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Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.

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Speaker 1: Along with my co host Lisa Brahma Waits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Bowing back on the hot seat

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Speaker 1: they cannot catch a break. The latest is at Seattle

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Speaker 1: Times is reporting that the f a A was alerted

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Speaker 1: to issues at Boeing and Bowing should have been aware

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Speaker 1: of some of the regulatory problems here seven years ago.

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Speaker 1: Joining us now to talk about it is Peter Robinson,

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Speaker 1: projects an investigations reporter, as well as George Ferguson of

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Speaker 1: Bloomberg Intelligence. Uh, Peter, let's start with you. What do

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Speaker 1: we know here? What should Boeing have been aware of

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Speaker 1: that led to the two fatal crashes that have left

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Speaker 1: so many people wondering whether their new jet is fit

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Speaker 1: to fly well? The the issue for Boeing and that

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Speaker 1: the reason the shares are down almost three percent today

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Speaker 1: is that the the process by which the seven thirty

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Speaker 1: seven plane and involved in the crashes was certified as

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Speaker 1: by the f a A is is coming under really

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Speaker 1: unusual scrutiny by both the Department of Transportations Inspector General and,

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Speaker 1: according to the Wall Street Journal, federal prosecutors. A grand

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Speaker 1: jury in Washington, d C. That the journal is reporting

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Speaker 1: issued a subpoena to at least one person involved in

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Speaker 1: the planes development, which is not something that in recent

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Speaker 1: memory has happened within a new aircraft program. Yeah, George,

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Speaker 1: a question for you, if I mean, the thing that

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Speaker 1: strikes me about Peter story what was unnamed sources in

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Speaker 1: the Seattle Times that they underestimated the power of the

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Speaker 1: flight control software that they reported to the f a A.

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Speaker 1: And the newspaper also cited and said that the system

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Speaker 1: could not reset itself each time a pilot or or

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Speaker 1: each time a pilot responds. In essence, it ratcheted the

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Speaker 1: horizontal stabilizer into a dive position. How does something like

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Speaker 1: that just go by the boards? Yeah, I mean, I

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Speaker 1: think that's uh, that's going to be the big question here.

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Speaker 1: It sounds like the first time they showed the f

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Speaker 1: a A some of that data, that's the deflection they

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Speaker 1: had on that on the elevator, that trim piece was

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Speaker 1: much less than it ultimately was at at the final

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Speaker 1: approval or what have you gonna call it? For the airplane,

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Speaker 1: so um, it shouldn't go by the boards the f

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Speaker 1: A ship been looking at that closer. I think that

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Speaker 1: there's always a challenge when you're when you're the big

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Speaker 1: behemoth in the in the industry. Right. We've seen it

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Speaker 1: in finance, where the regulators try to regulate an industry

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Speaker 1: that's probably a heck of a lot more conversant and

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Speaker 1: what's going on inside the you know, in the cutting

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Speaker 1: edge of the space. And I think that's you have

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Speaker 1: a bit of maybe the FA differring too much to

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Speaker 1: Boeing here and thinking they're were in the cutting edge

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Speaker 1: and not focusing on details like that, details details that

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Speaker 1: led to the death of hundreds of people. Uh. But

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Speaker 1: Peter to that point to exactly what George Ferguson was

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Speaker 1: just saying, how much is this a problem with the

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Speaker 1: f a A And how much is this a problem

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Speaker 1: with Bowen? I mean, who looks worse here? They both

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Speaker 1: are on the hot seats. As you were saying that

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Speaker 1: the the issue we we we reported on UM concerns

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Speaker 1: that people within the f A had as as long

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Speaker 1: as seven years ago, that people, UH, we were set

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Speaker 1: enough about this way that Boeing had over the approval

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Speaker 1: process that they went to the Department of Transportations Inspector

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Speaker 1: General and said that there needed to be changes in

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Speaker 1: the process. Who are those people? Can you just give us?

