty two compensation was a total of about thirty 0:03:13.639 --> 0:03:17.320 two point eight cash and non cash. It the stock 0:03:17.360 --> 0:03:19.280 has actually gone up since then, so the pay package 0:03:19.320 --> 0:03:21.440 has gone up, but just on the march, just on 0:03:21.480 --> 0:03:24.919 the margin for twenty twenty two, thirty two point eight. 0:03:25.040 --> 0:03:27.280 So just to give you a benchmark of Solomons right 0:03:27.360 --> 0:03:29.600 in line with what I would argue a peer. 0:03:30.200 --> 0:03:34.400 Would be, or more even Morgan Stanley and James Gorman, and. 0:03:34.480 --> 0:03:36.560 James Gorman comes and even higher at the forty seven 0:03:36.600 --> 0:03:39.160 twenty seven million. It was James Gorman's last year, so 0:03:39.240 --> 0:03:41.640 some of the boats thinking there was the follow us 0:03:41.680 --> 0:03:43.440 for twenty twenty three, but also a little bit of 0:03:43.480 --> 0:03:45.920 a go away package. But remember Morgan Stanley also had 0:03:45.920 --> 0:03:48.240 a pretty tough year. The thing that does stand out 0:03:48.240 --> 0:03:51.200 about Solomon's pay is that that jump in pay that 0:03:51.360 --> 0:03:54.320 person't they jump is bigger than any other major US 0:03:54.400 --> 0:03:54.839 bank peer. 0:03:55.480 --> 0:03:57.200 Oh, I'm sorry, you actually have it in your reporting. 0:03:57.240 --> 0:03:59.080 So we have the latest data. So last month JP 0:03:59.200 --> 0:04:02.040 Morgan Chase said it award a longtime CEO, Jamie Dimond 0:04:02.120 --> 0:04:04.600 thirty six million, dollars for the year of four point 0:04:04.640 --> 0:04:07.360 three percent from the year earlier. Morgan Stanley increased James 0:04:07.400 --> 0:04:10.360 Gormer's paid it seventeen percent to thirty seven million dollars, 0:04:10.360 --> 0:04:12.560 So that you've got the most recent numbers. I guess 0:04:12.960 --> 0:04:16.080 I don't know. I mean, what's the feeling for mister 0:04:16.200 --> 0:04:21.159 Solomon his position within the firm. It seems more ten now. 0:04:21.360 --> 0:04:21.680 I don't know. 0:04:21.920 --> 0:04:24.800 It seems more tenuous than say, like at any time 0:04:24.880 --> 0:04:26.880 for blank Fine, or any time before for some of 0:04:26.920 --> 0:04:27.600 the processors. 0:04:27.760 --> 0:04:30.440 Well, arguably, I don't know how comfortable Lloyd Blankfine would 0:04:30.480 --> 0:04:32.240 have felt in twenty ten to twenty eleven when he 0:04:32.360 --> 0:04:36.039 was facing those congressional inquisitions. That's much harder than any 0:04:36.120 --> 0:04:38.520 palace intrig that David Solomon has to deal with. I 0:04:38.560 --> 0:04:43.400 would argue his position, his standing, his quote unquote vibe 0:04:43.440 --> 0:04:45.960 inside the firm right now is perhaps better than any 0:04:46.040 --> 0:04:49.240 time in the last twelve months. Okay, it feels like 0:04:49.480 --> 0:04:52.160 all the griping in the internal risks and everything that 0:04:52.320 --> 0:04:55.120 was going public with the firm has quietened down a bit. 0:04:55.800 --> 0:04:58.520 That doesn't mean that the path forward is going to 0:04:58.560 --> 0:05:01.080 be exceptionally clean and easy for David Solomon, you will 0:05:01.120 --> 0:05:03.200 still have to show performance, and you will still have 0:05:03.320 --> 0:05:06.440 to show that after a couple of years when revenue 0:05:06.480 --> 0:05:08.800 has been down because capital markets have been clogged up, 0:05:08.839 --> 0:05:11.520 because you've had missus with your real estate investments. As 0:05:11.600 --> 0:05:14.359 you get past that, you can now move towards actually 0:05:14.880 --> 0:05:17.839 delivering on your financial targets. And that's important for Solomon. 