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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market movin news.
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Speaker 3: A lot going on across Wall Street. One of the
Speaker 3: things that's going on, in particular to City Group, the
Speaker 3: company is shutting down. It's muni business that was once
Speaker 3: the envy of rivals, and right now to discuss that.
Speaker 3: We are going to be talking with Bloomberg Finance team
Speaker 3: leader Sally Bakewell, who has been leading the coverage all
Speaker 3: over everything developing with City. Sally just kind of give
Speaker 3: us a thirty thousand foot look of what this means
Speaker 3: for City Group. As our CEO, Jane Fraser, still continues
Speaker 3: to reshape the company in its operations.
Speaker 4: Right, well, it means a lot of this City Group
Speaker 4: and it means a lot for the muni market there
Speaker 4: because City had really dominated that four trillion space of
Speaker 4: underwriting local and state debt for most of the past decade.
Speaker 4: In fact, it ranked among the two biggest of municipal
Speaker 4: bond underwriters by volume. It's been on deals like the
Speaker 4: rebuilding of the World Trade Center, on rebuilding the portal
Speaker 4: authorities of New York and New Jersey. But as City
Speaker 4: has struggled in recent years through a number of issues
Speaker 4: and including it sort of ability to deliver returns and
Speaker 4: meet financial goals. And so Jane Fraser, who has been
Speaker 4: at the helm for a number of years, her border
Speaker 4: aim is to make City a bank that you know
Speaker 4: serves large multinational corporations but also improves returns which have
Speaker 4: been trailing. So I think the muni business became incompatible
Speaker 4: with that goal for a number of reasons. I think
Speaker 4: a big one being that Hexas is the biggest state
Speaker 4: for muni bond sales. But City, owing to firearms policies,
Speaker 4: got frozen out of a number of big deals there
Speaker 4: and that did crimp a lot of its revenue and
Speaker 4: ability to generate profits. And I think deliberations continued for
Speaker 4: a number of months over this big decision, and they have,
Speaker 4: you know, decided that it would be better for City,
Speaker 4: which is undergoing a number of restructurings in other areas,
Speaker 4: if it was out of this market.
Speaker 5: Yeah, the almost the impeach, well, I guess it was
Speaker 5: in peach. It wasn't really, but the Attorney generaler Ken
Speaker 5: Paxton is kind of in charge of that, taking aim
Speaker 5: at all the big underwriters, all the money center banks
Speaker 5: that have policies with which he disagrees by freezing them
Speaker 5: out of that market. The end result was that it's
Speaker 5: taxpayers who fit the bill because they don't get the
Speaker 5: best pricing for their munis. Is there anybody around to
Speaker 5: pick up the slack or are other banks facing the
Speaker 5: same situation? Is anybody going to be left.
Speaker 6: Oh.
Speaker 4: I think the scrutiny is definitely there on all of
Speaker 4: the banks, but I think there are banks who are
Speaker 4: picking up the slack. In fact, a team of from
Speaker 4: City actually defected to Jeffries just in November after news
Speaker 4: that City was weighing pulling out.
Speaker 5: They saw the writing on the wall.
Speaker 4: I think the writing has been on the wall for
Speaker 4: a little while. In fact, City also shut the its
Speaker 4: muni prop trading desk not too long ago, which that
Speaker 4: was the desk that used the firm's own cash to
Speaker 4: trade and invest in the debt, and that has now
Speaker 4: translated to a complete wind down of the business by
Speaker 4: the end of the first quarter. But you know, City
Speaker 4: ranked number seven in terms of muni bond sale underwriting.
Speaker 4: Bank of America is first, RBC Capital Markets is second.
Speaker 4: Then you of course have the likes of JP Morgan,
Speaker 4: Jeffrey's Morgan, Stanley, Wills Fargo. So in terms of picking
Speaker 4: up the slack, there is still very much a market there.
Speaker 7: I think.
Speaker 4: You know, for City, it represented at one time, you know,
Speaker 4: a very significant business and also the ability of the
Speaker 4: bank to connect to the country on a broader, sort
Speaker 4: of deeper level because it was providing financing for you know, schools, hospitals,
Speaker 4: railroad and so on. And that's an important thing for
Speaker 4: a bank to do and to be seen to be doing.
Speaker 3: And sally, just for a sense of how crucial munis are.