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Speaker 1: So the the in its report, which was only released

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Speaker 1: UM in a public records request, which didn't get any

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Speaker 1: attention at the time, some of these allegations weren't anonymous

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Speaker 1: facts is which were sent from f A managers UM

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Speaker 1: to the O I G and and these UH employees

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Speaker 1: that the FAA felt that they weren't being heard and

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Speaker 1: that they were trying to hold Bowing accountable but their

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Speaker 1: managers were not letting them. So. Again but back to

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Speaker 1: the the you know, as you say, who's more culpable,

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Speaker 1: the f A or or Boeing. SKay, we're trying to

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Speaker 1: um Peter. They were trying to speed up the certification

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Speaker 1: process because they were behind. You know, you talk about

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Speaker 1: bank regulation being one thing. You know, somebody embezzles money,

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Speaker 1: a plane doesn't fall out of the sky. To to

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Speaker 1: try to rush a brand new design of an airplane

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Speaker 1: seems perilous and irresponsible. I'm sorry, I understand, but you know, yes,

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Speaker 1: that is a question, and I guess that George to you,

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Speaker 1: I'm curious, do you have a sense of what the

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Speaker 1: bigger liability is to Bowing at this point from a

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Speaker 1: from a financial standpoint? Is it the potential for lawsuits

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Speaker 1: or is this a potential for are for airlines not

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Speaker 1: ordering from them because of concerns about safety? Yes, so,

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Speaker 1: I mean I think you know the numbers that we're

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Speaker 1: starting to run, is that the cost of the airplane

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Speaker 1: being out of service and getting it back in service

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Speaker 1: will be a lot more. I mean, notwithstanding our sensitivity

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Speaker 1: to the fact that people died on this crash, these

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Speaker 1: two crashes, you know, we kind of see Bowings liability

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Speaker 1: being about a hundred million dollars a month um to

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Speaker 1: buy to support airlines that have airplanes grounded in maintaining

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Speaker 1: their um the route networks. We don't think there's enough

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Speaker 1: airplanes actually parked to get that done as we go

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Speaker 1: through the year, because there's the majority of the deliveries

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Speaker 1: for Boeing seven seven throughout this year would be would

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Speaker 1: have been max is like I still think they'll get

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Speaker 1: this airplane in service UM in a bunch of months.

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Speaker 1: I think the the the burden will be hired to

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Speaker 1: get into service, given the issues at the f A

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Speaker 1: A and and Boeing. But we see again a hundred

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Speaker 1: million of month. We think every month as another twelve

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Speaker 1: or months, two hundred and twelve months, three four million UM,

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Speaker 1: and we haven't even started to We can't really give

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Speaker 1: a good estimate on what it's going to take to

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Speaker 1: fix the airplane. We think if it takes work to

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Speaker 1: the structure, that will be a lot more money than

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Speaker 1: just a software fix. And I tend to think there'll

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Speaker 1: be at least some work under the structure UM to

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Speaker 1: make it easier to shut off the autopilot and maybe

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Speaker 1: to manage some of the center gravity issues. So Peter

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Speaker 1: um back to the public if you will, UM. Even

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Speaker 1: solving all these problems, UM, it doesn't strike me that

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Speaker 1: the consumer is going to feel terribly confident flying in

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Speaker 1: this airplane immediately after the fix. How does that impact bowing,

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Speaker 1: how does that impact the air traffic system, etcetera. Well,

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Speaker 1: there there's a lot of conversation that that this is

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Speaker 1: going to impact bowing future sales of this plane. And

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Speaker 1: already you see commentary on social media. You see that

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Speaker 1: Line Air which I had the first seven thirty seven

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Speaker 1: Mac they crashes, has has pulled a twenty two billion

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Speaker 1: dollar order for Boeing planes. Uh so, over time it

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Speaker 1: could create pressure for Boeing to to move on to

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Speaker 1: the next generation of airplanes, which is going to be

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Speaker 1: extremely expensive, and just to sort of finish up here. George,

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Speaker 1: I'm curious from your perspective going forward, what does Boeing

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Speaker 1: need to do to give people confidence that it has

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Speaker 1: reached a bottom in this whole issue. Yeah, I think.

