Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 3: Mollie Smith sitting in for Alex Steel on Paul Sweeney.
Speaker 3: You're live here on our Bloomberg Interactive Broker Studio or
Speaker 3: streaming live on YouTube as well. Which seems like for
Speaker 3: the last five, six, seven years, there's been this growing
Speaker 3: tech cold war between China and the West, and now
Speaker 3: we've got a story out about the chip maker. ASML
Speaker 3: Holdings a CEO, he expects pressure to grow from the
Speaker 3: US to further restrict sales of semiconductor technology to China.
Speaker 3: That's the biggest market for the Dutch producer of chip
Speaker 3: making machines. Man Deep Sing joins us, he's the our
Speaker 3: tech dude, He's ahead of all the technology stuff at
Speaker 3: Bloomberg Intelligence. Man Deep talk to us about the chip
Speaker 3: market China as a customer, how do you think this
Speaker 3: is going to play out? Because again it feels like
Speaker 3: there is this tech cold war that's right there.
Speaker 4: Yeah, I mean when you look at a company like SML,
Speaker 4: which almost did you know, forty five percent of their
Speaker 4: revenue from selling to Chinese customers over the past twelve
Speaker 4: months and they guide it to that percentage going to
Speaker 4: about twenty percent next year. So clearly the deceleration is
Speaker 4: huge in terms of the China exposure, and partly that
Speaker 4: has to do with the you know, the Cold War
Speaker 4: or the geopolitical element that you just alluded to. And look,
Speaker 4: it's not surprising given ASML the machines they make underpin
Speaker 4: the latest factories that are producing these chips that everyone
Speaker 4: wants to train their AI on. So when you look
Speaker 4: at the semiconductor chain, I mean ASML sits at pretty
Speaker 4: much at the bottom end of what it takes to
Speaker 4: set up a semiconductor factory. They are deemed as one
Speaker 4: of the biggest beneficiaries of the Chips Act. When you
Speaker 4: think about you know, the US government wanting to set
Speaker 4: up semiconductor fabs in the US, they are one of
Speaker 4: the prime beneficiaries. But then the offset is the China
Speaker 4: business that is going down, and that's why you're seeing
Speaker 4: you know, valuation compressed recently.
Speaker 5: Can you just help catch us all up here, Mandy,
Speaker 5: because this has been a crazy week with ASML, going
Speaker 5: back to the earnings announcement last week when they cut
Speaker 5: their outlook for next year. You know, the orders were
Speaker 5: very disappointing. This triggered this whole route in the semiconductor industry.
Speaker 5: Can you just catch us all up here on like
Speaker 5: what the past week has been like?
Speaker 4: Yeah, in fact, it's been a roller coaster because you
Speaker 4: had the ASML disappointment and then TSMC comes out the
Speaker 4: next day and they say AI revenue will be almost
Speaker 4: mid teens, which was negligible over the past you know,
Speaker 4: three quarters. So clearly there's been a big kind of
Speaker 4: sentiment when it comes to TSMC being very bullish on
Speaker 4: AI versus ASML downplaying you know, the next twelve months.
Speaker 4: And that's partly to do with where TSMC sits, which
Speaker 4: is they are getting all these orders from Nvidia as
Speaker 4: well as other hyperscalers who want to get their chips
Speaker 4: manufactured at TSMC, whereas ASML has got two companies that
Speaker 4: are pulling back on their orders, Intel and Samsung, and
Speaker 4: TSMC is the only one that's buying from ASML right now.
Speaker 4: So TSMC has a lot of bargaining power because they
Speaker 4: are the only ones who can raise their capex. Intel
Speaker 4: is really struggling. Samsung, we have heard, is also struggling now.
Speaker 4: So both those companies, the next two big buyers of ASML,
Speaker 4: are looking to pair back their spend and that's why
Speaker 4: I think TSMC is in a great spot both from
Speaker 4: the customer side as well as having the supplier bargaining power.
Speaker 3: All Right, ASML is a Dutch company. If the US
Speaker 3: tells me to do something, why don't I just tell
Speaker 3: them to go take a hike?
Speaker 4: Well, I mean it goes back to how these kind
Speaker 4: of countries work as a block. Look, I think when
Speaker 4: the US government kind of asks a country to enforce
Speaker 4: their restrictions, then most of the times they end up
Speaker 4: doing that because of you know, the trading aspect of
Speaker 4: how these companies just operate as a block. And in
Speaker 4: this case, I think the restrictions are very targeted towards
Speaker 4: the advanced machines that are used for latest leading node manufacturing.
Speaker 4: So I think again it comes down to how the
Speaker 4: politics of it is really focused on, and it's hard
Speaker 4: for the companies to control that, right, So if the
Speaker 4: governments agree on something they have to comply with the restrictions.
Speaker 6: So we have the ASML CEO.
Speaker 5: He's been speaking at the Bloomberg Tech Summit recently, and
Speaker 5: he said last week that he sees the chip market's
Speaker 5: long way to recovery extending well into next year. I
Speaker 5: think that's a fair timeline given all of what's going
Speaker 5: on in the industry right now.
Speaker 4: I mean there are two pockets here. One is the
Speaker 4: AI pocket, which is really firing on all cylinders. I mean,
Speaker 4: companies have insatiable demand and we've seen that with TSMC
Speaker 4: and Nvidia really kind of talking about it endlessly. On
Speaker 4: the other side, the traditional markets like smartphones, PCs, autos,
Speaker 4: they're still slow. I mean, there has been a rebound,
Speaker 4: but it's been very kind of flatish for a few quarters.
Speaker 4: And even the prognosis is not like you're going to
Speaker 4: see massive acceleration in top round growth. So that's where
Speaker 4: I think companies that are exposed to AI are growing
Speaker 4: much faster than the companies that are exposed to these
Speaker 4: traditional land markets.
