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Speaker 2: Here is just the headline that just basically writes itself,
Speaker 2: Golden Goldman boosts Solomon's paid twenty four percent after firm's
Speaker 2: profits slumps twenty four percent. I meant beautiful pay for
Speaker 2: performance When I saw that headline, I figured it has
Speaker 2: to be the work of Schreieden on o Rogen because
Speaker 2: he covers Goldman Sacks like no one else out there,
Speaker 2: and we're kind of have to get a few minutes
Speaker 2: from Shreeden, not a Rogen Bloomberg News. So Shree Goldman
Speaker 2: Sacks boosted David Solomon CEO his compensation twenty four percent
Speaker 2: to an even thirty one million dollars. Good for him
Speaker 2: for a year when earning slumped at the Walls Tree Giant.
Speaker 2: What's the story behind this?
Speaker 3: It's interesting, right because for years we've always heard, and
Speaker 3: we always keep hearing that it's a pay for performance
Speaker 3: culture on Wall Street. But it is fascinating how some
Speaker 3: of these numbers come together. It's not science. It's always hard,
Speaker 3: you know. Sometimes you look at what happened in the year.
Speaker 3: Sometimes you look at what happens in the forward. Goldman's
Speaker 3: compensation committee, the board said there were a lot of
Speaker 3: strategic changes that were made in twenty twenty three. That
Speaker 3: is true. Solomon had initially leaned in on his retail
Speaker 3: banking aspirations for the Wall Street Giant, then tried to
Speaker 3: unwind it and spend much of the last day focused
Speaker 3: on that so that they're well set up for twenty
Speaker 3: twenty four and beyond on a strategy that resembles the
Speaker 3: Goldman sacs we've known for the last twenty twenty five years.
Speaker 3: The board is saying that means he deserves a big race.
Speaker 3: The number is a bit poetic. A twenty four percent
Speaker 3: jump when the profit is down twenty four percent to
Speaker 3: just go with it that twenty.
Speaker 4: Four years ago. If we just go to so it's
Speaker 4: getting a twenty four percent increased to do what they
Speaker 4: did decades ago. How do we think people inside the
Speaker 4: bank feel about this?
Speaker 3: I had been talking to a number of people even
Speaker 3: before the filing hit, and everyone was laser focused on
Speaker 3: what the number was likely to be. Remember, he took
Speaker 3: a near thirty percent cut last year when his pay
Speaker 3: was down to twenty five million dollars. That sounds like
Speaker 3: severe punishment, but that year profit was also down significantly
Speaker 3: in the forties. Everyone this year was focused and interested
Speaker 3: to see if he actually hit the thirty million dollar
Speaker 3: mark again, because it is fair to say, across the
Speaker 3: top ranks of Goldman sacks, most people did not get
Speaker 3: a twenty five percent jump. Their paid did not increase
Speaker 3: by a quarter. So they were focused on this. And
Speaker 3: one of the interesting parts is last year the pay
Speaker 3: announcement was made in January. Goldman has this habit of
Speaker 3: gathering it's roughly four hundred or so partners the top
Speaker 3: rank of the firm for this annual offside. They've been
Speaker 3: doing it in Miami for the last couple of years,
Speaker 3: and last year it came out in January before the
Speaker 3: pig disclosure came out before that meeting. This year, the
Speaker 3: pay disclosure was made off to that animal off side,
Speaker 3: which is interesting in itself.
Speaker 2: You know, I'm just trying to look for a benchmark
Speaker 2: comparison here, and I almost look at the Bloomberg terminal
Speaker 2: for Jamie Diamond, and what we have disclosed is his
Speaker 2: twenty twenty two compensation was a total of about thirty
Speaker 2: two point eight cash and non cash. It the stock
Speaker 2: has actually gone up since then, so the pay package
Speaker 2: has gone up, but just on the march, just on
Speaker 2: the margin for twenty twenty two, thirty two point eight.
Speaker 2: So just to give you a benchmark of Solomons right
Speaker 2: in line with what I would argue a peer.
Speaker 4: Would be, or more even Morgan Stanley and James Gorman, and.
Speaker 3: James Gorman comes and even higher at the forty seven
Speaker 3: twenty seven million. It was James Gorman's last year, so
Speaker 3: some of the boats thinking there was the follow us
Speaker 3: for twenty twenty three, but also a little bit of
Speaker 3: a go away package. But remember Morgan Stanley also had
Speaker 3: a pretty tough year. The thing that does stand out
Speaker 3: about Solomon's pay is that that jump in pay that
Speaker 3: person't they jump is bigger than any other major US
Speaker 3: bank peer.
Speaker 2: Oh, I'm sorry, you actually have it in your reporting.
Speaker 2: So we have the latest data. So last month JP
Speaker 2: Morgan Chase said it award a longtime CEO, Jamie Dimond
Speaker 2: thirty six million, dollars for the year of four point
Speaker 2: three percent from the year earlier. Morgan Stanley increased James
Speaker 2: Gormer's paid it seventeen percent to thirty seven million dollars,
Speaker 2: So that you've got the most recent numbers. I guess
Speaker 2: I don't know. I mean, what's the feeling for mister
Speaker 2: Solomon his position within the firm. It seems more ten now.
Speaker 5: I don't know.
Speaker 2: It seems more tenuous than say, like at any time
Speaker 2: for blank Fine, or any time before for some of
Speaker 2: the processors.
Speaker 3: Well, arguably, I don't know how comfortable Lloyd Blankfine would
Speaker 3: have felt in twenty ten to twenty eleven when he
Speaker 3: was facing those congressional inquisitions. That's much harder than any
Speaker 3: palace intrig that David Solomon has to deal with. I
Speaker 3: would argue his position, his standing, his quote unquote vibe
Speaker 3: inside the firm right now is perhaps better than any
Speaker 3: time in the last twelve months. Okay, it feels like
Speaker 3: all the griping in the internal risks and everything that
Speaker 3: was going public with the firm has quietened down a bit.