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Speaker 1: I think that any fix that comes out can't be

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Speaker 1: a partial fix. It has to be clear that it

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Speaker 1: is um the right fix, maximize his safety, I think,

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Speaker 1: to restore faith in Boeing, I think that's gonna that's

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Speaker 1: going to be huge. Thank you so much to both

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Speaker 1: of you. Peter Robinson, Projects an investigations reporter for Bloomberg News,

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Speaker 1: joining us from Seattle. George Ferguson, Senior Aerospace, Defense and

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Speaker 1: Airlines analyst for Bloomberg Intelligence. Right now it is that

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Speaker 1: time to take a look at small and mid cap shares.

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Speaker 1: Dave Wilson has not blasted off into space. Just yet,

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Speaker 1: he is joining us here in her believe we're getta active.

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Speaker 1: Broger Studios. Small caps and mid caps doing pretty well.

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Speaker 1: I am firmly on the ground. Cap stocks are firmly higher.

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Speaker 1: The Wrestle two thousand index up one percent, while the

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Speaker 1: S and P five hundred is only up four tenths

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Speaker 1: of a percent. So smaller companies leading the way here

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Speaker 1: and the Russell's biggest game belongs to Dermira, whose ticker

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Speaker 1: is d e r M. The drug developer has soared

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Speaker 1: nineties seven per cent. Second stage study data showed the

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Speaker 1: company's proposed treatment for a skin condition was safe and effective.

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Speaker 1: Dermira's results also lifted shares of a Claris Therapeutics ticker

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Speaker 1: a c r S. They're up twenty two and a

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Speaker 1: half percent. The company is developing a rival medicine for

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Speaker 1: the condition known as a topic dermatitis. Now. The Sans

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Speaker 1: Joanes Solutions ticker dz s I has risen ten and

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Speaker 1: a half percent. To communications equipment maker narrow It is

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Speaker 1: projected first quarter loss before interest, taxes, depreciation and amortization.

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Speaker 1: The russell steepest drop belongs to n II Holdings ticker

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Speaker 1: n i h D, the owner of a seventy percent

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Speaker 1: stake in the wireless company next to Help Brazil is

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Speaker 1: down twenty six percent, and II is Selliens holding to

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Speaker 1: Mexico's American Mobile as part of a nine five million

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Speaker 1: dollar takeover and will dissolve once the deal is final.

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Speaker 1: And Synaptics ticker s y n A as well in

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Speaker 1: twenty percent. The maker of touch sensitive paths from mobile

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Speaker 1: phones and computers, was cut to neutral from by Mitzuho Financial,

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Speaker 1: which cited market share losses. DA Wilson firmly on earth.

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Speaker 1: Thank you so much for that, Davilis some lyrics sucks. Editor.

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Speaker 1: Right now, let us turn our focus to Lift, seeking

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Speaker 1: to raise almost two point one billion dollars in its

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Speaker 1: initial public offering, which will be the largest startup listing

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Speaker 1: since Snaps twenty seventeen. I p O joining us now

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Speaker 1: to discuss a Tish Davda, chief executive officer of Equiti

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Speaker 1: Zen based in New York, A tich, what do you

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Speaker 1: think of this valuation, which would give the firm a

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Speaker 1: value of about twenty billion dollars. Well, I'll tell you this.

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Speaker 1: I don't know that Lift wants to be compared to

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Speaker 1: Snap too many times ahead of this public list they're

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Speaker 1: working on. Uh lifts last valuation was at fifteen billion dollars.

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Speaker 1: UH and Equities and is a firm that allows buying

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Speaker 1: and selling of private companies with issuer approval for many

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Speaker 1: years ahead of the I p O. With that said,

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Speaker 1: you know, looking at our data and not talking about

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Speaker 1: anyone company in particular, I think it's uh, you know,

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Speaker 1: I think it's pretty promising for a company to come

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Speaker 1: out there and put evaluation target meaningfully higher, it's above

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Speaker 1: round um because you know, we've definitely seen some some

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Speaker 1: unicorns go out to the public market with with the

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Speaker 1: value at or even sometimes below their last private valuation.