0:05:17.880 --> 0:05:19.640 All right, srenad Roger, thanks so much for joining A 0:05:19.720 --> 0:05:22.040 short notice there Bloomberg News on that Golvi sas pay 0:05:22.680 --> 0:05:23.280 just fascinating. 0:05:24.800 --> 0:05:28.640 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:05:28.760 --> 0:05:32.280 weekdays at ten am Eastern on applecar Play and Android 0:05:32.320 --> 0:05:35.040 Otto with the Bloomberg Business App. You can also listen 0:05:35.200 --> 0:05:38.280 live on Amazon Alexa from our flagship New York station, 0:05:38.680 --> 0:05:41.400 Just say Alexa Play Bloomberg eleven thirty. 0:05:42.600 --> 0:05:46.279 Punomboyle, senior US e commerce and retail analysts. She joins 0:05:46.360 --> 0:05:48.440 us on Nike. Is it Nike or Nike? Do I 0:05:48.520 --> 0:05:49.200 have to say Nike? 0:05:49.440 --> 0:05:49.480 No? 0:05:49.880 --> 0:05:50.840 Like okay, so we don't do that. 0:05:51.600 --> 0:05:52.120 Where are you? 0:05:52.560 --> 0:05:52.960 I don't know. 0:05:55.160 --> 0:05:57.840 Adidas or ADDI does? I know it's a family name, 0:05:57.960 --> 0:06:01.839 but anyway, okay, so Nike, thank you well. Slash about 0:06:01.920 --> 0:06:05.000 a two percent of its global workforce. That stock is 0:06:05.120 --> 0:06:07.440 down four percent. And typically if we see a company 0:06:07.480 --> 0:06:09.440 get its house in order and cut costs, the stock 0:06:09.480 --> 0:06:11.960 can go up on that. Not in the case of Nike. Punam, 0:06:12.520 --> 0:06:13.960 what's Nike's problem? 0:06:15.200 --> 0:06:17.920 I think the problem isn't just Nike's problem. We've seen 0:06:18.040 --> 0:06:20.800 job cuts across the board in retail and a two 0:06:20.880 --> 0:06:24.280 percent reduction. While it sounds daunting and that things are 0:06:24.320 --> 0:06:27.160 getting weak, we think things are weak right. The top 0:06:27.279 --> 0:06:31.000 line environment for retail sales is a little murky. We 0:06:31.200 --> 0:06:33.880 expect them to be conservative in their guidance when they 0:06:33.920 --> 0:06:38.200 do report results coming up, But remember that two percent 0:06:38.279 --> 0:06:42.680 of their workforce compares to We had eBay identifying a 0:06:42.800 --> 0:06:45.200 nine percent cut earlier this year, we had rent the 0:06:45.279 --> 0:06:48.640 Runway with a ten percent cut. We had Amazon. Over 0:06:48.800 --> 0:06:51.920 twenty seven thousand employees were cut in the last two years. 0:06:52.279 --> 0:06:54.840 So this job cut news is, you know, while it 0:06:55.000 --> 0:06:57.760 seems that, oh my gosh, things are getting materially worse, 0:06:57.880 --> 0:07:02.159 I think it's just part of efficiencies in retail today. 0:07:02.600 --> 0:07:05.320 As a top line environment really is a little weaker 0:07:05.400 --> 0:07:05.920 than we think. 0:07:06.640 --> 0:07:09.600 So what's the story for Nike? I kind of feel 0:07:09.640 --> 0:07:13.400 like Nikes everywhere. I mean, how do you move the 0:07:13.520 --> 0:07:16.120 needle for a company like Nike. 0:07:17.160 --> 0:07:19.920 Yeah, so it's a fifty billion dollar brand, It's the 0:07:20.040 --> 0:07:22.800 number one sports for a brand in the world, and 0:07:23.280 --> 0:07:25.720 the bulk of its brand is footwear, which has given 0:07:25.760 --> 0:07:28.360 it some protection. I think moving the needle on Nike 0:07:28.560 --> 0:07:31.080 is really just about getting the supply chain right and 0:07:31.240 --> 0:07:34.520 really getting consumer trends to pick up across the globe. 