Speaker 5: And is that just because the market for smartphones is
Speaker 5: pretty saturated at this point? Like don't we all pretty
Speaker 5: much a lot? I mean, it seems pretty ubiquitous now,
Speaker 5: I mean, how much more are there really like these
Speaker 5: big markets that are waiting to be tapped into.
Speaker 4: I mean that's where AI will play a role in
Speaker 4: terms of driving upgrade for your smartphone. It's just right now,
Speaker 4: AI is being consumed and deployed almost solely on cloud.
Speaker 4: That's where the cloud vendors are seeing it in their results.
Speaker 4: But for every edge device, whether it's PC, smartphone, nobody
Speaker 4: has talked about using AI on the device. I mean,
Speaker 4: you can do it through your app that is running
Speaker 4: on the cloud, but you don't need to upgrade your
Speaker 4: smartphone for that, And that's the big driver.
Speaker 3: I just upgraded to the iPhone sixteen pro. Somebody told
Speaker 3: me that you're partner what's his name, anurag upgrade. Look
Speaker 3: you show me a bill of goods here trying to
Speaker 3: pad the Apple numbers it is.
Speaker 4: And look it's it still has a great camera, So
Speaker 4: I think that upgrade.
Speaker 3: I was in Ireland. I was in Ireland for like
Speaker 3: eight days. I took three pictures, two of like sheep
Speaker 3: and one of the pig.
Speaker 4: You're under your lif outset fall.
Speaker 2: What's the fascination.
Speaker 7: With the sheep ball?
Speaker 3: There's more sheep than people there, and they're everywhere.
Speaker 7: I mean, it's unbelievable. No wonder my.
Speaker 3: People left when the first potato a bit All right,
Speaker 3: men Deep saying thank you so much.
Speaker 7: We appreciated.
Speaker 3: Men Deep sing senior tech industry analysts for Bloomberg Intelligence,
Speaker 3: trying to figure out what's going on in the chip
Speaker 3: business again ASML, they're cautious.
Speaker 7: Taiwan Simmy says, no, no, no, no, no.
Speaker 3: Business is still good.
Speaker 5: So honestly, I'm trying to more figure out what's going
Speaker 5: on with your picture taking.
Speaker 6: Yeah, personally, I'm like what you have to show for
Speaker 6: from that?
Speaker 3: You know, you got to live the moment, be in
Speaker 3: the moment, stop recording it and taking photos of it,
Speaker 3: just live in it.
Speaker 5: I think this is really just like right here, this
Speaker 5: is like the difference between what a man and a
Speaker 5: woman would take pictures of.
Speaker 7: I think it's more generational. Actually yeah, okay, we could
Speaker 7: do generational too.
Speaker 3: I mean, you know, you see a picture from thirty
Speaker 3: forty years ago, if Tiger Woods hitting a shout a
Speaker 3: Jack Nicholas, nobody has a phone out.
Speaker 7: But now go figure.
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Speaker 3: Let's talk about European banks. We had the big US
Speaker 3: banks report over the last week or so, really strong
Speaker 3: numbers coming out of the big global US banks and
Speaker 3: investment banks. We're going to get some of the European
Speaker 3: folks coming up, and we also got some news coming
Speaker 3: out of HSBC, one of the big European and Asian banks.
Speaker 7: Kind of a little restructuring there.
Speaker 3: So let's check in with our euro banks official, Tamash Netzel.
Speaker 3: He's a senior European banks analyst for Bloomberg Intelligence. Tomash,
Speaker 3: thanks so much for joining us here.
Speaker 7: Talk to us about HSBC.
Speaker 3: First here they got a pretty big restructuring going on
Speaker 3: at this bank. Tell us what's going on there at HSBC.
Speaker 8: Yes, thank you very much for having me. Yes, definitely. Today,
Speaker 8: all over the U you can hear the biggest restructuring
Speaker 8: in almost a decade. And I would say that I
Speaker 8: think it is the continuation of overhaul over restructuring of
Speaker 8: the business which started at the beginning of twenty twenty
Speaker 8: more or less by previous COEO. We have got new
Speaker 8: CEO starting his job at first of September, and I
Speaker 8: think one of his one of his priority was how
Speaker 8: to how to make sure that we can sustain meetings
Speaker 8: rot for beyond two the twenty four to twenty five
Speaker 8: how do we deal with the business in the clinic
Speaker 8: interest rate environment? And what do we do with the costs?
Speaker 8: And the restructuring of the of his business he proposed
Speaker 8: and introduced from first January twenty twenty five is just
Speaker 8: to address others the issues that the HSBC is facing,
Speaker 8: and the biggest one is of course controlling the cost
Speaker 8: Can you talk.
Speaker 6: To us about what some of those costs are?
Speaker 5: And I mean when I hear firms are trying to
Speaker 5: cut costs, I immediately think they're trying to cut jobs.
Speaker 5: And if that's also going to be part of this restructuring, yeah, that's.
Speaker 8: You know, that's very interesting because you know they talk
Speaker 8: about the restatturing, they talk about new divisions, new heads
Speaker 8: of the divisions, et cetera. And maybe there's a maybe
Speaker 8: six cuts on the executive committee. But we don't get
Speaker 8: any numbers. We don't know how much the restructuring is
Speaker 8: gonna cost. We don't know what is the black figure
Speaker 8: in terms of cost savings they would have to expect
Speaker 8: and more more important, we don't know how much this
Speaker 8: restructuring will cost. So yes, definitely there's lots of details.
Speaker 8: There's lots of promises with restructuring, but you know, we
Speaker 8: are yet still short on details. So we would like
Speaker 8: definitely know where the cost CUDEG may come. Where they're
Speaker 8: gonna cut jobs, potentially some jobs if they emerge two divisions.