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Speaker 1: So this definitely seems promising. A question for you is

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Speaker 1: we we had a Bloomberg story that said in its filing,

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Speaker 1: Lifts said that expenses are likely to increase and that

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Speaker 1: it may not be able to achieve or maintain profitability

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Speaker 1: in the future. How does that speak to attended to

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Speaker 1: hold multiple Basically, you know, that's UH that's actually becoming

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Speaker 1: more and more common in a lot of companies going public,

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Speaker 1: a lot of unicorns going public. Look if you take

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Speaker 1: a look at what wall streets looking for Uh. Wall

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Speaker 1: Street seeing a record low number of publicly listed companies

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Speaker 1: into which it can and it can invest. Uh. You know,

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Speaker 1: growth has been continuously rewarded over the last several years.

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Speaker 1: And I think what LIFT is trying to say publicly, um,

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Speaker 1: the same way that you know, Uber apparently next month

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Speaker 1: is going to go out with its own roads show

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Speaker 1: and is gonna likely say the exact same thing, same

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Speaker 1: thing We've seen many other companies out there that are

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Speaker 1: public now say, is we are focused on growth. We

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Speaker 1: believe we have that of the interneconomics. Uh so if

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Speaker 1: we ever turn off the marketings pigot, we automatically turn

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Speaker 1: positive in terms of our net income. But one of

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Speaker 1: the best things we see about LIFT, and it is promising,

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Speaker 1: is that in addition to a growth, you know, they

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Speaker 1: went from about a billion in revenue to over two

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Speaker 1: point one in revenue last year, we see shrinking net income,

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Speaker 1: lost margins. UM. That's not something you see in every company.

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Speaker 1: It's obviously very important to show that there's a line

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Speaker 1: of sight to profitability. UH. And I think the LIFT

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Speaker 1: is trying to make sure that that is seen by

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Speaker 1: its you know, by the investors. It's road showing too today.

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Speaker 1: So one thing a teach that you said was that

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Speaker 1: probably Lift doesn't want to be associated with the Snap

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Speaker 1: i p O too much, given the disastrous performance of

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Speaker 1: that IPO in subsequent trading months. But I do have

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Speaker 1: to wonder if there is a similarity here, because these

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Speaker 1: are both startups that waited quite a long time before

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Speaker 1: the i p oed being able to get financing through

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Speaker 1: private markets and through public debt markets. I'm just wondering,

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Speaker 1: does that set these company needs up to have less upside.

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Speaker 1: In other words, they've already become mature enough that the

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Speaker 1: growth perspective just isn't there. I think that's true for

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Speaker 1: the typical public market only investor. I mean, one of

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Speaker 1: the reasons our business exists is that, you know, equities

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Speaker 1: don't allow is qualified, accredited investors that want to invest

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Speaker 1: ahead of the I p O to actually gain that access.

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Speaker 1: Uh So, whether or not you know it's it's Lift

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Speaker 1: or Uber or the you know twenty other companies that

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Speaker 1: we believe are going to go public later this year,

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Speaker 1: I think one thing is absolutely true is that you know,

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Speaker 1: you hit the nail on the head more and more value,

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Speaker 1: more and more value creation is happening in the private

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Speaker 1: markets now. The story Lift and Uber and many of

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Speaker 1: these other firms are trying to say is that we're

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Speaker 1: still in the kind of early stages of transportation as

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Speaker 1: a service as a sector um and so you know

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Speaker 1: you're gonna see Lift come out and say, you know,

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Speaker 1: here's why we see U. You know, we only operate

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Speaker 1: in North America at the moment. There's the rest of

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Speaker 1: the world to conquer. Uber is going to come out

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Speaker 1: hopefull a month from now and come out and say, look,

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Speaker 1: we already have bits and pieces of the world now.