Speaker 3: That doesn't mean that the path forward is going to
Speaker 3: be exceptionally clean and easy for David Solomon, you will
Speaker 3: still have to show performance, and you will still have
Speaker 3: to show that after a couple of years when revenue
Speaker 3: has been down because capital markets have been clogged up,
Speaker 3: because you've had missus with your real estate investments. As
Speaker 3: you get past that, you can now move towards actually
Speaker 3: delivering on your financial targets. And that's important for Solomon.
Speaker 2: All right, srenad Roger, thanks so much for joining A
Speaker 2: short notice there Bloomberg News on that Golvi sas pay
Speaker 2: just fascinating.
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Speaker 4: Punomboyle, senior US e commerce and retail analysts. She joins
Speaker 4: us on Nike. Is it Nike or Nike? Do I
Speaker 4: have to say Nike?
Speaker 5: No?
Speaker 4: Like okay, so we don't do that.
Speaker 6: Where are you?
Speaker 5: I don't know.
Speaker 4: Adidas or ADDI does? I know it's a family name,
Speaker 4: but anyway, okay, so Nike, thank you well. Slash about
Speaker 4: a two percent of its global workforce. That stock is
Speaker 4: down four percent. And typically if we see a company
Speaker 4: get its house in order and cut costs, the stock
Speaker 4: can go up on that. Not in the case of Nike. Punam,
Speaker 4: what's Nike's problem?
Speaker 7: I think the problem isn't just Nike's problem. We've seen
Speaker 7: job cuts across the board in retail and a two
Speaker 7: percent reduction. While it sounds daunting and that things are
Speaker 7: getting weak, we think things are weak right. The top
Speaker 7: line environment for retail sales is a little murky. We
Speaker 7: expect them to be conservative in their guidance when they
Speaker 7: do report results coming up, But remember that two percent
Speaker 7: of their workforce compares to We had eBay identifying a
Speaker 7: nine percent cut earlier this year, we had rent the
Speaker 7: Runway with a ten percent cut. We had Amazon. Over
Speaker 7: twenty seven thousand employees were cut in the last two years.
Speaker 7: So this job cut news is, you know, while it
Speaker 7: seems that, oh my gosh, things are getting materially worse,
Speaker 7: I think it's just part of efficiencies in retail today.
Speaker 7: As a top line environment really is a little weaker
Speaker 7: than we think.
Speaker 2: So what's the story for Nike? I kind of feel
Speaker 2: like Nikes everywhere. I mean, how do you move the
Speaker 2: needle for a company like Nike.
Speaker 7: Yeah, so it's a fifty billion dollar brand, It's the
Speaker 7: number one sports for a brand in the world, and
Speaker 7: the bulk of its brand is footwear, which has given
Speaker 7: it some protection. I think moving the needle on Nike
Speaker 7: is really just about getting the supply chain right and
Speaker 7: really getting consumer trends to pick up across the globe.
Speaker 7: It is a global brand, so you can't have one
Speaker 7: region doing well and the other. Now, we need China
Speaker 7: to get better, we need Immia to get better, we
Speaker 7: need things to turn around in North America. It's collective,
Speaker 7: so we do need to see improvement in consumer spending
Speaker 7: patterns to really drive material improvement here. They're controlling what
Speaker 7: they can, which is costs, right. They had a two
Speaker 7: billion dollar plan in place that they put in December,
Speaker 7: which will unfold over the next three years. But on
Speaker 7: the top line, we do need momentum in terms of
Speaker 7: consumer spending to increase. The one thing that I'd say
Speaker 7: that would help them this year is sporting events, right,
Speaker 7: So I think as we see more sporting events come
Speaker 7: back to life with the summer World Cup in Paris
Speaker 7: this year, there is an opportunity to really create new
Speaker 7: product and innovation around that to drive demand up. But
Speaker 7: outside of that, you do need the broader macro to
Speaker 7: improve in all the regions that it participates in.
Speaker 4: So Nike, though, as you were mentioning from other brands,
Speaker 4: it is the least bad, right, That's why they're only
Speaker 4: cutting two percent versus more. Am I getting that roughly right?
Speaker 7: I mean it's a much smaller cut than what some
Speaker 7: of the other brands have done, though I wouldn't quantify
Speaker 7: as least or more, because you know, these cuts start
Speaker 7: and you don't know where they end. But we did
Speaker 7: see hiring ramp up in the pandemic to support digital
Speaker 7: orders from some of these online companies. So while their
Speaker 7: numbers seem bigger, they also probably hired more during the pandemic,
Speaker 7: which is just a reflection of things normalizing again.
Speaker 2: I see, what's the competitive landscape for Nike kind of
Speaker 2: just laid out for us.
Speaker 7: Yeah, so it is a larger sports for a brand.
Speaker 7: As you know, there is competition that is growing, whether
Speaker 7: it's through on Hoka all Birds. You know, there are
Speaker 7: other more niche, digitally native brands coming up the spectrum
Speaker 7: Adidas is coming back. We have new management team there
Speaker 7: and they're restepping and reaccelerating on the push for sports
Speaker 7: across the globe. So we think, you know, that gap
Speaker 7: that Nike had with Adidas had widened in the past
Speaker 7: four or five years, but that could narrow. That said,
Speaker 7: we do think Nike remains a very solid player in
Speaker 7: the active or market and they will continue to maintain
Speaker 7: their dominant hush, especially in footwear. The one thing that
Speaker 7: I'd say that you know, where there's probably more room
Speaker 7: for others to creep in.
Speaker 5: To Nike would be.