Speaker 8: There are definitely some overlaps in operations, so there's definitely
Speaker 8: some podcasts jobs, potential cuts. So of course we don't
Speaker 8: know anything of this yet right. I think there was
Speaker 8: a rumors that two fo weeks ago that reported by
Speaker 8: Field of Times that there's a around three hundred millions
Speaker 8: of savings planned by new new management. We don't know
Speaker 8: whether that's true. It has not been confirmed, but I
Speaker 8: think three hundred millions would not be enough for HSBC
Speaker 8: to move that on the investment sentiment. If you look
Speaker 8: at the forecast for for for HSBC at the moment,
Speaker 8: you know the revenue is going to grow by not
Speaker 8: around five million dollars in the next two years, threw
Speaker 8: twenty twenty six. Costs are going to grow by more
Speaker 8: than two billions, So they have quite negative gap which
Speaker 8: they which the CEO I think will have to address
Speaker 8: with more details and more and more more about to
Speaker 8: the point of the plan.
Speaker 6: It sounds like you could all use a lot more
Speaker 6: detail here.
Speaker 5: What I heard you just say is that we don't
Speaker 5: know a lot of what all of these details are
Speaker 5: going to be. I mean, it looks like the stocks
Speaker 5: mildly up a little bit today, houses generally being received
Speaker 5: you know, by you, by the broader analyst community.
Speaker 9: Yeah.
Speaker 8: Well our initial directional Yeah, well, well done. This is
Speaker 8: this is the right step in the right directional shoulding
Speaker 8: separating Hong Kong and China business, creating new new divisions,
Speaker 8: hoping creating some synergies post PRODUCTIBA. It's all good, it's
Speaker 8: all good on paper, but you know, we don't know details.
Speaker 8: We don't know. That's why the h shares price today
Speaker 8: shroud off this news kind of right with flatish. I
Speaker 8: think market is expecting more from from more bold moves
Speaker 8: by new CEO. There's definitely more deeply cost savings measure
Speaker 8: needed for a bout the banks. So I think we're
Speaker 8: going to expect day reporting three KY results next week.
Speaker 8: We don't know how much they're going to disclose over there.
Speaker 8: Maybe more will be disclosed during the four KY results,
Speaker 8: but as soon as as as long as we don't
Speaker 8: have much details nothing to work on, it's very difficult
Speaker 8: to gauge what is the direction of travels for ROT
Speaker 8: and HBC and where they want to go to. We
Speaker 8: do have our focus at the on HSBC. We we
Speaker 8: talk about where they can cut costs, how they can
Speaker 8: boost productivity with a better age of those but you know,
Speaker 8: we expect as well as management to come with a
Speaker 8: solid plan to do deliver on those metrics.
Speaker 3: To mush let's zoom out a little bit on your
Speaker 3: European bank coverage. We've had the US some of the
Speaker 3: big US banks report and some pretty solid numbers, mostly
Speaker 3: on the capital market side. What are you expecting from
Speaker 3: the European banks this earnings season?
Speaker 8: Yeah, so definitely know the focus will be on on
Speaker 8: the clinic interest rates and the impact on NII because
Speaker 8: European banks being running on this on this high interest
Speaker 8: rates for quite a long time and with now the
Speaker 8: expectations the interest will gone down, so there's some revenue
Speaker 8: pressure coming. But if you look at the geographical you know,
Speaker 8: it's very interesting to look at Europe from perspective or
Speaker 8: UK banks and europe banks or UK banks are very
Speaker 8: well positioned to the clinic interest rates because of the hedges.
Speaker 8: The for revenue forecast is for four to six persons
Speaker 8: through twenty twenty six, which is much higher than other
Speaker 8: European banks. So there are some banks which are exposed
Speaker 8: positively let's put to the clinic interest rates, which can
Speaker 8: be against common sense, but yes they are UK bank
Speaker 8: to go the headges. European banks know they struggle more
Speaker 8: with an II revenue generation. Then when when you look
Speaker 8: at you know, low base of investment bank revenues for
Speaker 8: backers and the others know that can be a positively
Speaker 8: maybe a positive surprise over there as well. So in
Speaker 8: general I think, you know, we're going to expect more
Speaker 8: comments on out of twenty five and how revenue will
Speaker 8: will travel next year. Course rights are going to cut
Speaker 8: more aggrecively and that would be determined the performance of
Speaker 8: the short crisis.
Speaker 3: Tomash Great Stuff has always appreciated Tomas set so he's
Speaker 3: a senior European banks analyst for Bloomberg Intelligency is based
Speaker 3: in London. HSBC is in the news today kicking off
Speaker 3: for restructuring and trying to get that cost structure more
Speaker 3: in line with what they expect to be at a
Speaker 3: tighter revenue environment with interest rates coming down. New CFO,
Speaker 3: the first female CFO, and the bank's history.
Speaker 7: How cool is that.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on Affo card playing Android
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Speaker 2: you get your podcasts, or watch us live on YouTube.
Speaker 3: Let's talk about real banking, regional banking.
Speaker 7: Joe Castillia joins us.
Speaker 3: Castilia joins us President and CEO of Citizens Bank of Edmond.
Speaker 7: That would be Edmen, Oklahoma.
Speaker 3: Right now, which is basically by Google maps, oklahom.
Speaker 7: Because I have no idea where that is.
Speaker 3: It's basically Oklahoma City, so you're right there in Oka City.
Speaker 3: So there's a lot of stuff going on in the
Speaker 3: National Cowboy and Western Heritage Museum.
Speaker 7: That would be my first stop.
Speaker 6: I mean, I would think going on Oklahoma football game now.
Speaker 3: That yeah, Oklahoma that would be a little bit, Yes,
Speaker 3: a little bit. Jill, thanks so much for joining us here.
Speaker 3: Talk to us about your bank. Who is your customer
Speaker 3: for your bank?
Speaker 1: Yeah, So I get the privilege of being a CEO
Speaker 1: of a one location, one hundred and twenty four year
Speaker 1: old community bank located in suburban Oklahoma City and we're
Speaker 1: located on the same intersection and.