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Speaker 1: In addition to ride sharing, we're offering Uber eats and

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Speaker 1: autonomous vehicles and you know the four or five other

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Speaker 1: ways in which they can see, um, you know, a

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Speaker 1: way to capture market. I think one comparison though, that

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Speaker 1: Lift wants to avoid but can't get around, is that

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Speaker 1: of corporate governance. You see. You know, the same thing

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Speaker 1: that Google and Facebook did, that Snapped tried to do,

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Speaker 1: it did successfully, really didn't work out well for them,

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Speaker 1: is the dual class listing of shares and listed Lift

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Speaker 1: is uh, you know, it's no different in that matter.

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Speaker 1: A TI Data, Thank you so much for being with

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Speaker 1: us a Ti Dafta, chief executive of Equity Zen talking

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Speaker 1: about that lift I p O. Over the weekend, President

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Speaker 1: Trump tweeting about General Motors plan to close an Ohio

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Speaker 1: factor their closure of an Ohio factory, demanding that the

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Speaker 1: carmaker reopen UH the facility, also saying that the United

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Speaker 1: Auto Workers, run by Democrats, are to blame for this closure.

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Speaker 1: Joining us now, Alan Baum principle of Baum and Associates,

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Speaker 1: which is in a Michigan based research firm focused on

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Speaker 1: automotive UH for analysis of auto sales. Allan, thank you

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Speaker 1: so much for being with us. Let's start with what

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Speaker 1: this closure actually came as a result of How long

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Speaker 1: was it in the works. Can you give us some background? Well,

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Speaker 1: the the obvious problem is that GM has far more

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Speaker 1: assembly plants than it has sales that that justified those plants.

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Speaker 1: And obviously that's particularly true on the car side. UM

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Speaker 1: and so you saw closures uh in Oshua, uh In,

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Speaker 1: in Lordstown, uh and in Detroit ham Trammic the unforced.

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Speaker 1: The thing is GMS cars are a lot better than

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Speaker 1: their sales. UM. Now, of course GM some responsibility for that.

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Speaker 1: They've had some marketing issues on those cars. UM. But

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Speaker 1: the other thing is that cars and crossovers are in

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Speaker 1: fact built on the same platform, and they're they're made

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Speaker 1: to be built together. UH, Honda, Toyota, Nissan all understand that.

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Speaker 1: Obviously the rest of the industry does as well, they're

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Speaker 1: just not as good as implementing it. And obviously GM

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Speaker 1: is is an example of that how much of this

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Speaker 1: is economics and how much of it is politics? And

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Speaker 1: the GM said they've they've placed more than a thousand

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Speaker 1: employees from the unallocated plants and that they have opportunities

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Speaker 1: available for basically all of the impacted employees. And of

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Speaker 1: course those employees are going to have to give up

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Speaker 1: a huge uh portion of their personal lives if because

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Speaker 1: the UW contract allows for bumping UM to other plants,

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Speaker 1: but of course the plants are are not necessarily within

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Speaker 1: the Lord's town or even Cleveland area, and so they're

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Speaker 1: they're talking about major moves the the the issue is

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Speaker 1: obviously much more economic, and the obvious problem is we're

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Speaker 1: also into a period where the auto industry is starting

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Speaker 1: to turn south, not dramatically, but the auto industry was

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Speaker 1: ahead of the overall economy and its recovery. It's also

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Speaker 1: ahead of the overall economy and its downturn. How much

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Speaker 1: is this alan a case of automation taking jobs and

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Speaker 1: just not there being the need for as many plants

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Speaker 1: or as many employees at each plant. And how much

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Speaker 1: is this that it is just cheaper to produce cars

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Speaker 1: in the parts elsewhere? Well, and that's not just a

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Speaker 1: North American issue. Obviously, North America is competing with the

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Speaker 1: rest of the world. When you look at the case

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Speaker 1: of the Detroit three. UH, the Detroit three is generally

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Speaker 1: maintaining obviously declining in some situation issues. It's it's footprint

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Speaker 1: here in then in North America, whereas the rest of

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Speaker 1: the world's automakers see North America as a great opportunity.