Speaker 7: On the apparel side. The apparel spectrum in active r
Speaker 7: is open a little Lemon, All Birds on Even and Adidas,
Speaker 7: under Armor, Puma. You know, they're all able to take
Speaker 7: share in that market as no one player really dominates
Speaker 7: it with a high margin like they do in footwear.
Speaker 4: So what makes like a footwear apparel in sports like
Speaker 4: a Nike or an Adidas or Puma, what makes that
Speaker 4: not discretionary? Like what makes that the must have? If
Speaker 4: I have the extra five bucks, I'm not going to
Speaker 4: buy the eggs. I'm going to buy this because it's
Speaker 4: not there yet, right, And that's kind of the problem.
Speaker 7: Yeah, So I think the footwear is something it depends
Speaker 7: if you're a sports person, right and you're playing sports.
Speaker 7: Your basketball sneakers are going to wear out, your soccer
Speaker 7: cleats will wear out. You will need to refresh and
Speaker 7: get a new pair. But it's not even about the sports.
Speaker 7: We learned through the pandemic that the wardrobe has changed.
Speaker 7: It's become more casual and probably more balanced today than
Speaker 7: it ever was before. So in that instance, you'll see
Speaker 7: people walking at conferences with active worst sneakers. Right, let's
Speaker 7: become a normal now, like you don't need those dress shoes.
Speaker 7: So people are dressing more uncomfortable where And that's a catalyst.
Speaker 2: For Nikash And that's actually an issue for me. The
Speaker 2: men in suits with the the sneakers. Even even David Weston,
Speaker 2: who I have tremendous respect for. He sports that look
Speaker 2: and he does it looks pretty solid at to say,
Speaker 2: but I'm like, David, I'm just not sure that's your brand,
Speaker 2: and he says I can adapt.
Speaker 4: He but like he would be the first one to
Speaker 4: say that he is not like a fashion icon. So
Speaker 4: I mean, let's let's put that out there.
Speaker 5: For sure.
Speaker 4: It's comfort, it's it's definitely a comfort. I'm looking at
Speaker 4: these two guys here. They're not wearing sneakers though, although
Speaker 4: John Tucker is wearing one of his shoes that aren't dressed.
Speaker 4: He's apparently two pairs and this is the non dress shoe. Correct.
Speaker 1: No, it's a sketcher.
Speaker 4: So that's okay, there's a sneaker. Okay, it's Friday.
Speaker 6: That's what Otherwise Paul would yell at me because he's
Speaker 6: apparently the fashion ployee.
Speaker 2: Exactly put him before. Before we let me go, we
Speaker 2: got to ask about China. Boy, I think about Nike
Speaker 2: is one of those names, that's boy. It's a supplier,
Speaker 2: it's a you know, they make stuff there. Plus they
Speaker 2: sell about fifteen send the revenues to China. What are
Speaker 2: they saying about China?
Speaker 7: China is a little weaker right now. We've heard from
Speaker 7: our analysts in China that the economy is not as
Speaker 7: robust as we would have expected, you know, coming out
Speaker 7: of the pandemic and also coming out of just their
Speaker 7: zero tolerance policy for COVID. It is one of the
Speaker 7: biggest growth areas for not just Nike, but really for
Speaker 7: a lot of US retailers. So we do need to
Speaker 7: see some acceleration in China. That said, I do think
Speaker 7: that you know, China is doing better for them today
Speaker 7: than it was during the pandemic, So there is some
Speaker 7: sign of hope, but we do need to see them
Speaker 7: stepping up the pedal on China. There is a lot
Speaker 7: of competition coming into China from other US brands, so
Speaker 7: it's once again an area where they don't own the space.
Speaker 7: They don't own the region in terms of sports where
Speaker 7: they are competing with other players as well.
Speaker 4: Should I be insulted? You guys didn't ask me about
Speaker 4: my shoes? Well, we know way too much about your shoes.
Speaker 4: You know, you're scratching the service, John Tecker, I hate
Speaker 4: putt him. Thanks a lot, We really appreciate it. Put
Speaker 4: them boil your US e commerce and retail analysts at
Speaker 4: Bloomberg Intelligence.
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Speaker 4: We've been talking a lot this week about commercial real estate.
Speaker 4: We had that great piece out from Bloomberg finally about
Speaker 4: talking about how some of that real estate loans were
Speaker 4: starting to rerate and understand what the discount was really
Speaker 4: going to be. So we wanted to get the view
Speaker 4: from someone in a C suite at a very big bank.
Speaker 4: It's Huntington Bank Shares. It has a market cap of
Speaker 4: forty plus billion dollars. I think, if I just look there,
Speaker 4: you go eighteen my bad, eighteen billion dollars. But it's
Speaker 4: an one hundred and eighty nine billion dollars in assets.
Speaker 4: Is headquartered in Columbus, Ohio. It serves consumers, small and
Speaker 4: middle market businesses, corporations, municipalities, and lots of organizations with
Speaker 4: many different things banking, payment, wealth management, management, and services.
Speaker 4: So they kind of do it all and they're kind
Speaker 4: of in the sweet spot of where their assets are
Speaker 4: one hundred and eighty nine billion dollars worth. So let's
Speaker 4: get now to the CEO and chairman, Steve Steinauer. He
Speaker 4: joins us. Now, Hey, Steve, it's great to chat with you.
Speaker 4: Thanks for joining us.
Speaker 6: Thank you, Alex, and I hope your forecast to forty
Speaker 6: billion dollars is absolutely right.
Speaker 4: I doubled your market cap, so you're welcome. This is
Speaker 4: what we do here. So, Steve, we've heard a lot
Speaker 4: about the commercial real estate risks. Michael Barr was just
Speaker 4: talking about that from the FED Supervision, talking about they're
Speaker 4: really looking very closely at these loans. What is your exposure?