Speaker 10: We've been since nineteen oh one.
Speaker 1: So that's history, very very trying to a very traditional
Speaker 1: community bank. The name of citizens been citizens since nineteen
Speaker 1: oh one. Literally citizens pulling their money together kind of
Speaker 1: the first like crowdsourcing and then loaning and money out
Speaker 1: to the rest of the community. But on our board
Speaker 1: about in two thousand and eight, thousand and nine, the
Speaker 1: bank went through a turnaround and after that point decided
Speaker 1: we want to be here.
Speaker 10: For another one hundred years. And so it's a very
Speaker 10: technologic forward bank.
Speaker 1: So we just launched a digital military bank, so we
Speaker 1: have a large military group that's part of our customer base.
Speaker 1: But it's primarily just a traditional community bank where the
Speaker 1: geographic center.
Speaker 3: Militaries all through your family, right.
Speaker 1: Yeah, So I was enlisted, my husband retired Army's sons
Speaker 1: Army daughters.
Speaker 10: Navy, well not just West Point Enaval Academy. That's right, Wow,
Speaker 10: you did your research.
Speaker 3: Yeah, So I mean so I mean so for a
Speaker 3: bank like yours, I mean it's I need a checking account,
Speaker 3: I need a savings account.
Speaker 7: Do I do?
Speaker 3: Do you guys also do like a mortgage and we
Speaker 3: do business loans and all that type of thing.
Speaker 1: It is the whenever people say like you should have
Speaker 1: a niche market and that's the way to be successful,
Speaker 1: we're the antithesis to that.
Speaker 10: So we do everything. So one stop shop for every
Speaker 10: it is everything.
Speaker 1: So I literally will work with a small business perspective
Speaker 1: owner for three years to help them get bankable so
Speaker 1: they can achieve their dream, help with families, buy their
Speaker 1: first home, get that first checking account, stavements account for
Speaker 1: a youngster. So I mean it's being part of someone's life.
Speaker 1: And even like when in this environment where the interst
Speaker 1: rate's changing, if there's any kind of difficulty with the business,
Speaker 1: we're just walking along the entire way. As someone gets alone.
Speaker 1: It's not just ending in with that transaction. It's really
Speaker 1: a relationship over time.
Speaker 5: And what are your clients coming to you for? Like
Speaker 5: when whether it's an individual or a business like what.
Speaker 5: I'm sure they most hear, Oh, rates are going down,
Speaker 5: but you know, inflation and whatever, and they're probably all like,
Speaker 5: they have a lot of questions for you, I'm sure,
Speaker 5: So what are they coming to you for most these days?
Speaker 1: Yeah, so we talk really more holistically about the whole business.
Speaker 1: So it may be that their costs are going up,
Speaker 1: and how do I know achieve some a scale or
Speaker 1: how do I partner to be able to get input
Speaker 1: costs lower?
Speaker 10: What are some different labor options.
Speaker 1: Some of them have left their businesses where they've hired
Speaker 1: employees now to run and start off the family owned business.
Speaker 1: Well now they're having to move back in the business
Speaker 1: because they can't afford the labor costs associated with it.
Speaker 1: So it's really talking about it all holistically and how
Speaker 1: do we help them be a competitive advantage for them
Speaker 1: to be able to manage their business the best way possible.
Speaker 1: And if that means that it's a lowe own that
Speaker 1: we can provide, or if it's investing in some type
Speaker 1: of money market or other asset, and then we're helping
Speaker 1: them make those decisions.
Speaker 3: You know, when Molly and I hear from the you know,
Speaker 3: the big banks when they report their earning is one
Speaker 3: of the things they say they're spending money is in
Speaker 3: tech technology. But for a bank of your size, how
Speaker 3: does technology do you? Guys have to play in that
Speaker 3: game too and have all the apps and do all
Speaker 3: that kind of stuff.
Speaker 1: There is no customers not going to say I'm not
Speaker 1: going to have the same quality of banking services at
Speaker 1: your bank that I can have somewhere.
Speaker 10: Else at Chase.
Speaker 1: So we have to provide the same level of technology,
Speaker 1: and even better we invent technology. We have a patent
Speaker 1: on a small business remote small business kind ATM and
Speaker 1: they're a little bank invented.
Speaker 10: And I would.
Speaker 1: Challenge you if you open your account as a doesn's
Speaker 1: bank evment, I bet that you would have a better
Speaker 1: experience doing that then you would at a large institution
Speaker 1: for no cost. You can sit there and have your
Speaker 1: checking account, wunch your credit score, not have a lot
Speaker 1: of fees, and then be able to call me or
Speaker 1: tech spee twenty four to seven the bank CEO to
Speaker 1: say hey, I have a question about this.
Speaker 10: Wow that yeah, imagine, I'm not sure.
Speaker 5: I think you're probably much more accessible than he is,
Speaker 5: probably to your customers.
Speaker 1: And I said in the lobby, so you're able to
Speaker 1: see if there's any anxiety or if there's any concerns,
Speaker 1: and so you're really accountable and transparent with your customers
Speaker 1: so that you can really help your community grow.
Speaker 5: It was so interesting when you were just saying, I
Speaker 5: assume this is about small businesses talking about still grappling
Speaker 5: with labor costs, because I feel like that's something that
Speaker 5: anecdotally and in the data, we see a lot of
Speaker 5: that has subsided from really the peak times of you know,
Speaker 5: maybe two three years ago. But you're saying this is
Speaker 5: still really a prevalent issue in your community.
Speaker 1: For sure, labor availability I think, O, let me say
Speaker 1: we have thirty seven months that consistently get below four
Speaker 1: percent unemployment, and if we hit one more month.
Speaker 10: It's a record hot a record long.
Speaker 1: Period of time of low unemployment. So labor availability is
Speaker 1: really scarce. And so then you see again like people
Speaker 1: recruiting their sons and daughters to be working in their
Speaker 1: food truck where they could previously be able to hire
Speaker 1: someone to do that.