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Speaker 1: Our volume is not increasing so much, but our our

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Speaker 1: profitability remains among the highest in the world. UM with

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Speaker 1: respect to automation. That's true across the board. UH. It's

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Speaker 1: it's true when you particularly when you have declining profit

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Speaker 1: margins and you need to reduce your cost UH. The

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Speaker 1: Detroit three UH in cars obviously have had that. Again,

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Speaker 1: the Detroit three could be as profitable UH and sell

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Speaker 1: more cars than they do as compared to their competitors.

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Speaker 1: They simply haven't put as much opportunity or focus on

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Speaker 1: cars and perhaps more importantly, on crossovers where the market

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Speaker 1: is growing. Sure they're strong, but they're losing some of

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Speaker 1: their their share there as well. Is there an opportunity

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Speaker 1: for the for the North American three, if you will,

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Speaker 1: to get a potential bump if we imposed tariffs on

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Speaker 1: European cars, Well, this sort of be a backdoor push

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Speaker 1: for them. Maybe. Well, that's that's the idea. The the

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Speaker 1: of course, the dirty little secret is all automakers use

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Speaker 1: lots of parts and to different levels of degree, car

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Speaker 1: imports from around the world, and of course I should

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Speaker 1: say vehicle imports. Um So in theory the Detroit three

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Speaker 1: would be less disadvantaged in the other players. But the

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Speaker 1: point is what I just said, less disadvantaged. Uh, Those

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Speaker 1: those brute forced tarraffs are likely to reduce the overall industry,

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Speaker 1: and obviously UH to the extent that that a company

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Speaker 1: is less in less than great shape relatively speaking, they'll

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Speaker 1: be heard even more. Allan boun thank you so much

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Speaker 1: for being with us, Alan bound principle of Baum and

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Speaker 1: Associates joining us from Michigan and Vince I am struck

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Speaker 1: by the idea that this is Ohio, we're talking about

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Speaker 1: a swing state, and that President Trump is making this

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Speaker 1: into something of a campaign issue as we sort of

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Speaker 1: have a drumbeat towards elections. Sort Of interesting to note that, yeah,

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Speaker 1: it does have it rings, a lot of politics and

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Speaker 1: a lot less economics to me, to be perfectly honest.

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Speaker 1: Generator shares though, are down one percent today. Interesting to

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Speaker 1: see that to sort of what degree President Trump's involvement

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Speaker 1: in this just there is a certain political risk that

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Speaker 1: is inherent to companies regardless of the economic factors. Right now,

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Speaker 1: let us talk about the wicked experience of trying to

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Speaker 1: bet on the Commerce Bank Deutsche Bank tie up that

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Speaker 1: has been in the works for so long. Joining us

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Speaker 1: now is a Lisa Martin Usy. She's a columnist covering

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Speaker 1: finance for a Bloomberg opinion. Joining us from London. We

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Speaker 1: have seen the shares rally of both Deutsche Bank and

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Speaker 1: Commerce Bank. I guess the key question is how much

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Speaker 1: of a game changer is it that the German government

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Speaker 1: has officially or not officially but given a sign that

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Speaker 1: they are okay with the job cuts that would make

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Speaker 1: this tie up worthwhile? Yes. On the one hand, as

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Speaker 1: you say, the government has signaled that they would be

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Speaker 1: they wouldn't stand in the way of job cuts. On

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Speaker 1: the other hand, you had Angla locals. The chief of

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Speaker 1: staff today is signaling that, you know, there wouldn't be

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Speaker 1: too keen on job cuts. And in the middle all

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Speaker 1: of this is the role that will be played by

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Speaker 1: the employee and label representatives that of course sit on

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Speaker 1: both of those banks supervisory boards. So we are quite

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Speaker 1: a long way, it feels like from from an agreement. Um,

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Speaker 1: the formal discussions only started over the weekend, but critical

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Speaker 1: to the steel working would be tens of thousands of