Speaker 4: How do you manage it as a CEO, Well.
Speaker 6: We manage it with limits, and we've had this discipline
Speaker 6: for fifteen years. So our exposure is always constrained by
Speaker 6: how much we are willing to do in any given category,
Speaker 6: including commercial real estate. So for us, we've got less
Speaker 6: than ten percent of our loan portfolio in commercial real estate.
Speaker 6: That compares to about fifteen percent for our average peers,
Speaker 6: and then we've tried to be very very conservative with it.
Speaker 6: Our reserves against for loan losses against that portfolio is
Speaker 6: a little over four percent four point two percent. Our
Speaker 6: peers are at two percent. From what we see, we
Speaker 6: think we're in great shape at this point, going and
Speaker 6: going forward.
Speaker 2: Steve described the kind of the character of your commercial
Speaker 2: real estate portfolio. I'm assuming you don't have a lot
Speaker 2: of exposure here to midtown Manhattan. Who's your customers? What's
Speaker 2: a typical loan look like for you?
Speaker 6: Our customers are usually going to be somebody who's been
Speaker 6: at this business for decades and maybe intergenerationally, so a
Speaker 6: multi generation family, a long long standing fund. And we're
Speaker 6: very selective about who we do business with. That's part
Speaker 6: of why we think we'll come through this in great shape.
Speaker 6: You know, if customers who are with us in two
Speaker 6: thousand and eight and nine and performed well during that
Speaker 6: period of time, then you know, those are relationships we've
Speaker 6: looked to build over the last fourteen or so and
Speaker 6: have been again very disciplined on what we're looking for.
Speaker 6: So in addition to that, there's global cash flow loan,
Speaker 6: the value guarantee support, things, guarantory.
Speaker 4: Support, things like that, and Steve, as other banks are
Speaker 4: coming to terms with their losses, would you be buying
Speaker 4: some of those loans from peers.
Speaker 5: No, we're not a.
Speaker 6: Bank that buys paper from other banks or or or
Speaker 6: other sources. We're a customer oriented institution. So if now,
Speaker 6: if one of our customers had a loan at another
Speaker 6: bank and that bank was unwilling to go forward with
Speaker 6: them for any reason or ask them to refinance that,
Speaker 6: we would expect they'd come to us and we'd certainly
Speaker 6: look at that. And if possible, we'd bank that loan.
Speaker 6: We will support our customers.
Speaker 2: Where what are your customers telling you these days? Are
Speaker 2: they are they taking down capital? Are they sitting tight?
Speaker 2: What are you seeing from both your retail and your
Speaker 2: corporate customers?
Speaker 5: Well?
Speaker 6: Now, moving outside of commercial real estate, generally, our commercial
Speaker 6: customers had an okay to good year in twenty three.
Speaker 6: Generally there are some exceptions, and this year is starting
Speaker 6: to shape up better with more certainty and more confidence.
Speaker 6: Some of that is induced by the FED effectively capping
Speaker 6: rates are what looks like to be capping rates and
Speaker 6: reducing rates, so that's a better environment versus an uncertain
Speaker 6: level of increasing interest rates. And additionally, there's been so
Speaker 6: much benefit out of the various stimulus packages that have
Speaker 6: come through the data, the last in the fourth quarter
Speaker 6: and already this year, that there's just more optimism that's
Speaker 6: generally in place. The consumer is doing well on the whole.
Speaker 4: So is this an economy then that you think needs
Speaker 4: rate cuts or is this an economy that needs normalization?
Speaker 4: What's your lens telling you?
Speaker 6: I think the forward mark get reset that just occurred
Speaker 6: this week, going from six cuts to three or four
Speaker 6: is now in line with what we think might happen.
Speaker 6: I don't believe the FED has to cut rates. I
Speaker 6: think just the fact that the outlook is not for
Speaker 6: increasing rates provides a level of certainty and confidence. I
Speaker 6: do believe as inflation continues to adjust downward that there
Speaker 6: will be rate cuts later in the year. Whether it's two, three,
Speaker 6: or four anybody's guests. But I think the market's now
Speaker 6: much more calibrated tightly to what's a higher probability outcome.
Speaker 2: Hey, Steve, When we had some of the weakness in
Speaker 2: some of the regional banks early last year and then
Speaker 2: this year at New York Community Bank, what I think
Speaker 2: that brought to light for a lot of people is, boy,
Speaker 2: there are a lot of regional banks around the United States.
Speaker 2: You know, some four thousand of them, and I guess
Speaker 2: that just banks. The question, you know, is that too many?
Speaker 2: So as you think about the regional banking space, do
Speaker 2: you think it's ripe for consolidation? Do you think it
Speaker 2: needs consolidation? And if so, how do you guys view
Speaker 2: that At Hunting Bank.
Speaker 6: Well, typically when we hear the term regional banks, it's
Speaker 6: usually banks one hundred billion up to the g SIPHY levels,
Speaker 6: and then there's the mid size, and then they're the
Speaker 6: community banks. The four thousand banks you reference would be
Speaker 6: a one thousand several thousand community banks, you know, three
Speaker 6: thousand plus community banks. And by that they find by that,
Speaker 6: I mean they do they service a defined geographic area,
Speaker 6: typically not multi state. Then you have sort of the
Speaker 6: mid size that could be multi state, and then one
Speaker 6: hundred billion or more you're going to be in multiple states.
Speaker 6: And so you know, NYCB unfortunately has a real estate
Speaker 6: concentration of very high con concentration. I think it's about
Speaker 6: fifty six fifty eight percent of their total loan portfolio
Speaker 6: in commercial real estate. It's one of the higher levels,
Speaker 6: highest levels in the country. And you know there's a
Speaker 6: there's a softness in New York and they're concentrated in
Speaker 6: New York, so very unique characteristics. I think what we
Speaker 6: saw from CBRE yesterday saying they believe office valuations have
Speaker 6: generally bottomed out, it's a very encouraging sign.