Speaker 3: What how does immunis play into the broader business for
Speaker 3: these banks in terms of generating fees? Just looking at
Speaker 3: the league table that you guys have in the chart,
Speaker 3: Bank of America with an almost thirteen percent market share
Speaker 3: at forty four billion dollars of volume, how does that
Speaker 3: compare two things like IPOs and M and A and
Speaker 3: actually generating fees for these big banks.
Speaker 4: Yeah, I think it's a very substantial part of what
Speaker 4: any any bank that's involved in the market does. I mean,
Speaker 4: there is an sort of unending s figot of material
Speaker 4: and deals to work on if you're in the in
Speaker 4: the municipal space. So it is definitely a blow for
Speaker 4: City that it was unable to really participate, for example,
Speaker 4: in the Texas market specifically, and it's a big it's
Speaker 4: a very substantial change for the company which historically had
Speaker 4: been such a big player in this space going back decades.
Speaker 4: But you know, City is currently going through a big
Speaker 4: overhaul that it unveiled in September its biggest overhaul in decades,
Speaker 4: where it's trying to refocus on five core areas. The
Speaker 4: goal is to make it a leaner, more efficient organization,
Speaker 4: to remove layers of management again with that broader, broader
Speaker 4: aim of improving returns, and that is going to spark
Speaker 4: a lot of change at the bank, which we've already
Speaker 4: started to see. We know that there will be job cuts,
Speaker 4: and there have already been some job cuts and we
Speaker 4: can anticipate more next year. But yes, the goal is
Speaker 4: to make City at a lina organization, and I think
Speaker 4: focusing on more higher revenue, higher margin businesses is the
Speaker 4: goal and Immunia business didn't quite align with that anymore.
Speaker 3: Well, yeah, Sally, we had the news earlier in the
Speaker 3: week from our colleagues in London about City offering partial
Speaker 3: early bonuses amid this restructuring. So as you talk about
Speaker 3: and look at what the path forward looks like, does
Speaker 3: twenty twenty four actually look like for City Group to
Speaker 3: rein in their spending and costs and also compete in
Speaker 3: what still seems to be a very hot war for
Speaker 3: talent on Wall Street, right, And.
Speaker 4: That's a really good point to bring up the bonuses
Speaker 4: with City, because yes, it offered a select number of
Speaker 4: staff the ability to take a portion of their guaranteed
Speaker 4: bonus now and leave rather than risk next year potentially
Speaker 4: losing their jobs under this restructuring, but being left with
Speaker 4: no job and no bonus. I think it kind of
Speaker 4: underscores it's a fairly shocking move, you know, to basically
Speaker 4: ask people to do this, And I think it underscores
Speaker 4: the urgency with which Jane Fraser knows she has to
Speaker 4: start to deliver. The bank had already tried to or
Speaker 4: has nearly completed an exit of a number of its
Speaker 4: global retail markets. And I think, you know, it's undertaken
Speaker 4: other men to try and write the ship that perhaps
Speaker 4: weren't deemed to be fully effective, and this latest overhaul
Speaker 4: is a real attempt to show shareholders that it can
Speaker 4: set financial targets and meet them, that it can improve returns.
Speaker 4: And I think for twenty twenty four, actually things possibly
Speaker 4: are looking fairly solid. We just had Mike Mayo, who
Speaker 4: is the Wells Fargo very well known bank analyst. He
Speaker 4: actually named City as his top pick among large cat
Speaker 4: banks heading into twenty twenty four, replacing JP Morgan Chase
Speaker 4: as his favorite. So, you know, he said he's been
Speaker 4: long and wrong on City Group, but he thinks that
Speaker 4: the restructuring is making them more simple, the management is addressing,
Speaker 4: you know, two decade or problems at the banks, and
Speaker 4: that it's seeming to get expenses under wraps. So perhaps
Speaker 4: the subtotal of all of these measures in twenty twenty
Speaker 4: four is when we do start to see them pay off.
Speaker 5: Are going to see similar moves by other banks dropping
Speaker 5: their municipal departments.
Speaker 4: It's hard to say. I think it depends on the
Speaker 4: level of scrutiny from Paxton. It will depend on the
Speaker 4: economic viability of the business under that scrutiny. The other
Speaker 4: banks don't have the same issues as City, though, they
Speaker 4: don't have to make these dramatic moves to kind of
Speaker 4: really reshape the organizations. So that I think is why
Speaker 4: City was slightly unique in feeling the impact of the
Speaker 4: situation in Texas and having to weigh up the viability
Speaker 4: of its business. It is doing this against this backdrop of,
Speaker 4: as Mike mos said, a decades long sort of problem
Speaker 4: at the bank of not being able to generate the
Speaker 4: kind of returns that the other banks were able to
Speaker 4: do so. I think there will be under scrutiny, but
Speaker 4: they probably won't feel that need to act in the
Speaker 4: same way that city has.