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Speaker 1: job cuts in Germany, something in the order of you know,

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Speaker 1: as many as thirty thous So getting the backing for

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Speaker 1: those is going to be absolutely crucial. How much of

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Speaker 1: this when you put it all together, um, and you

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Speaker 1: know it's separately, both banks would have had to have

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Speaker 1: job cuts and consolidation to make both institutions work anyway,

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Speaker 1: how much of this makes it a little easier to

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Speaker 1: swallow in job cuts when you say, well, there was

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Speaker 1: a merger and that the job cuts are as a

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Speaker 1: result of the consolidation and the merger as opposed to

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Speaker 1: just meaning both absolutely. But I think the trouble there

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Speaker 1: is that these two banks overlapped considerably in parts of

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Speaker 1: commercial and consumer banking in Germany, and by putting them together,

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Speaker 1: as you are allowing the cost, but you're not necessarily

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Speaker 1: changing the competitive landscape in Germany because they would become

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Speaker 1: the dominant player. They're still competing with hundreds of local

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Speaker 1: savings banks, local cooperatives that compete on very different terms

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Speaker 1: that they're not necessarily competing to make huge you know,

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Speaker 1: to make profit, so that dynamic will remain unchanged. And

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Speaker 1: on top of that, you're not really grapping with the

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Speaker 1: weaknesses the Deutsche Bank banks to the table, which is

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Speaker 1: it's investent bank, because Commis Bank doesn't have much of

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Speaker 1: an investon bank. So putting those together isn't really going

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Speaker 1: to change the difficulties that Deutsche Bank has. On Wall Street,

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Speaker 1: I'm watching the Coco bonds. These are the tier one

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Speaker 1: capital debt instruments of Deutsche Bank that have been pretty

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Speaker 1: volatile over the past few years, and I'm struck by

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Speaker 1: how much they're gaining on this news. I'm just wondering

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Speaker 1: across the board whether this is a bet that the

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Speaker 1: German government will enable Deutsche Bank and Commerce Bank together

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Speaker 1: to have higher capital buffers and that these that these

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Speaker 1: instruments will be treated nicely in any kind of merger. Yes, well,

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Speaker 1: the the expectation is that this deal would come with

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Speaker 1: some kind of capital requirement or capital need and um

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Speaker 1: those talk about how the bad wild the negative good

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Speaker 1: will that the you know, the target would would would

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Speaker 1: bring up, and how that could be used to strengthen

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Speaker 1: capital um. But I think, you know, more to your

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Speaker 1: point about Germany is backing. I think even though on

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Speaker 1: paper the steel doesn't look too great, the fact that

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Speaker 1: Germany behind the scenes seems to be orchestrating it is

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Speaker 1: increasing the odds that there actually happening. Does this does

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Speaker 1: it dramatically change the tier one capital? Holdings of both

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Speaker 1: banks are our Deutsche and commerces Um, for instance, large

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Speaker 1: holders of sovereign debt, as as a lot of the

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Speaker 1: Italian banks are. Does it? Does it does that cause

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Speaker 1: them or will that force them to switch out of

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Speaker 1: some of those assets into others to structure the capital? Well,

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Speaker 1: as you come, as you come together, there's obviously into

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Speaker 1: a review of the assets and both books and you know, yes,

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Speaker 1: Commace Bank UM own some sovereign Talian sovereign a talient

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Speaker 1: debt that it hasn't that mark to market UM though.