0:07:34.640 --> 0:07:36.880 It is a global brand, so you can't have one 0:07:36.920 --> 0:07:39.559 region doing well and the other. Now, we need China 0:07:39.640 --> 0:07:41.880 to get better, we need Immia to get better, we 0:07:42.000 --> 0:07:44.920 need things to turn around in North America. It's collective, 0:07:45.040 --> 0:07:48.360 so we do need to see improvement in consumer spending 0:07:48.480 --> 0:07:52.360 patterns to really drive material improvement here. They're controlling what 0:07:52.480 --> 0:07:54.360 they can, which is costs, right. They had a two 0:07:54.440 --> 0:07:57.000 billion dollar plan in place that they put in December, 0:07:57.080 --> 0:08:00.240 which will unfold over the next three years. But on 0:08:00.320 --> 0:08:03.360 the top line, we do need momentum in terms of 0:08:03.400 --> 0:08:06.000 consumer spending to increase. The one thing that I'd say 0:08:06.080 --> 0:08:09.280 that would help them this year is sporting events, right, 0:08:09.640 --> 0:08:12.120 So I think as we see more sporting events come 0:08:12.680 --> 0:08:15.560 back to life with the summer World Cup in Paris 0:08:15.640 --> 0:08:19.000 this year, there is an opportunity to really create new 0:08:19.080 --> 0:08:22.880 product and innovation around that to drive demand up. But 0:08:23.400 --> 0:08:25.600 outside of that, you do need the broader macro to 0:08:25.680 --> 0:08:28.520 improve in all the regions that it participates in. 0:08:29.040 --> 0:08:31.400 So Nike, though, as you were mentioning from other brands, 0:08:31.800 --> 0:08:34.040 it is the least bad, right, That's why they're only 0:08:34.080 --> 0:08:37.160 cutting two percent versus more. Am I getting that roughly right? 0:08:37.880 --> 0:08:40.079 I mean it's a much smaller cut than what some 0:08:40.200 --> 0:08:42.480 of the other brands have done, though I wouldn't quantify 0:08:42.520 --> 0:08:46.200 as least or more, because you know, these cuts start 0:08:46.320 --> 0:08:48.839 and you don't know where they end. But we did 0:08:48.960 --> 0:08:52.160 see hiring ramp up in the pandemic to support digital 0:08:52.320 --> 0:08:55.439 orders from some of these online companies. So while their 0:08:55.559 --> 0:08:59.080 numbers seem bigger, they also probably hired more during the pandemic, 0:08:59.320 --> 0:09:01.959 which is just a reflection of things normalizing again. 0:09:02.280 --> 0:09:05.800 I see, what's the competitive landscape for Nike kind of 0:09:06.120 --> 0:09:06.920 just laid out for us. 0:09:07.720 --> 0:09:09.520 Yeah, so it is a larger sports for a brand. 0:09:09.559 --> 0:09:12.440 As you know, there is competition that is growing, whether 0:09:12.520 --> 0:09:16.080 it's through on Hoka all Birds. You know, there are 0:09:16.160 --> 0:09:19.520 other more niche, digitally native brands coming up the spectrum 0:09:19.640 --> 0:09:23.000 Adidas is coming back. We have new management team there 0:09:23.120 --> 0:09:28.120 and they're restepping and reaccelerating on the push for sports 0:09:28.280 --> 0:09:30.840 across the globe. So we think, you know, that gap 0:09:30.880 --> 0:09:33.679 that Nike had with Adidas had widened in the past 0:09:33.760 --> 0:09:37.000 four or five years, but that could narrow. That said, 0:09:37.240 --> 0:09:41.160 we do think Nike remains a very solid player in 0:09:41.320 --> 0:09:44.040 the active or market and they will continue to maintain 0:09:44.120 --> 0:09:47.400 their dominant hush, especially in footwear. The one thing that 0:09:47.440 --> 0:09:49.880 I'd say that you know, where there's probably more room 0:09:49.960 --> 0:09:51.000 for others to creep in. 0:09:53.040 --> 0:09:54.000 To Nike would be. 0:09:54.080 --> 0:09:57.360 On the apparel side. The apparel spectrum in active r 0:09:57.559 --> 0:10:03.400 is open a little Lemon, All Birds on Even and Adidas, 0:10:03.520 --> 0:10:06.600 under Armor, Puma. You know, they're all able to take 0:10:06.679 --> 0:10:10.000 share in that market as no one player really dominates 0:10:10.080 --> 0:10:12.360 it with a high margin like they do in footwear. 