Speaker 5: City dropping its municipal business. Sally bankwell with the story
Speaker 5: for Bloomberg News. Sally, thanks very much, appreciate your time.
Speaker 8: You're listening to the team. Can's a live program Bloomberg
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Speaker 5: Making the energy transition no easy tasks as we try
Speaker 5: to decarbonize utilities across the United States. Let's bring in
Speaker 5: our next guest. Maria Pope is the CEO of Portland
Speaker 5: General Electric. We got a picture of just how difficult
Speaker 5: that transition is. I think it was today or yesterday
Speaker 5: with California the governor there in his attempts to recommission
Speaker 5: the Diablo Nuclear Power Plant Diablo Canyon because they need it. Basically,
Speaker 5: they can't just do it alone with renewable sources. So Maria,
Speaker 5: what is the timeline for you guys with your utility,
Speaker 5: Portland General Electric to decarbonize and are on track at
Speaker 5: this point.
Speaker 9: So we're looking to decarbonize the energy supply eighty percent
Speaker 9: by twenty thirty and then net zero by twenty forty.
Speaker 9: Obviously we'll need new technologies by twenty forty, but we
Speaker 9: are on track with forty percent of our customer's energy
Speaker 9: coming from renewable sources today.
Speaker 3: And with that technology transition, is that developed in house,
Speaker 3: are you licensing it from startups or kind of how
Speaker 3: does that play out?
Speaker 9: It really comes from a variety of sources, first legacy hydro,
Speaker 9: then we take solar and wind, battery storage. We have
Speaker 9: the second largest installation of battery storage outside of California
Speaker 9: taking place right now, and we use a lot of
Speaker 9: technologies to integrate all of those renewables for safe, reliable, affordable,
Speaker 9: clean energy for our customers.
Speaker 5: Hey, Maria, just how vulnerable is your utility to droughts?
Speaker 5: You mentioned hydro power and even wildfires with the transmission lines.
Speaker 9: You know, it's something a lot of people ask. We're
Speaker 9: in actually a drought period right now in the Pacific Northwest,
Speaker 9: and we've actually been relying a lot more on energy
Speaker 9: from markets outside of this region. Much of that is
Speaker 9: renewable solar and other sources. That come into this area,
Speaker 9: but also being able to construct new wind resources, new
Speaker 9: solar resources is augmenting our legacy Hydro. As we look
Speaker 9: going forward, we will need ever increasing amounts of renewable energy,
Speaker 9: which are today price competitive with other sources.
Speaker 3: And how much does that cost? What's your capex looking
Speaker 3: like to make some of these investments.
Speaker 9: You know, we have taken our investment up over time,
Speaker 9: and in the last three years, our invested asset base
Speaker 9: has actually grown about thirty percent overall. Our revenues are
Speaker 9: also up about thirty seven percent. As we see customer growth.
Speaker 9: We have five percent more customers today than we did
Speaker 9: three years ago, and they're using ten percent more energy.
Speaker 5: In terms of the total return opportunity for the stock
Speaker 5: based on the earnings per share. I mean, you guys
Speaker 5: have been beaten up to some extent because of worries
Speaker 5: over the things that we mentioned. Where do you hint from?
Speaker 5: What's your message to investors at this point?
Speaker 9: You know, we're committed to growing at five to seven percent.
Speaker 9: We've been leaders actually in addressing wildfire. While one can
Speaker 9: never predict what will happen, we've invested tremendously in reducing
Speaker 9: those risks. And again are committed to the five percent
Speaker 9: earnings growth projectory.
Speaker 3: And when you look at expectations for twenty twenty four
Speaker 3: and even beyond, looking at some of the energy transition
Speaker 3: mission there or goals that you guys have in the
Speaker 3: state of Oregon and really broadly around the world has
Speaker 3: laid out, how does that How does twenty twenty four
Speaker 3: look for your business?
Speaker 9: You know, twenty twenty four looks really good. We actually
Speaker 9: will see revenues probably about fourteen to fifteen percent higher
Speaker 9: year on years we turn into twenty twenty four. I'd
Speaker 9: also say that we're focused on meeting our customers' needs,
Speaker 9: whereas the largest semiconductors and global manufacturers to small startups
Speaker 9: and over two million residential customers who are focused on
Speaker 9: the clean energy transformation and ensuring that we do so
Speaker 9: with a smart integrated grid.