Speaker 3: So talks about the economy in Great Oklahoma City. Is
Speaker 3: it what is the basis? Is it still energy or
Speaker 3: is it have you diversity from what is the e commune.
Speaker 1: It's quite diverse, and so you have to come and
Speaker 1: visit Oka City and let me give you the grand tour.
Speaker 1: But I mean a large amount that we have military
Speaker 1: basis there, large federal government presence, still energy.
Speaker 10: Some agriculture.
Speaker 1: But it's a much more diverse community than it was
Speaker 1: back in the eighties whenere we were so dependent upon
Speaker 1: oil and gas. But it still permeates everything in our economy.
Speaker 5: And how about like what are some of like the
Speaker 5: you know, the bigger small businesses in the area, Like
Speaker 5: what kind of what kind of work are they engaged in?
Speaker 1: Yes, so we have a large presence in the aerospace industry.
Speaker 1: So Boeing has a large manufacturing plant.
Speaker 10: There, exactly a small business, not a small business.
Speaker 1: Really great restaurant scene if you're a foodie, would love
Speaker 1: a city. So lots of manufacturing, so parts for especially
Speaker 1: the oil and gas industry. You find there lots of
Speaker 1: great small businesses. Loves travel stops not a small business now,
Speaker 1: but started in Oklahoma City. So really great stories of
Speaker 1: growth and resiliency.
Speaker 5: You know, the only time I actually have been to
Speaker 5: Oklahoma was back after one of the tornadoes.
Speaker 6: I think it was about ten years ago near More.
Speaker 5: Oklahoma, And I'm thinking now, you know, as we've just
Speaker 5: had these pair of devastating hurricanes in the southeast, I mean,
Speaker 5: how has it been with I mean, you guys have
Speaker 5: obviously had your fair share of tornadoes over the years.
Speaker 5: Like what is it like for you in the banking
Speaker 5: seat when you have these kind of events and the
Speaker 5: rebuilding efforts and how much are you involved?
Speaker 1: I mean, what a great question. So as a community bank,
Speaker 1: you're just always ready. And so whether those are really
Speaker 1: small disasters that really only you see in your community
Speaker 1: that don't make the national news, you're running to the
Speaker 1: aid of your community there, and it certainly at a
Speaker 1: broader scale, And we're so grateful to be part of
Speaker 1: a greater community banking network that when are even in
Speaker 1: this situation where the hurricanes were able to rally around
Speaker 1: our community makers that are directly impacted to help them
Speaker 1: in their customers. So I'm having those networks of communities
Speaker 1: both internally in this little small community kind sector as
Speaker 1: well as kind of broad in the nation has really
Speaker 1: allowed a community bank to be much more impactful than
Speaker 1: just the bank itself.
Speaker 3: What's a typical consumer customer for your bank.
Speaker 10: Oh wow, there's just no typical.
Speaker 1: So it could be I just had a conversation this
Speaker 1: weekend with an elderly woman who was wanting to buy
Speaker 1: a trailer, and so we were talking about options for
Speaker 1: her to be able to have an independent living.
Speaker 10: Where she wanted to be. So it could be at
Speaker 10: that level.
Speaker 1: Or it could be that you're buying their second home
Speaker 1: on a really nice lake, or a new car, or
Speaker 1: that they're trying to finance their kids' education.
Speaker 10: So it really runs the gamut. So, but it's typically
Speaker 10: someone I know.
Speaker 1: I mean, usually I'm working with them face to face,
Speaker 1: but it could be just a connection. Actually, last time
Speaker 1: I was in New York City, there was a small
Speaker 1: business customer I was connected with. I was trying to
Speaker 1: sustain their small business. So it just happens, all three
Speaker 1: connections and relationships.
Speaker 5: How much are you seeing both between individuals and businesses
Speaker 5: looking for any kind of loans right now? I imagine that
Speaker 5: they're still probably pretty spooked by the interest rates that
Speaker 5: are out there, maybe thinking oh rates are coming down,
Speaker 5: can hold out a little bit longer.
Speaker 6: Is that kind of the narrative right now?
Speaker 7: Yeah?
Speaker 1: I mean, but a lot of them are like, if
Speaker 1: there are truck stops working, they need the truck now,
Speaker 1: they can't wait, and so they're trying to figure out
Speaker 1: how to I work away around this interest rate environment
Speaker 1: to ensure that can still be profitable. So they're not
Speaker 1: really playing like the markets like you may do at
Speaker 1: a larger scale. They really are having to buy something
Speaker 1: when they need it, but they are considering it as
Speaker 1: I think about growing or expanding locations or scaling their businesses.
Speaker 10: But many have adjusted to.
Speaker 1: This rate environment and there's still a lot of demand
Speaker 1: out there, and there's a lot of other cash sources
Speaker 1: beyond loans still with private equity investors and other government
Speaker 1: type of programs still available for small business to scale
Speaker 1: without having necessarily get loans. So the raid environment then
Speaker 1: it becomes a little bit less consequential.
Speaker 6: Is there a lot of going on in the housing
Speaker 6: market right there?
Speaker 8: Wow?
Speaker 1: The housing market I think is just tough everywhere. Supply
Speaker 1: is just so limited, and you have those low rates
Speaker 1: that people have in their mortgages keeping them from moving,
Speaker 1: and then the cost of constructions. We didn't have transformers
Speaker 1: of itailable forever, so they've may be able to bring
Speaker 1: online developments and you didn't have a lot of availability
Speaker 1: to be able to build. And so there's still some
Speaker 1: supply hiccups, especially when you think about municipalities and a
Speaker 1: lot of the infrastructure that's occurring that's taken away some
Speaker 1: of the pavers and earth movers that would normally be
Speaker 1: used to be able to provide greater development opportunities.
Speaker 10: For one to four family loans.