0:10:12.960 --> 0:10:16.640 So what makes like a footwear apparel in sports like 0:10:16.679 --> 0:10:19.000 a Nike or an Adidas or Puma, what makes that 0:10:19.280 --> 0:10:22.440 not discretionary? Like what makes that the must have? If 0:10:22.480 --> 0:10:24.160 I have the extra five bucks, I'm not going to 0:10:24.200 --> 0:10:26.600 buy the eggs. I'm going to buy this because it's 0:10:26.600 --> 0:10:28.520 not there yet, right, And that's kind of the problem. 0:10:29.679 --> 0:10:32.800 Yeah, So I think the footwear is something it depends 0:10:32.800 --> 0:10:35.440 if you're a sports person, right and you're playing sports. 0:10:35.920 --> 0:10:38.880 Your basketball sneakers are going to wear out, your soccer 0:10:39.000 --> 0:10:41.400 cleats will wear out. You will need to refresh and 0:10:41.440 --> 0:10:43.640 get a new pair. But it's not even about the sports. 0:10:43.679 --> 0:10:46.320 We learned through the pandemic that the wardrobe has changed. 0:10:46.400 --> 0:10:49.920 It's become more casual and probably more balanced today than 0:10:49.960 --> 0:10:53.360 it ever was before. So in that instance, you'll see 0:10:53.400 --> 0:10:58.120 people walking at conferences with active worst sneakers. Right, let's 0:10:58.160 --> 0:11:00.720 become a normal now, like you don't need those dress shoes. 0:11:00.760 --> 0:11:04.520 So people are dressing more uncomfortable where And that's a catalyst. 0:11:04.120 --> 0:11:06.760 For Nikash And that's actually an issue for me. The 0:11:07.160 --> 0:11:11.840 men in suits with the the sneakers. Even even David Weston, 0:11:11.880 --> 0:11:15.840 who I have tremendous respect for. He sports that look 0:11:16.000 --> 0:11:18.000 and he does it looks pretty solid at to say, 0:11:18.040 --> 0:11:20.240 but I'm like, David, I'm just not sure that's your brand, 0:11:20.320 --> 0:11:21.920 and he says I can adapt. 0:11:22.240 --> 0:11:25.040 He but like he would be the first one to 0:11:25.080 --> 0:11:28.120 say that he is not like a fashion icon. So 0:11:28.640 --> 0:11:30.400 I mean, let's let's put that out there. 0:11:30.480 --> 0:11:30.800 For sure. 0:11:31.160 --> 0:11:33.400 It's comfort, it's it's definitely a comfort. I'm looking at 0:11:33.400 --> 0:11:35.640 these two guys here. They're not wearing sneakers though, although 0:11:35.720 --> 0:11:38.079 John Tucker is wearing one of his shoes that aren't dressed. 0:11:38.080 --> 0:11:41.280 He's apparently two pairs and this is the non dress shoe. Correct. 0:11:41.360 --> 0:11:42.400 No, it's a sketcher. 0:11:42.920 --> 0:11:45.280 So that's okay, there's a sneaker. Okay, it's Friday. 0:11:45.360 --> 0:11:47.760 That's what Otherwise Paul would yell at me because he's 0:11:47.800 --> 0:11:49.240 apparently the fashion ployee. 0:11:49.640 --> 0:11:51.959 Exactly put him before. Before we let me go, we 0:11:52.080 --> 0:11:54.319 got to ask about China. Boy, I think about Nike 0:11:54.440 --> 0:11:56.560 is one of those names, that's boy. It's a supplier, 0:11:56.679 --> 0:11:58.880 it's a you know, they make stuff there. Plus they 0:11:59.000 --> 0:12:01.240 sell about fifteen send the revenues to China. What are 0:12:01.280 --> 0:12:02.200 they saying about China? 0:12:03.000 --> 0:12:05.719 China is a little weaker right now. We've heard from 0:12:05.760 --> 0:12:10.040 our analysts in China that the economy is not as 0:12:10.160 --> 0:12:12.280 robust as we would have expected, you know, coming out 0:12:12.320 --> 0:12:14.160 of the pandemic and also coming out of just their 0:12:14.280 --> 0:12:18.000 zero tolerance policy for COVID. It is one of the 0:12:18.120 --> 0:12:20.760 biggest growth areas for not just Nike, but really for 0:12:20.840 --> 0:12:23.280 a lot of US retailers. So we do need to 0:12:23.320 --> 0:12:26.319 see some acceleration in China. That said, I do think 0:12:26.360 --> 0:12:29.000 that you know, China is doing better for them today 0:12:29.080 --> 0:12:31.640 than it was during the pandemic, So there is some 0:12:31.840 --> 0:12:33.640 sign of hope, but we do need to see them 0:12:33.760 --> 0:12:36.560 stepping up the pedal on China. There is a lot 0:12:36.600 --> 0:12:40.079 of competition coming into China from other US brands, so 0:12:40.320 --> 0:12:43.640 it's once again an area where they don't own the space. 