Speaker 4: But to that point, another part of what happened to
Speaker 4: your community bank was that they got into a different
Speaker 4: regulatory pier, a tier, and they had to put more
Speaker 4: money away because of the assets they've bought from signature.
Speaker 4: What do you think, like, has it happened to you?
Speaker 4: Does that sort of change how you view growth in
Speaker 4: the company.
Speaker 5: Not at all.
Speaker 6: We're very much front footed. We grew loans last year
Speaker 6: and deposits core deposits, and we expect to do that
Speaker 6: this year. We're investing in the businesses. We see this
Speaker 6: as a moment where this uncertainty actually can be an advantage.
Speaker 6: We've got very strong liquidity, core deposits, capital earnings, our
Speaker 6: credit's bent outstanding, and so we're investing. We're expanding. We've
Speaker 6: opened up in the Carolinas in the last quarter. We've
Speaker 6: added especially banking business lines. There are a series of
Speaker 6: other actions that we've taken that will create more and
Speaker 6: a revenue for us. So we're in a growth dynamic.
Speaker 2: Stephen Contra in terms of that growth plan, do acquisitions
Speaker 2: figure into that?
Speaker 5: Is?
Speaker 2: Are you guys interested in maybe growing via acquisitions Now?
Speaker 6: We're very focused on growing the core and we think
Speaker 6: we have a lot of opportunities. We combined with a
Speaker 6: bank called TCF just coming up on three years. We
Speaker 6: see a lot of opportunity still in that combination. And
Speaker 6: then those investments I mentioned a moment ago they're all
Speaker 6: just starting. And so in addition to the core growth
Speaker 6: we historically have had and we'll continue to have, we
Speaker 6: have these new revenue streams that we've already invested in.
Speaker 4: And before I let you go, can you rate the
Speaker 4: health of the consumer for US ten being amazingly awesome,
Speaker 4: zero being no one spending as all COVID.
Speaker 6: I'd say we're somewhere around a seven plus percent. And
Speaker 6: now you know, there's the inflation has impacted a lower
Speaker 6: income here of our society unfortunately, but there's still a
Speaker 6: lot of spending. And this January number I think will
Speaker 6: prove to be a blip on the screen after a
Speaker 6: fairly after a fairly strong fourth quarter.
Speaker 4: Steve, so great to see you. Really appreciate thanks for
Speaker 4: taking the time. It's a super valuable conversation to get
Speaker 4: a reader from you. Steve Seinauer, Chairman, president and CEO
Speaker 4: of Huntington Bank. Okay, seven plus yea, seven plus? All right?
Speaker 2: I mean, and you think about it. I mean that
Speaker 2: the markets, you know, they're based in Columbus, Ohio, of
Speaker 2: the great state of Ohios. Matt Miller always makes us say,
Speaker 2: and that part of the country, you know, we've heard
Speaker 2: from others. You know, there's some innovation going on, there's
Speaker 2: some decent economic growth there, and so if you're a
Speaker 2: bank that serves that part of the world with some
Speaker 2: good franchises, it sounds like it's a pretty good business.
Speaker 2: And I was just you know, they have less than
Speaker 2: ten percent of their portfolio in coercial real estate, so
Speaker 2: that sounds pretty good relative to peers.
Speaker 4: Right, and just highlights what we've been talking about sort
Speaker 4: of all week that like, yes, certain loans will blow
Speaker 4: up and be bad. Ye, it's just identifying them and
Speaker 4: then the timing of when that becomes. But overall it's
Speaker 4: a much different situation. Anyway, that was a fun conversation.
Speaker 4: Enjoyed that.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 4: One of my favorite indicators NFIB but also you Mish
Speaker 4: University of Michigan sentiment for February. The preliminary read came
Speaker 4: in a little and I mean a little lighter than
Speaker 4: estimated seventy nine point six. Current conditions eighty one point
Speaker 4: five a little lighter but still okay. Expectations coming in
Speaker 4: seventy eight point four, that's better. And one year inflation
Speaker 4: expectations take up to three percent. Five to ten year
Speaker 4: inflation expectations take up to two point nine percent. This
Speaker 4: all means something because FED Chair J. Powell has quoted
Speaker 4: the expectation from you Mish in terms of inflation as
Speaker 4: sometimes a real pivotal read for them in terms of
Speaker 4: what inflation is actually doing. And that's why we go
Speaker 4: to Joanne Too, University of Michigan, Surveys of Consumer and
Speaker 4: director who runs all of this wonderful data for us. Joan,
Speaker 4: I gotta say, I look at the numbers and I'm like, nah, okay,
Speaker 4: kind of like a nothing burger. What's the something burger?
Speaker 8: The main point to see is that we just followed
Speaker 8: two months of tremendous improvements in sentiment. We're about thirty
Speaker 8: percent higher than we were back in November, and I
Speaker 8: think there were questions on whether or not this was
Speaker 8: going to stick, and what we saw today is that
Speaker 8: indeed we have solidified those games for the last two months,
Speaker 8: they weren't a fluke whatsoever. Consumers are on an upper trajectory.
Speaker 8: There isn't much room for improving after a thirty percent search,
Speaker 8: So this doesn't come as too much of a surprise,
Speaker 8: but it does solidify those games.
Speaker 2: Yeah, that context certainly helps put the February numbers into context.
Speaker 2: So Joanne, talk to us. Just remind us kind of
Speaker 2: what are some of the main drivers of your survey.