Speaker 3: Was during the pandemic, was Oklahoma City a city that
Speaker 3: maybe gained population or lost population, goes to New York
Speaker 3: City here everybody left, you know, and all went down
Speaker 3: to Florida and so on.
Speaker 10: Yeah, everybody's becoming in Oklahoma.
Speaker 1: So it's like a reverse great Sir Wrath, you know
Speaker 1: where how so many Californians coming in and so that
Speaker 1: is putting prices, you know, some price pressure on one
Speaker 1: to four family homes. But yeah, we have we are
Speaker 1: a net gain and when it came to migration, both
Speaker 1: during COVID and afterwards.
Speaker 3: We're Norman, Oklahoma, home of the university. Oklahoma's right there. Yeah,
Speaker 3: So is that where you guys get a lot like
Speaker 3: your employees, if you need some employees to should hire
Speaker 3: some graduates.
Speaker 1: Community we're smacked between University of Oklahoma and Oklahoma State University,
Speaker 1: and then the state's oldest institution, University of centralklahom It
Speaker 1: is about two blocks away from the bank. Wow, our
Speaker 1: bank helps secure the land prior to statehood for that
Speaker 1: university to be built.
Speaker 5: I would think that's got to be pretty good for
Speaker 5: labor costs if you've got a whole lot of college
Speaker 5: kids right around there.
Speaker 1: Now, it helps with having that, but we also have
Speaker 1: to compete against Texas, which is a growing market and recreuse.
Speaker 1: More than half the students that are at the University
Speaker 1: of Oklahoma from Texas. Yes, so we have to keep
Speaker 1: them in Oklahoma so that.
Speaker 6: We can better growing.
Speaker 9: Yes.
Speaker 5: I mean I went to Syracuse University. Obviously very different
Speaker 5: climate than in Oklahoma.
Speaker 6: But similar in the sense that they like.
Speaker 5: A lot of the employers in the area would say, like,
Speaker 5: the biggest struggle is that the graduates don't want to stay.
Speaker 6: They want to go back to wherever they came from.
Speaker 6: I imagine maybe that sounds like a little bit of
Speaker 6: what you're talking about.
Speaker 1: Yeah, we're much more successful now, and there's a lot
Speaker 1: of regional institutions that in the rural communities that are
Speaker 1: producing a lot great talent.
Speaker 7: Jill, thank you so much for joining us. Jill Stee.
Speaker 3: She's a president and CEO of Citizens Bank of Edmund, Oklahoma.
Speaker 3: So for Ever and Edmund, I Google mapped that it's
Speaker 3: basically part of the Oklahoma City metropley a little bit north,
Speaker 3: but I mean everything's right there.
Speaker 5: Yeah. So anyway, I mean, my brother and his friends
Speaker 5: actually for a bachelor party just went to a football
Speaker 5: game at Oklahoma, which was, like, I think, got'd be
Speaker 5: one of the more fun ideas, you know, not doing
Speaker 5: like the Vegas booze cruise scene, but going to a
Speaker 5: college football game.
Speaker 7: Yes, awesome, big big player, love that Oklahoma.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: Let's break it down to the GM stuff with David
Speaker 3: Welche's the Detroit Burea, chief of Bloomberg News. Hey, David
Speaker 3: stocks up. Big market likes what they see. I guess
Speaker 3: the world wants big trucks.
Speaker 9: Big trucks, big SUVs. Yes they do, and and they're
Speaker 9: selling them a huge prices. GM's average vehicle in the
Speaker 9: quarter soldess sold for more than forty nine thousand dollars.
Speaker 10: WOWW what happened to the the incentive thirty market vehicles?
Speaker 7: Not even I mean wow, which is amazing.
Speaker 3: I mean I got the Ford F one fifty electric
Speaker 3: one Matt Miller got for me to test drive.
Speaker 7: That was ninety four thousand dollars to the price.
Speaker 3: So give it with What's what's GM saying these days
Speaker 3: about how they're managing this transition to evs.
Speaker 9: Look, there are sales in the quarter for evs. They
Speaker 9: sold over thirty thousand of them, which by Tesla standards
Speaker 9: not a big number, but it was enough to put
Speaker 9: GM in second place in the US market EV sales.
Speaker 9: The real story there is they're getting sales volume up,
Speaker 9: which is a good thing, and that means they're getting
Speaker 9: scale in their battery plants. The battery is the most
Speaker 9: expensive part of the vehicle, and so they can start
Speaker 9: to bring costs down. And they're saying that fourth quarter
Speaker 9: and into next year they will be at be making
Speaker 9: a variable profit on the vehicles, which means that if
Speaker 9: you forget about all the fixed costs, the billions they've
Speaker 9: invested in battery plans, forget about those vehicle plants and
Speaker 9: all the engineering, they're making money. But look that it's
Speaker 9: a step toward making money on vehicles that are pretty
Speaker 9: expensive to produce. And you know, GM's gaining market share.
Speaker 9: And the EV situation is very interesting because Tesla has
Speaker 9: five models if you count the cyber truck for sale GM.
Speaker 9: By the end and next year, by the end of
Speaker 9: this year, they're going to have I think ten, and
Speaker 9: by the end and next year they'll have about a
Speaker 9: dozen different models. That's a lot of variety. It's also
Speaker 9: a lot of production. So if the market for evs
Speaker 9: continues to grow pretty nicely, GM will have the best
Speaker 9: variety and a lot of production to be able to
Speaker 9: get it, which is exactly what that the domestic producers
Speaker 9: in China did to steal their home market away from GM,
Speaker 9: Volksweg and Toyota, Ford, et cetera. It's a market doesn't
Speaker 9: materialize and you know GM is going to probably have
Speaker 9: to lay off a few workers in some of these
Speaker 9: EV plans.
Speaker 6: Yeah, maybe just a few.