0:12:43.720 --> 0:12:45.960 They don't own the region in terms of sports where 0:12:46.120 --> 0:12:48.160 they are competing with other players as well. 0:12:48.280 --> 0:12:50.080 Should I be insulted? You guys didn't ask me about 0:12:50.120 --> 0:12:54.400 my shoes? Well, we know way too much about your shoes. 0:12:54.960 --> 0:12:57.600 You know, you're scratching the service, John Tecker, I hate 0:12:57.600 --> 0:12:59.160 putt him. Thanks a lot, We really appreciate it. Put 0:12:59.240 --> 0:13:02.040 them boil your US e commerce and retail analysts at 0:13:02.080 --> 0:13:03.000 Bloomberg Intelligence. 0:13:04.440 --> 0:13:08.280 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:13:08.400 --> 0:13:11.720 weekdays at ten am Eastern on Applecarplaying and Broud Auto 0:13:11.840 --> 0:13:14.679 with the Bloomberg Business app. Listen on demand wherever you 0:13:14.800 --> 0:13:17.800 get your podcasts, or watch us live on YouTube. 0:13:18.640 --> 0:13:21.360 We've been talking a lot this week about commercial real estate. 0:13:21.440 --> 0:13:24.360 We had that great piece out from Bloomberg finally about 0:13:24.400 --> 0:13:26.760 talking about how some of that real estate loans were 0:13:26.800 --> 0:13:30.840 starting to rerate and understand what the discount was really 0:13:30.880 --> 0:13:32.600 going to be. So we wanted to get the view 0:13:32.720 --> 0:13:35.120 from someone in a C suite at a very big bank. 0:13:35.160 --> 0:13:38.360 It's Huntington Bank Shares. It has a market cap of 0:13:38.640 --> 0:13:41.679 forty plus billion dollars. I think, if I just look there, 0:13:41.720 --> 0:13:44.800 you go eighteen my bad, eighteen billion dollars. But it's 0:13:44.800 --> 0:13:47.480 an one hundred and eighty nine billion dollars in assets. 0:13:48.080 --> 0:13:52.280 Is headquartered in Columbus, Ohio. It serves consumers, small and 0:13:52.320 --> 0:13:57.360 middle market businesses, corporations, municipalities, and lots of organizations with 0:13:57.520 --> 0:14:01.160 many different things banking, payment, wealth management, management, and services. 0:14:01.400 --> 0:14:03.400 So they kind of do it all and they're kind 0:14:03.400 --> 0:14:05.880 of in the sweet spot of where their assets are 0:14:05.920 --> 0:14:08.280 one hundred and eighty nine billion dollars worth. So let's 0:14:08.320 --> 0:14:11.439 get now to the CEO and chairman, Steve Steinauer. He 0:14:11.640 --> 0:14:13.640 joins us. Now, Hey, Steve, it's great to chat with you. 0:14:14.240 --> 0:14:14.960 Thanks for joining us. 0:14:14.960 --> 0:14:16.920 Thank you, Alex, and I hope your forecast to forty 0:14:16.960 --> 0:14:18.280 billion dollars is absolutely right. 0:14:18.400 --> 0:14:21.000 I doubled your market cap, so you're welcome. This is 0:14:21.000 --> 0:14:23.680 what we do here. So, Steve, we've heard a lot 0:14:23.680 --> 0:14:25.840 about the commercial real estate risks. Michael Barr was just 0:14:25.920 --> 0:14:28.720 talking about that from the FED Supervision, talking about they're 0:14:28.720 --> 0:14:31.880 really looking very closely at these loans. What is your exposure? 0:14:31.960 --> 0:14:35.280 How do you manage it as a CEO, Well. 0:14:35.200 --> 0:14:38.400 We manage it with limits, and we've had this discipline 0:14:38.440 --> 0:14:43.120 for fifteen years. So our exposure is always constrained by 0:14:43.200 --> 0:14:46.200 how much we are willing to do in any given category, 0:14:46.280 --> 0:14:50.640 including commercial real estate. So for us, we've got less 0:14:50.640 --> 0:14:53.800 than ten percent of our loan portfolio in commercial real estate. 