Speaker 8: So the survey covers various aspects of the economy, both
Speaker 8: the personal finances as well as the macroeconomy, labor markets
Speaker 8: as well as unemployment and business conditions, and the index
Speaker 8: itself focuses on business conditions and personal finances. And what
Speaker 8: we were seeing both in February as well as last month,
Speaker 8: is that consumers really are feeling considerably more confident that
Speaker 8: inflation has truly turned a corner, and they are starting
Speaker 8: to internalize strong labor markets. For much of last year,
Speaker 8: sentiment was quite low in spite of strong labor markets,
Speaker 8: and now what we're seeing is that consumers are expecting
Speaker 8: robust growth in their incomes in the year ahead, and
Speaker 8: they are feeling much more confident about those labor markets
Speaker 8: as well.
Speaker 4: Rut roll, then we got the CPI, then we got
Speaker 4: the PPI. What are your what are the respondents most
Speaker 4: sensitive to you when it comes to the inflation outlook?
Speaker 4: And will the data this week kind of change it
Speaker 4: for your next read?
Speaker 8: I don't expect things to change too much for our
Speaker 8: next read because consumers not watching the CPIPPI prints. What
Speaker 8: they are incorporating are their experiences in the world around them.
Speaker 8: And you know, as an example, the most recent CPI print,
Speaker 8: it was already reflected in the prices that people faced
Speaker 8: in our earlier in the month. So you know, we
Speaker 8: did see in our current, our current measurement of inflation
Speaker 8: expectations that the year ahead inflation expectations inched up from
Speaker 8: two point nine to three point zero. And I think
Speaker 8: that's consistent with what consumers were noticing. So even though
Speaker 8: we are seeing in inflation remaining a little bit elevated,
Speaker 8: consumers are not concerned at this time that it's going
Speaker 8: to come roaring back.
Speaker 4: And at the same time, the long.
Speaker 8: Run inflation expectations, which is followed most closely by policymakers,
Speaker 8: including the FED that has not budged for three months,
Speaker 8: we've been at two point nine percent for three months
Speaker 8: in a row. We've been between two point nine and
Speaker 8: three point one percent for almost three years, so that's
Speaker 8: been pretty stubborn and hasn't come down and still remains
Speaker 8: a little bit elevated pre pandemic, but again much lower
Speaker 8: than we were seeing with current inflation.
Speaker 2: Joan, the labor market remains, you know, pretty darn robust
Speaker 2: and pretty darn resilient here. Most people who want a
Speaker 2: job have a job, but they're getting some reasonable wage increases,
Speaker 2: certainly in many cases better than the inflation rate. How
Speaker 2: does the labor market factor into your survey?
Speaker 8: So there was quite a bit of variation over the
Speaker 8: last year about who was seeing the large wage gains,
Speaker 8: whose wage gains were keeping up with inflation or exceeding inflation,
Speaker 8: and who's were not. And I think it's taken several
Speaker 8: months of sustained strength and labor markets for that to
Speaker 8: really pass through to people's pocketbooks and through to their
Speaker 8: expectations for the future. And so there is a growing
Speaker 8: share of consumers who expect their income games to outstrip
Speaker 8: inflation or at least keep up with inflation and in
Speaker 8: the year ahead, and that's certainly going to provide additional
Speaker 8: support for consumer spending. As we're on this upswinging sentiment, how.
Speaker 4: Closely are we worried about gasoline prices? Like, I appreciate
Speaker 4: the idea that the PPI and CPI, well, yeah, that
Speaker 4: that reflected significantly. Yes, that's what I said. But so
Speaker 4: the CPI was reflecting prices that they already felt like
Speaker 4: in the store. But gasoline prices have really moved up,
Speaker 4: and I'm just wondering what you sense the sensitivity is there.
Speaker 8: Consumers are perfectly aware that gas prices are very volatile,
Speaker 8: and they're actually quite unique in that they're really the
Speaker 8: only prices that will go down as well as up.
Speaker 8: And it is true that consumers are going to see
Speaker 8: have seen the increase in prices at the pump recently,
Speaker 8: but concerns over gas prices are much lower than they
Speaker 8: have been in the past. Those for whom gas prices
Speaker 8: really bite, they definitely they are mentioning it on the survey,
Speaker 8: and they have lower levels of sentiment than than for others.
Speaker 8: But the share of people for whom those gas prices
Speaker 8: are biting is shrinking over time, and so this could
Speaker 8: affect sentiment going going forward. But I do not expect
Speaker 8: a large impact.
Speaker 2: What's the biggest I guess concern of yours as you
Speaker 2: look through your survey data or the concern of your
Speaker 2: the folks who do take the survey.
Speaker 8: I think the big thing to watch in the year
Speaker 8: ahead is is the influence of the election. We ask
Speaker 8: many questions on the survey about what people consumers expect
Speaker 8: in the year ahead and as well as the long
Speaker 8: term five to ten years ahead, and a growing share
Speaker 8: consumers are telling us well, it really depends on what's
Speaker 8: going to happen with the election. And of course we're
Speaker 8: very early in election season. There's a tremendous amount of uncertainty,
Speaker 8: and so as that uncertainty starts to unwind, the picture
Speaker 8: could look very different depending on how people think the
Speaker 8: projected results of the election will end up for the economy.
Speaker 4: Well, but interesting point because normally doanne do you do
Speaker 4: Democrat versus Republican on how they feel like? Is that
Speaker 4: sentiment gap still really there?
Speaker 8: Yes, it's been there. It's been there for the last
Speaker 8: eight years, and that's when we started. That's when we
Speaker 8: really started to measure political party affiliation on a monthly basis.
Speaker 8: But we used to do it a few times per administration.
Speaker 8: And we've always seen that consumers who belong to the
Speaker 8: political party that's in the White House tend to have
Speaker 8: higher level of the sentiment than people whose party is
Speaker 8: not in the White House. So that's no different right now.