Speaker 5: I mean you're talking though about how GM was able
Speaker 5: to sell a but like all these cars at these
Speaker 5: above average prices. Is that true for the evy market
Speaker 5: as well, or are we talking more gas powered there.
Speaker 9: It's both because evs are pretty expensive. The difference though,
Speaker 9: and this is where GM is starting to get a
Speaker 9: lot of its electric vehicle growth, is they have an
Speaker 9: electric version of the Chevy Equinox that starts at thirty
Speaker 9: five thousand after government credit, it's about twenty seven and
Speaker 9: a half. There are many vehicles for sale period of
Speaker 9: any kind that run on anything, you know, alcohol, electricity,
Speaker 9: a fusel earlier, you name it. But that self for
Speaker 9: blow of thirty thousand dollars, so you know, and probably
Speaker 9: most of them are selling for closer to forty before
Speaker 9: the federal tax credit. So but that's a pretty cheap vehicle,
Speaker 9: and they're getting a lot of growth there. But generally speaking, yeah,
Speaker 9: Cadillac lyric expensive vehicle, even the Chevy Blazer, a lot
Speaker 9: of those can go from more than fifty thousand. Then
Speaker 9: you know that's an electric as well. They're pick up
Speaker 9: certainly very expensive Silverado pickup in the GMCCRA pickup, and
Speaker 9: the Hummers are well one hundred, so you know, these
Speaker 9: are expensive vehicles for the most part.
Speaker 7: All right, very good, David Welch.
Speaker 10: We appreciate that.
Speaker 3: David Welch, Detroit, Burachief for Bloomberg News, joining us from Detroit.
Speaker 3: And again I was looking at the stock of you know,
Speaker 3: GM at fifty two week high today, just a really
Speaker 3: nice move. Stocks up about eight percent and change. It's
Speaker 3: up about close to forty eight percent.
Speaker 7: Year to date.
Speaker 3: Whereas you look at General Motors, I'm sorry you look
Speaker 3: at Ford year to data sucks down ten ten percent.
Speaker 5: I think the more amazing thing here is that David
Speaker 5: was talking about is how they've been able to sell
Speaker 5: at all these above average prices. I mean, the story
Speaker 5: of the car market lately has been incentives and markdowns,
Speaker 5: you know, and especially with like auto loans being as
Speaker 5: expensive as they are, how they're able to do this
Speaker 5: is remarkable to me.
Speaker 3: Yeah, and I remember talking to Kevin Tynan, who was
Speaker 3: the auto analyst of Bloomberg Intelligence for many years, and
Speaker 3: he just said, listen, they make so much money with
Speaker 3: these crossovers, SUVs, trucks, whatever you want to call them. Literally,
Speaker 3: on a perdutive basis there so profitable that the incentive
Speaker 3: to switch over to EV's is just isn't there, and
Speaker 3: they're not going to do it until the economics makes sense.
Speaker 6: So you're saying, as GM or as a customer, to
Speaker 6: sweat no.
Speaker 3: As GM said, automakers they're so incentive to make these
Speaker 3: big trucks because they sell them and they're very profitable
Speaker 3: to the highest profit margin products they have. So the
Speaker 3: US auto companies have very little financial incentive, economic incentive
Speaker 3: they switched to evs. Now it's the government's gonna, you know,
Speaker 3: incentivize you to do so or force you to do so.
Speaker 7: Well, that's another whole thing.
Speaker 3: But I think as most auto investors, they were just concerned,
Speaker 3: do I want to own a company where you know,
Speaker 3: their incentives are not really aligned with maximizing profits.
Speaker 7: So often see.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 7: Let's switch gears.
Speaker 3: Let's talk about real estate, commercial real estate. We love
Speaker 3: to talk about commercial real estate because I have no
Speaker 3: idea what's going on. I know I've made the mistake
Speaker 3: in the past thinking commercial real estate's office, but that's
Speaker 3: only like three and a half percent of readesks to talk.
Speaker 11: About the malls.
Speaker 7: I know.
Speaker 3: I know Rich Hill, he joins us. He's had of
Speaker 3: real estate strategy and research at Cohen and Steers. Before that,
Speaker 3: he was at Morgan Stanley with all those other Morgan
Speaker 3: Stanley real estate crazy people, which they just have owned
Speaker 3: real estate across Wall Street my entire career at Ward Stanley.
Speaker 3: So those are the folks that get it done. Rich
Speaker 3: thanks so much for joining us here in our studio.
Speaker 3: I mean, where do you go in commercial real estate today?
Speaker 7: I know there are different silos.
Speaker 3: Where do you guys think the best opportunities are these days?
Speaker 7: Yeah, maybe we.
Speaker 11: Can just take a step back. It has been a
Speaker 11: really tough two years for commercial real estate, but we
Speaker 11: think the market is finally in the process of bottoming.
Speaker 11: There's been three price in disease that we follow pretty closely,
Speaker 11: all of which showed increases for the first time in
Speaker 11: more than two years in recent months. So valuations down
Speaker 11: more than twenty percent, and that doesn't happen very often.
Speaker 11: You go back to the early nineteen nineties in the GFC,
Speaker 11: those are the only two times evaluations have fallen. So
Speaker 11: it's getting people pretty excited again. I will note, though,
Speaker 11: before I talk about the opportunities, we think the cycles
Speaker 11: playing out sort of in textbook fashion. What do I
Speaker 11: mean by that? Well, list it reached trough first, they
Speaker 11: troughed about a year ago. Then private valuations trough twelve
Speaker 11: months later. But there's a really important point here. See
Speaker 11: our debt distress. So distress in the debt markets doesn't
Speaker 11: peak out for twelve to twenty four months after property
Speaker 11: valuations trough out, So the headlines are actually going to
Speaker 11: get worse before they get better. You're going to be
Speaker 11: talking about office valuations being down, borrowers given the keys
Speaker 11: back to lender. That's what happens at this point in
Speaker 11: the cycle.