0:14:53.880 --> 0:14:56.480 That compares to about fifteen percent for our average peers, 0:14:56.960 --> 0:14:59.440 and then we've tried to be very very conservative with it. 0:15:00.240 --> 0:15:04.960 Our reserves against for loan losses against that portfolio is 0:15:05.160 --> 0:15:07.680 a little over four percent four point two percent. Our 0:15:07.760 --> 0:15:11.520 peers are at two percent. From what we see, we 0:15:11.640 --> 0:15:14.840 think we're in great shape at this point, going and 0:15:15.000 --> 0:15:15.680 going forward. 0:15:16.120 --> 0:15:19.240 Steve described the kind of the character of your commercial 0:15:19.280 --> 0:15:21.560 real estate portfolio. I'm assuming you don't have a lot 0:15:21.600 --> 0:15:24.920 of exposure here to midtown Manhattan. Who's your customers? What's 0:15:24.920 --> 0:15:26.040 a typical loan look like for you? 0:15:27.680 --> 0:15:30.240 Our customers are usually going to be somebody who's been 0:15:30.320 --> 0:15:34.800 at this business for decades and maybe intergenerationally, so a 0:15:34.880 --> 0:15:41.400 multi generation family, a long long standing fund. And we're 0:15:41.480 --> 0:15:44.440 very selective about who we do business with. That's part 0:15:44.480 --> 0:15:47.160 of why we think we'll come through this in great shape. 0:15:48.240 --> 0:15:52.120 You know, if customers who are with us in two 0:15:52.200 --> 0:15:55.920 thousand and eight and nine and performed well during that 0:15:56.000 --> 0:15:58.440 period of time, then you know, those are relationships we've 0:15:58.440 --> 0:16:01.360 looked to build over the last fourteen or so and 0:16:02.160 --> 0:16:05.080 have been again very disciplined on what we're looking for. 0:16:05.320 --> 0:16:07.960 So in addition to that, there's global cash flow loan, 0:16:08.040 --> 0:16:11.760 the value guarantee support, things, guarantory. 0:16:11.400 --> 0:16:14.120 Support, things like that, and Steve, as other banks are 0:16:14.120 --> 0:16:16.560 coming to terms with their losses, would you be buying 0:16:16.600 --> 0:16:17.800 some of those loans from peers. 0:16:19.240 --> 0:16:21.280 No, we're not a. 0:16:21.360 --> 0:16:25.160 Bank that buys paper from other banks or or or 0:16:25.320 --> 0:16:30.680 other sources. We're a customer oriented institution. So if now, 0:16:30.680 --> 0:16:33.920 if one of our customers had a loan at another 0:16:34.280 --> 0:16:37.880 bank and that bank was unwilling to go forward with 0:16:38.000 --> 0:16:40.880 them for any reason or ask them to refinance that, 0:16:41.480 --> 0:16:44.040 we would expect they'd come to us and we'd certainly 0:16:44.080 --> 0:16:46.520 look at that. And if possible, we'd bank that loan. 0:16:46.960 --> 0:16:49.000 We will support our customers. 0:16:49.880 --> 0:16:53.480 Where what are your customers telling you these days? Are 0:16:53.560 --> 0:16:56.440 they are they taking down capital? Are they sitting tight? 0:16:56.760 --> 0:16:58.760 What are you seeing from both your retail and your 0:16:58.920 --> 0:16:59.720 corporate customers? 0:17:00.760 --> 0:17:00.960 Well? 0:17:01.760 --> 0:17:05.840 Now, moving outside of commercial real estate, generally, our commercial 0:17:05.920 --> 0:17:10.080 customers had an okay to good year in twenty three. 0:17:10.280 --> 0:17:13.480 Generally there are some exceptions, and this year is starting 0:17:13.520 --> 0:17:18.040 to shape up better with more certainty and more confidence. 