Speaker 5: Yeah, as we make that transition, I mean, overall the
Speaker 5: grids in the United States, are they prepared for all this?
Speaker 5: And what sort of infrastructure upgrades do they need? And
Speaker 5: you know, are you getting any help from the Biden
Speaker 5: administration on that front.
Speaker 9: So we've been investing in grid technologies as well as
Speaker 9: infrastructure for a long time, where the fourth largest electric
Speaker 9: vehicle market is an example, and have been thinking about
Speaker 9: those new technologies for years. From the Biden administration, We're
Speaker 9: very fortunate to have received several very significant grand one
Speaker 9: in particular around technology is a partnership with Nvidia and
Speaker 9: the startup Utili Data, the three of us coming together
Speaker 9: and bringing our unique capabilities to deliver for customers, to
Speaker 9: grow earnings, and to ensure really a solid clean energy
Speaker 9: future is attainable in a very short period of time.
Speaker 5: That sounds like the intersection of artificial.
Speaker 3: Bringing an AI. It's everything. I well, I guess this
Speaker 3: is my question, Maria. We've been talking about this transition
Speaker 3: and we've seen some things happen. I guess are you
Speaker 3: surprised with where we are going into twenty twenty four,
Speaker 3: with how quickly or slowly things have evolved? And do
Speaker 3: you expect that to kind of pick up in the
Speaker 3: coming years.
Speaker 9: You know, it's interesting. We're very optimistic about the future.
Speaker 9: I mean, when we come together in partnership, we're able
Speaker 9: to do great things. And the acceleration of clean energy
Speaker 9: has been remarkable not only for our company but across
Speaker 9: the entire United States and really globally. But we'll see
Speaker 9: coming out of There's no question that this will continue
Speaker 9: to accelerate and then we'll work together on new technologies.
Speaker 9: One of the other grants that we received was part
Speaker 9: of the Northwest Hydrogen a billion dollars to invest in hydrogen.
Speaker 9: And then we also have received two hundred and fifty
Speaker 9: million dollars on a consortium with the Confederated Tribes of
Speaker 9: the Warm Springs where we have worked together with them
Speaker 9: co owning a four hundred and fifty megawatt facility hydro
Speaker 9: power that we will now be able to increase the
Speaker 9: transmission with a two hundred and fifty million dollars grant
Speaker 9: enabling further renewable energy development on the reservation for the
Speaker 9: benefit of the future employment of the tribes as well
Speaker 9: as renewable energy across the state.
Speaker 5: Is climate change the far and away the biggest risk
Speaker 5: or that you face in the future.
Speaker 9: Oh, I think we were facing a lot of risk
Speaker 9: as we go through a transformation. Clearly, we're using technologies,
Speaker 9: we're changing at a pace that is unusual for utilities
Speaker 9: but very exciting, and so as we manage everything from
Speaker 9: a changing and warming climate to changing expectations by customers
Speaker 9: to new technologies at what ares Managing risks is also
Speaker 9: managing opportunities.
Speaker 5: Ria Pleasure, Thanks for stopping by. Appreciate it. Maria Poulp,
Speaker 5: the CEO of a Portnam General Electric, the ticker symbol
Speaker 5: por and as they look at it right now among
Speaker 5: the analysts, seven buys, five holes, and zero sales. The
Speaker 5: average price target for the stock, according to data compiled
Speaker 5: by Bloomberg, forty eight dollars per Sure.
Speaker 3: Just recently got upgraded this week over at Barclays talking
Speaker 3: about the upside and despite it being a wildfire stock,
Speaker 3: they kind of point out that we're exiting wildfire season,
Speaker 3: and as someone who's spent the first eighteen years of
Speaker 3: my life in California, were season is the thing.
Speaker 8: You're listening to The tape cats a our live program,
Speaker 8: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
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Speaker 8: You can also listen live on Amazon Alexa from our
Speaker 8: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 5: Let's switch to fixed income right now. Alex Batrand, our
Speaker 5: next guest, the director of Fixed Income at Rockefeller Asset Management.
Speaker 5: I missed out on five percent, But is what are
Speaker 5: we looking at four forty one or three ninety two
Speaker 5: right now in the ten are those screaming buys?
Speaker 7: I mean three ninety two is the new five percent?