Speaker 5: So what if you're looking at valuations bottoming but you
Speaker 5: know that this distress is still going to be coming.
Speaker 5: That's still got to be a really tricky position. If
Speaker 5: the equity valuation is maybe looking more appealing, but you're
Speaker 5: worried about the death side coming back to bite you.
Speaker 11: Yeah, so commercial real estates inherently elever a class. What
Speaker 11: do I mean by that, Well, there's very few people
Speaker 11: that buy a property and don't put some level of
Speaker 11: debt on it. So the availability of debt and the
Speaker 11: cost of debt is super super important. We are beginning
Speaker 11: to see signs of thawing in the debt markets. I'm
Speaker 11: gonna get really wonky here for a second, but we
Speaker 11: follow something called the Senior Loan Officer Opinion Survey quarterly.
Speaker 6: Sur We love that survey. We don't have to call
Speaker 6: this loose.
Speaker 11: I do too loose.
Speaker 6: On the loose, I'm sorry, this is the place to
Speaker 6: go wonky go.
Speaker 2: Yeah.
Speaker 11: So, look, what we've seen is that that metric is
Speaker 11: turning less bad, and it has been for several quarters
Speaker 11: right now. The last observation, it's set around twenty five
Speaker 11: percent of lenders or tightening lending standards. That still sounds
Speaker 11: like a lot, but at the tightness of the market
Speaker 11: it was almost seventy.
Speaker 6: Percent, So it's entering SVB.
Speaker 11: Shortly on the heels of SPHEEDBA. Lenders get more conservative
Speaker 11: on the heels of things like that, So we are
Speaker 11: seeing things turn less bad.
Speaker 7: Believe it or not.
Speaker 11: One of the largest CMBs deals that has been done
Speaker 11: in quite some time. A three billion dollar deal by
Speaker 11: the way back by a New York City office building
Speaker 11: was just done last week. So things are beginning to
Speaker 11: thaw here a little bit, which I think is a
Speaker 11: sign of why the market's beginning to bottom.
Speaker 3: Warehouses and stuff like that. That's the one that's been
Speaker 3: ripping over the last several years. Has that played out?
Speaker 3: I mean, do you see where do you find.
Speaker 7: Value these days?
Speaker 11: So here's here's a remarkable statistic that no one believes me.
Speaker 11: Industrial rates or warehouse rates are the worst performing sector
Speaker 11: of listed roats this year. They're down around four percent
Speaker 11: or so, almost five percent probably as of today, while
Speaker 11: the market is up more than ten percent, the listed
Speaker 11: remark is up ten percent. Why is that happening? Well,
Speaker 11: what the market's telling you, well the public markets are
Speaker 11: telling you, is that long term growth is going to
Speaker 11: mean reverted. So this is an asset class that has really,
Speaker 11: really strong fundamentals. We think it's a great asset class.
Speaker 11: But guess what commercial real estate developers do in a
Speaker 11: market like that, They build new supply. So we think
Speaker 11: supply for such demand is going to equiliberate over time,
Speaker 11: and that will bring long term growth down. And that's
Speaker 11: exactly what the list of remarket's telling you about. So
Speaker 11: that's a long way of saying, we don't think the
Speaker 11: past cycle winners are going to be the next cycle winners.
Speaker 6: How about the office space right now? How would you
Speaker 6: describe that?
Speaker 11: Still challenged, but it's starting to get maybe a little
Speaker 11: bit interesting. I was in the Pacific Northwest last week
Speaker 11: and client asked me, what do you think you're what
Speaker 11: do you think the best performing asset types are going
Speaker 11: to be over the next ten years? And I told
Speaker 11: them I was like, I sort of want to put
Speaker 11: office at the top of that list. The problem is
Speaker 11: it might go lower before it goes higher. I don't
Speaker 11: know if it's a good entry point today, tomorrow, next week,
Speaker 11: or next year. But valuations are starting to get really, really,
Speaker 11: really interesting. I'll give you three green shoots that we
Speaker 11: look at. First family offices, ultra high worth family offices
Speaker 11: that can take more than a ten year view, like
Speaker 11: one hundred year of view are beginning to step in
Speaker 11: and buy office properties because the basis is so attractive.
Speaker 11: They haven't seen the basis like that in decades and decades.
Speaker 11: So that's point number one point number two. I just
Speaker 11: talked about how industrial reads or the second or the
Speaker 11: worst beforming sector of listed reads this year. Guess what
Speaker 11: office is the second best? So the market has sort
Speaker 11: of brought them back from the dead. And then I
Speaker 11: talked about the green shoots that we're starting to see
Speaker 11: very selectively in the lending markets for office. So we're
Speaker 11: still cautious, but I think there's going to come a
Speaker 11: time pretty soon, and I say pretty soon call it
Speaker 11: next twelve to twenty four months where you're going to
Speaker 11: look back and you're gonna say, hey, I wish I
Speaker 11: would have stepped in because it was a really good
Speaker 11: buying opportunity. It's a long way of saying someone's going
Speaker 11: to make a ton of money.
Speaker 2: Yeah.
Speaker 7: Absolutely.
Speaker 3: I mean my personal barometers, just like anything on Third Avenue.
Speaker 3: When I see like the Lipstick building or something like
Speaker 3: that trade at forty cents on the dollar or something,
Speaker 3: I was saying, that's the boss.
Speaker 6: What with the wolfgangs? Are you kidding?
Speaker 7: I don't know, think about this, think about this.
Speaker 11: Are you adding to bet against New York City?
Speaker 7: Yeah?
Speaker 3: I don't know what hard press to do that way
Speaker 3: we've seen that we've seen that movie before. Richell, thank
Speaker 3: you so much for joining us here in our studio. Richell,
Speaker 3: he's head of real estate strategy and Research at Cohen
Speaker 3: and Steers.
Speaker 7: Joining us here on our Bloomberg Interrupt approp for Studio.
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