0:17:18.160 --> 0:17:22.440 Some of that is induced by the FED effectively capping 0:17:22.560 --> 0:17:25.200 rates are what looks like to be capping rates and 0:17:25.400 --> 0:17:30.080 reducing rates, so that's a better environment versus an uncertain 0:17:30.200 --> 0:17:33.960 level of increasing interest rates. And additionally, there's been so 0:17:34.160 --> 0:17:37.560 much benefit out of the various stimulus packages that have 0:17:37.640 --> 0:17:40.000 come through the data, the last in the fourth quarter 0:17:40.080 --> 0:17:43.560 and already this year, that there's just more optimism that's 0:17:43.640 --> 0:17:46.680 generally in place. The consumer is doing well on the whole. 0:17:47.520 --> 0:17:50.879 So is this an economy then that you think needs 0:17:51.480 --> 0:17:55.000 rate cuts or is this an economy that needs normalization? 0:17:55.320 --> 0:17:56.480 What's your lens telling you? 0:17:58.240 --> 0:18:01.359 I think the forward mark get reset that just occurred 0:18:01.400 --> 0:18:04.480 this week, going from six cuts to three or four 0:18:04.760 --> 0:18:06.800 is now in line with what we think might happen. 0:18:07.200 --> 0:18:10.320 I don't believe the FED has to cut rates. I 0:18:10.440 --> 0:18:13.359 think just the fact that the outlook is not for 0:18:13.560 --> 0:18:17.600 increasing rates provides a level of certainty and confidence. I 0:18:17.720 --> 0:18:21.280 do believe as inflation continues to adjust downward that there 0:18:21.320 --> 0:18:24.280 will be rate cuts later in the year. Whether it's two, three, 0:18:24.400 --> 0:18:28.719 or four anybody's guests. But I think the market's now 0:18:28.920 --> 0:18:32.719 much more calibrated tightly to what's a higher probability outcome. 0:18:33.240 --> 0:18:35.879 Hey, Steve, When we had some of the weakness in 0:18:36.040 --> 0:18:38.920 some of the regional banks early last year and then 0:18:39.200 --> 0:18:41.560 this year at New York Community Bank, what I think 0:18:41.600 --> 0:18:43.880 that brought to light for a lot of people is, boy, 0:18:43.960 --> 0:18:46.320 there are a lot of regional banks around the United States. 0:18:46.400 --> 0:18:48.640 You know, some four thousand of them, and I guess 0:18:48.680 --> 0:18:51.480 that just banks. The question, you know, is that too many? 0:18:51.960 --> 0:18:55.440 So as you think about the regional banking space, do 0:18:55.520 --> 0:18:57.480 you think it's ripe for consolidation? Do you think it 0:18:57.560 --> 0:19:00.239 needs consolidation? And if so, how do you guys view 0:19:00.280 --> 0:19:01.320 that At Hunting Bank. 0:19:02.560 --> 0:19:05.080 Well, typically when we hear the term regional banks, it's 0:19:05.119 --> 0:19:08.280 usually banks one hundred billion up to the g SIPHY levels, 0:19:08.680 --> 0:19:10.359 and then there's the mid size, and then they're the 0:19:10.400 --> 0:19:13.480 community banks. The four thousand banks you reference would be 0:19:14.480 --> 0:19:17.720 a one thousand several thousand community banks, you know, three 0:19:17.840 --> 0:19:22.040 thousand plus community banks. And by that they find by that, 0:19:22.119 --> 0:19:26.159 I mean they do they service a defined geographic area, 0:19:26.320 --> 0:19:29.200 typically not multi state. Then you have sort of the 0:19:29.240 --> 0:19:31.679 mid size that could be multi state, and then one 0:19:31.760 --> 0:19:34.359 hundred billion or more you're going to be in multiple states. 0:19:34.640 --> 0:19:40.760 And so you know, NYCB unfortunately has a real estate 0:19:40.800 --> 0:19:44.600 concentration of very high con concentration. I think it's about 0:19:44.640 --> 0:19:47.160 fifty six fifty eight percent of their total loan portfolio 0:19:47.600 --> 0:19:49.840 in commercial real estate. It's one of the higher levels, 0:19:49.960 --> 0:19:53.920 highest levels in the country. And you know there's a 0:19:54.320 --> 0:19:56.680 there's a softness in New York and they're concentrated in 0:19:56.800 --> 0:20:00.480 New York, so very unique characteristics. I think what we 0:20:00.600 --> 0:20:05.200