Speaker 8: Right?
Speaker 7: Isn't that how we we shift?
Speaker 10: And if you want spicy and not sleepy into the
Speaker 10: end of the year, that is what we have right now.
Speaker 7: Quite clearly, rates drive in the market. The FED FOMC. J.
Speaker 10: Powell Williams happy to unpack that, making it fun for
Speaker 10: us into your act.
Speaker 5: With all That'speiag and Williams today, I mean, how do
Speaker 5: you set strategy with all these different narratives out there?
Speaker 6: Yeah?
Speaker 7: Absolutely great question.
Speaker 10: I mean, we are long term investors have said for
Speaker 10: quite some time as we think about what was driving
Speaker 10: markets in twenty twenty three, it was the rate story
Speaker 10: driving Muni's driving Corporus in twenty twenty four. That is
Speaker 10: going to be no different from here. The message is
Speaker 10: quite clear this week from the FED, even with Williams today.
Speaker 10: Williams came in and tried to walk back some of
Speaker 10: this dubvish interpretation of what was a dubvish meeting. Three
Speaker 10: cuts instead of two. Many people were caught off guards
Speaker 10: by that.
Speaker 5: The view from me, he was walking it back at
Speaker 5: the instructions of mister Powell. He was walking in the
Speaker 5: instructions from.
Speaker 7: Someone or he's a loose canon.
Speaker 10: Whether that is the case is not for us to
Speaker 10: necessarily try to decide. But if you unpack what Williams
Speaker 10: said is he said that we are not talking about
Speaker 10: cuts right now. That doesn't mean that they're not talking
Speaker 10: about cuts.
Speaker 7: So when you look at the summary of.
Speaker 10: Economic projections, the dot pot, what does it tell us?
Speaker 10: It tells us three cuts, doesn't tell us when. And
Speaker 10: so the market feels like it got a little bit
Speaker 10: of itself pricing in sick. Some people calling for March,
Speaker 10: some people calling for June. What the FED is telling
Speaker 10: us is they are comfortable with this level of employment.
Speaker 3: But how how independent will the FED be in an
Speaker 3: election year, in a year where there's expectations that looking
Speaker 3: at the.
Speaker 5: World, Oh, it's that fantasy.
Speaker 10: I mean, well, listen, we are here to think about
Speaker 10: market volatility relative value. I can have many cocktail discussions
Speaker 10: around the independence of the FED. That is a fun
Speaker 10: topic to really go down a rabbit hole. Or maybe
Speaker 10: Abigail mentioned Twitter. I'm sure there's plenty of things there.
Speaker 10: Our goal simply is, to your point, John three ninety two,
Speaker 10: relative value or not fair value.
Speaker 7: And what we start to look at is where do we.
Speaker 10: See the trend line over the next three months, six months,
Speaker 10: twelve months across the rates market? And then most importantly,
Speaker 10: how is that going to impact a municipal market on
Speaker 10: a go forward basis?
Speaker 5: How is it going to be impact market on a
Speaker 5: EKO forward?
Speaker 10: Thank you for letting me continue that. I think from
Speaker 10: our perspective it's quite simple. Ratios continue to matter here.
Speaker 10: With this move lower in rates, you have a tremendous
Speaker 10: amount of demand that's come back into the market. So
Speaker 10: we look at rates, we look at technical supply and
Speaker 10: demand supply driven by new issuers stepping into the market,
Speaker 10: supply driven by whether retail is a net buyer net seller,
Speaker 10: retail is stepped back in there a net buyer.
Speaker 5: Tangential to that? Can I just ask go quick with
Speaker 5: the city group story dropping of their municipal department, how
Speaker 5: looney is the municipal market getting when you take into
Speaker 5: context the whole ken Paxton, Texas thing.
Speaker 10: Another key risk factor that we really think about is
Speaker 10: liquidity dynamics in the municipal market. What you've seen since
Speaker 10: my early days PREGFC till now is this consolidation of
Speaker 10: desks across the street. When we look at that as
Speaker 10: the dealer community shrinks, it is a really fortunate thing
Speaker 10: for the UNI market. For investors. Liquidity dynamics change. There
Speaker 10: is more friction in those periods of mentioning technicals where
Speaker 10: there are outflow cycles and you have fewer people stepping
Speaker 10: in to provide liquidity. It can create some more challenges
Speaker 10: for those who need liquidity. It can create a lot
Speaker 10: more opportunities for those who are looking to be the
Speaker 10: source of liquidity. So while we don't like to see it,
Speaker 10: it's looking through that and really emphasizing managing the liquidity.