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Speaker 1: You know, on the other hand, Deutsche Bank has a

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Speaker 1: very large UM portion of of Level three assets which

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Speaker 1: you know may have to review. So UM I think

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Speaker 1: it's it's you know, we don't really have the numbers yet,

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00:25:08,560 --> 00:25:09,879
Speaker 1: so it's a little bit unclear to see how they

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00:25:09,920 --> 00:25:12,760
Speaker 1: come out of this. But the expectation is that UM

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00:25:13,080 --> 00:25:16,639
Speaker 1: there would be some kind of capital requirement needed. What

436
00:25:16,760 --> 00:25:20,320
Speaker 1: happens to the investment banking Deutsche Bank, Well, this is

437
00:25:20,320 --> 00:25:22,320
Speaker 1: what the talk still is about. And you know, the

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00:25:22,320 --> 00:25:25,480
Speaker 1: Commons Bank has shifted away from that space, so they're

439
00:25:25,560 --> 00:25:29,480
Speaker 1: unlikely to want to inherit a large investment bank that's

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00:25:29,480 --> 00:25:33,280
Speaker 1: so inefficient UM and so it doesn't really alleviate the

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00:25:33,320 --> 00:25:36,840
Speaker 1: pressure on on Deutsche Bank and a combined entity to

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00:25:36,920 --> 00:25:39,760
Speaker 1: try and make that business work. People have talked about

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00:25:39,880 --> 00:25:42,720
Speaker 1: retrenching from the US, certainly in terms of trying to

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00:25:42,760 --> 00:25:45,920
Speaker 1: compete head on with Wall Street firms or new US staff.

445
00:25:46,359 --> 00:25:49,000
Speaker 1: Is what they would have to look at and potentially

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00:25:49,080 --> 00:25:53,040
Speaker 1: scale back considerably their equities business, which is subscale. So

447
00:25:53,160 --> 00:25:55,679
Speaker 1: but Deutsche Bank has been actually scaling back quite some

448
00:25:55,720 --> 00:25:58,760
Speaker 1: time in the United States, at least from a competitive advantage.

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00:25:58,760 --> 00:26:01,119
Speaker 1: But as you said, putting the banks together, while you

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00:26:01,359 --> 00:26:05,400
Speaker 1: you really don't have a United European banking system, puts

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00:26:05,440 --> 00:26:10,200
Speaker 1: them continues at a state of disadvantage. Um. Interesting how

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00:26:10,200 --> 00:26:12,200
Speaker 1: this is going to play out. Most of the people

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00:26:12,200 --> 00:26:14,560
Speaker 1: that I've talked to don't feel terribly confident that this

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00:26:14,640 --> 00:26:16,680
Speaker 1: is really a solution for both of the banks. What's

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00:26:16,720 --> 00:26:19,879
Speaker 1: your take on that? Agreed? I think you know it

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00:26:19,960 --> 00:26:23,240
Speaker 1: leaves you know, it leaves the combined business still very

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00:26:23,320 --> 00:26:26,440
Speaker 1: much exposed to the interest rate circle as well here,

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00:26:26,560 --> 00:26:28,679
Speaker 1: and of course we're into negative. We have been a

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00:26:28,720 --> 00:26:31,680
Speaker 1: negative territory for some years. There's no real end in

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00:26:31,800 --> 00:26:35,080
Speaker 1: sight to that. And it still doesn't alleviate um that

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00:26:35,160 --> 00:26:38,600
Speaker 1: Prussia and you know, in the in the German market,

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00:26:38,640 --> 00:26:42,040
Speaker 1: they're still very exposed to the competitive Prussias. So it

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Speaker 1: doesn't really solve much that they're trying to glapple with independently.

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Speaker 1: A Lisa Martin Newsy, Thank you so much for being

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Speaker 1: with us calumnist covering finance for Bloomberg Opinion. Thanks for

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00:26:51,560 --> 00:26:54,359
Speaker 1: listening to the Bloomberg penl podcast. You can subscribe and

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00:26:54,359 --> 00:26:57,520
Speaker 1: listen to interviews at Apple Podcasts or whatever podcast platform

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00:26:57,560 --> 00:27:00,680
Speaker 1: you prefer. Paul Sweenie, I'm on Twitter at et Sweeney,

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00:27:00,720 --> 00:27:03,200
Speaker 1: I'm Lisa Abram Whods. I'm on Twitter at Lisa Abram

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Speaker 1: whits One. Before the podcast, you can always catch us

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00:27:05,920 --> 00:27:07,480
Speaker 1: worldwide on Bloomberg Radio