Speaker 8: But what's really interesting is that even though you know,
Speaker 8: Republicans have much lower levels of sentiment than Democrats and
Speaker 8: Independence are right in the middle, all three political groups
Speaker 8: saw tremendous gains and sentiment over the last three months.
Speaker 8: So the fact that sentiment has made this thirty percent
Speaker 8: search since November, that's not attributable to just one party
Speaker 8: or the other. That's really nationwide.
Speaker 4: Really interesting. Heyuan, thanks a lot. We always love the
Speaker 4: incident analysis. Love this at a point. Thank you. We
Speaker 4: will see you at the next read Joe in Shoe
Speaker 4: joining US University of Michigan Surveys of Consumer Director.
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Speaker 2: Thirty one of those economic data points today were housing
Speaker 2: starts came in minus fourteen point eight percent month. The
Speaker 2: month of consensus was for flat, so coming in kind
Speaker 2: of higher than expected here. So maybe you know the
Speaker 2: fact that we're not getting mortgage rates coming down as
Speaker 2: fast as maybe some people like, maybe that's having an
Speaker 2: impact on the market. Let's check in with Drew Reading.
Speaker 2: He's with Bloomberg Intelligence. He covers all the home building
Speaker 2: stocks here. Hey, Drew, talk to us about kind of
Speaker 2: your reaction to this housing start number and kind of
Speaker 2: what's happening out there in your world of building and
Speaker 2: building house.
Speaker 5: Sure, so, as you mentioned, it was a pretty big
Speaker 5: headline miss, down fourteen point eight percent from last month.
Speaker 5: A couple things to point out in this release. First,
Speaker 5: there's a pretty pretty big revision to the December numbers,
Speaker 5: so that's part of it. The second thing you have
Speaker 5: to consider is that multifamily drove the biggest part of
Speaker 5: this decline. So single family housing starts we're only down
Speaker 5: about four and a half percent. Multi family was down
Speaker 5: somewhere around thirty six percent. And then at the same time,
Speaker 5: you know, we do have this ongoing rate volatility, so
Speaker 5: it does likely reflect some caution by the builders, but
Speaker 5: you know, when we look at this release monthly, the
Speaker 5: data point that we tend to focus more on is
Speaker 5: the building permit number. They tend to be more consistent,
Speaker 5: you know. And in that regard, we actually saw a
Speaker 5: two percent increase from last month and there are more
Speaker 5: than forty percent from last year. So the trajectory for
Speaker 5: single family housing is still positive. And this is kind
Speaker 5: of the same dynamic that we expect to play out
Speaker 5: through twenty twenty four. Is more strength in the single
Speaker 5: family versus the multi family side.
Speaker 4: I thought that permits were down by one and a
Speaker 4: half percent. Am I What am I missing?
Speaker 5: So we're looking at the single family piece.
Speaker 4: Oh, I see, and then that was better. So what
Speaker 4: do permits and starts to respond most too?
Speaker 5: Like?
Speaker 4: Is it time of year, is it weather, is it rates?
Speaker 4: What's the trigger for these guys?
Speaker 5: Yeah, So we tend to prefer permits because generally, if
Speaker 5: a builder is going to pull a permit, they have
Speaker 5: the intention to break around on a house. When you're
Speaker 5: talking about starts, there's always a lot more volatility in
Speaker 5: these numbers. You know, you could have on any given month,
Speaker 5: maybe your access to labor wasn't good, maybe it's weather,
Speaker 5: you know some of the trades, so it tends to
Speaker 5: be a lot longer, which is why we prefer to
Speaker 5: look at permits.
Speaker 2: So, Drue, I mean, is it still a bullish call
Speaker 2: for home building stocks here, because I guess the narrative
Speaker 2: is nobody's selling their existing homes, so if people want
Speaker 2: to buy it, you get a home, they got to
Speaker 2: go get a new one. Is that still kind of
Speaker 2: the long term narrative here?
Speaker 5: Yeah, I think that theme is still in place for
Speaker 5: twenty twenty four. Like you mentioned, resale supply still very low.
Speaker 5: Builders are actually increasing their start So when we look
Speaker 5: out the next year, we think that the broader new
Speaker 5: construction market is up in the mid single digit range,
Speaker 5: but we think that the larger publicly traded home builders
Speaker 5: could be a ten percent. Part of the reason is
Speaker 5: because they have the access to land, they have the
Speaker 5: access to labor, they're well capitalized, and you can transt
Speaker 5: that with their smaller private peers who typically rely on
Speaker 5: regional bank financing to grow their business. So with the
Speaker 5: cost of their capital increasing and the availability of that
Speaker 5: capital increasing, it's harder for them to grow. So that's
Speaker 5: why we think the advantage continues to rest with the
Speaker 5: large builders.
Speaker 4: So are those the builders that we're also offering like
Speaker 4: discounts or sort of adding in some extra juice for
Speaker 4: first time home buyers or home buyers and their property
Speaker 4: so they could get them to sell. Are those are
Speaker 4: those buyers? And do they stop that stuff?
Speaker 5: Yeah, So a majority of the home builders are still
Speaker 5: offering incentives. Most buyers will take a financing incentives and
Speaker 5: you typically think of a rate buydown, and that's the
Speaker 5: builders have had great success in pulling that lever to
Speaker 5: get the get buyers through the door. And it's made
Speaker 5: the monthly payments on a new home increasingly comparable to
Speaker 5: what you would find in these existing home market, which
Speaker 5: isn't something that you've seen historically. Now, one of the
Speaker 5: themes that investors are looking out into twenty twenty four
Speaker 5: is if rates pull back this year, can builders kind
Speaker 5: of take their foot off the gas pedal from an
Speaker 5: incentive perspective, you know, And it was starting to happen,
Speaker 5: but we've had a we've had a hot CPI print,
Speaker 5: we had a hot PPI print today and now we're
Speaker 5: seeing the tenure up about one hundred and fifty basis points.
Speaker 5: So some of the progress that we've made in mortgage
Speaker 5: rates has kind of unwound and we're back up above
Speaker 5: seven percent now. So that's something that we're going to
Speaker 5: be watching. I mean, the trade on the builders has
Speaker 5: really focused around what's happening with rates, and at least
Speaker 5: in the new time, that's going to continue to be
Speaker 5: the story pushing your refinancing.
Speaker 2: Out my refinancing exactly. So drew along that front on
Speaker 2: the mortgage fronts. You talk to people in the industry,
Speaker 2: you know, real estate agents, is there a rate out
Speaker 2: there that they think will kind of get people start
Speaker 2: moving on this existing inventory of real estate, Like if
Speaker 2: rates get below six or get you know, closer to five,
Speaker 2: I mean, is there a clearing rate?
Speaker 5: You think, yeah, good question. Then you know what we've
Speaker 5: found and what we've heard from the people we've talked
Speaker 5: to is it seems like five and a half percent.
Speaker 5: It's kind of that magic number. So we're at about
Speaker 5: right now this morning, about seven percent with the ten
Speaker 5: year rids. We're probably going to be above that in
Speaker 5: the in the coming days. So the cost of builders
Speaker 5: having to buy down that rate to get to that
Speaker 5: five and a half six percent rate, it's going to
Speaker 5: cost a little bit more, but we do think that
Speaker 5: if they can get there, it can it'll continue to
Speaker 5: stoke some demand.
Speaker 4: I was talking to a first home buyer's kind of
Speaker 4: like buy a first house, just got married, blah blah blah,
Speaker 4: and and the real estate agent was being like, it's
Speaker 4: okay by it now and then just refinance, Like no,
Speaker 4: you're going to refinance it. And it was like, but guys, like,
Speaker 4: we don't know when that's going to look like. And
Speaker 4: then I mean it was like really trying to bully
Speaker 4: this guy.
Speaker 2: I got bullied that way? You did, Yes, totally, But
Speaker 2: I like the Jerry sure State comes on the market,
Speaker 2: you got to pounce.
Speaker 4: Yeah, you know, Paul got bullied. I don't know forget.
Speaker 4: I think he willingly knew that. But when you were
Speaker 4: a first home HomeBuyer, that's a totally different thing. Hey, Drew,
Speaker 4: what's priced into these stocks? We're getting toll I think
Speaker 4: Till Brothers next week? What are you looking for?
Speaker 5: Yeah, So basically, what we want to hear is that
Speaker 5: the man trends to begin the year have improved when
Speaker 5: rates are eight percent. So so let me step back
Speaker 5: the broader team that we've heard through earning so far
Speaker 5: is relative weakness towards the end of the fourth quarter,
Speaker 5: with modest improvements in January and into February. So that's
Speaker 5: what we want to hear from Toll Brothers is that
Speaker 5: the improvement in demand as rates have come off from
Speaker 5: eight percent, we want to see that that persisted into February.
Speaker 2: And another thing drew are the home builders are they
Speaker 2: meeting what most people tell you is the biggest need
Speaker 2: out there, which is entry level homes or were they
Speaker 2: just building the high margin McMansions stuff.
Speaker 5: Yeah, so there has been a decided shift in the
Speaker 5: industry over the last couple of years to get down
Speaker 5: to lower price points where a lot of the demand
Speaker 5: is a lot of the demographic demand going forward will
Speaker 5: be and builders have had extreme success. I mean some
Speaker 5: of the names that stand out are deor Horton Lennar
Speaker 5: is very focused on price. They're willing to meet the market.
Speaker 5: A Meritage Homes who has completely shifted their business from
Speaker 5: one that was heavy in the move upside of things
Speaker 5: and now builds almost exclusively at the entry level. So
Speaker 5: there has been an ongoing shift over the last couple
Speaker 5: of years. We think that's going to continue, not only
Speaker 5: because you know, that's where the demand is. But it's
Speaker 5: another way to kind of help solve that affordability puzzle
Speaker 5: that buyers are facing right now.
Speaker 4: Actually, when how many people have mortgages under three or
Speaker 4: under four, they're just never going to move Like me, Okay,
Speaker 4: you any mortgage tucker that doesn't count you paid it off.
Speaker 4: I didn't because it's yeah whatever, I got two point
Speaker 4: seventy five beat that.
Speaker 5: It's well well over fifty percent of the market.
Speaker 4: Yeah, So like that inventory is not coming back, like
Speaker 4: that hurdle is going to be super high.
Speaker 5: Yeah, And that's one of the reasons why we've seen
Speaker 5: resell inventories be so low. And I do think you know,
Speaker 5: as you start to get I do think that buyers
Speaker 5: and sellers perceptions have changed. I mean there's an adjustment period.
Speaker 5: It's not just that you know, people are never going
Speaker 5: to move again. There's certain reasons why you have to move.
Speaker 5: But I think if freights start to get below six percent,
Speaker 5: in that six percent range, I do think it'll start
Speaker 5: to unlock some of those sellers. And what also have
Speaker 5: to remember is we're that that mortgage rate lock and
Speaker 5: effect that we've talked about is gradually starting to loosen
Speaker 5: because you've had a lot of people are over the
Speaker 5: last year and a half to two years transact at
Speaker 5: higher rates, so as rates have fallen below peak levels,
Speaker 5: that does loosen things up a little bit by itself.
Speaker 2: All right, great stuff, Drew, Thanks so much for joining us,
Speaker 2: Drew reading he's a homebuilder analyst for Bloomberg Intelligence. Joining
Speaker 2: us via zoom from the HQ of Bloomberg Intelligence down
Speaker 2: to Princeton, New Jersey.
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