Speaker 5: For a new homeowner like Bailey. It's just like probably
Speaker 5: means is taxes are going to go up at some point.
Speaker 5: I mean it's right if you're having trouble doing these
Speaker 5: deals or having an underwriter and the market is impacted
Speaker 5: that way, ultimately it's going to be more expensive gas.
Speaker 7: You know, Let's make no mistake.
Speaker 10: If you look at the market yesterday, you have issues
Speaker 10: that are there. They are able to bring deals Illinois
Speaker 10: toll example, yesh Day fifteen to twenty times over subscribed
Speaker 10: spreads were half of what they were back in April
Speaker 10: when they brought a deal.
Speaker 7: You will still see deals being brought.
Speaker 10: I expect issuance picks up materially heading into next year,
Speaker 10: both in terms of corporate risk as well as muni
Speaker 10: risk because guess what, the FED has just made it
Speaker 10: a much better entry point. These deals will get done.
Speaker 10: It will just continue to be consolidated from here.
Speaker 3: Well how much I guess how quickly does the FED
Speaker 3: need to cut for some of those deals to come
Speaker 3: to market or does that not matter as much?
Speaker 10: Well, they're coming now, right, We're seeing it. We're seeing
Speaker 10: deals that are added to the calendar. Abigail was talking
Speaker 10: about a sleepy week we in the municipal market. We
Speaker 10: hope that next week we can catch up on all
Speaker 10: the work that we didn't necessarily do, you know, maybe
Speaker 10: trade on the margins. There are deals that are stepping
Speaker 10: in that weren't on the calendar. In particular, it's really
Speaker 10: across the board. We're seeing healthcare, we're seeing general obligation risk.
Speaker 10: It is deals that we're tagged to come at some
Speaker 10: point likely in the first quarter, first half of next year,
Speaker 10: and they're saying, let's do it today based on what
Speaker 10: we're seeing at the moment. So regardless, even prior to
Speaker 10: the FMC call it pivot towards a softer tone, we
Speaker 10: expected that issuance was going to pick up in twenty
Speaker 10: twenty four, somewhere to the twoe of four hundred and
Speaker 10: fifty billion or so.
Speaker 5: I'm not exaggerating when I say this, but I get
Speaker 5: in the mail now at least it seems like once
Speaker 5: a month a letter from I don't know, some firms
Speaker 5: saying you know we represent well. In my instance, my
Speaker 5: healthcare provider Robert Wood Johnson Hospitals, saying you know they've
Speaker 5: been hacked. We don't think your personal information, but we're
Speaker 5: not sure. In the meantime, you should really monitor your credit. Well,
Speaker 5: no kidding, is that. Let's talk about cybersecurity risk, where
Speaker 5: it figures into your business and how important it is.
Speaker 10: Yeah, when we think about risks that are forming in
Speaker 10: the municipal market, we think near term risks, so balance
Speaker 10: sheet pressures, rising costs, declining revenues, all of those things
Speaker 10: you're seeing. But then we think longer term as well,
Speaker 10: cybersecurity risk is one that's on that is on our radar,
Speaker 10: no different than companies that are facing these same pressures.
Speaker 7: And so we like to look towards our.
Speaker 10: Municipalities taking the necessary steps today to really protect data, integritory,
Speaker 10: financial SYSM scary stuff, John Ransom. Ransom, you don't want
Speaker 10: to think about that. When it comes to UNI credit,
Speaker 10: we agree they are not. It's a question of as
Speaker 10: these things, excuse me, we don't agree that they are not.
Speaker 10: Many are, But it's looking through to ensure that issuers
Speaker 10: are taking the necessary steps today just as companies are
Speaker 10: doing the same.
Speaker 3: And how is looking through some of the notes climate risk.
Speaker 3: We were talking to the CEO of Portland General Electric
Speaker 3: earlier about some of the green transition. You look at
Speaker 3: places like Florida and California where insurance companies are just leaving.
Speaker 3: So how does that factor into the marketing?
Speaker 7: You know, it's wild.
Speaker 10: It's something that we've talked about quite a bit on
Speaker 10: the desk, and as we think through bigger picture, longer term,
Speaker 10: the frequency of events, the intensity of events, they are
Speaker 10: going to get bigger, They're going to get larger. It
Speaker 10: is going to put press are on bounce sheets. So
Speaker 10: it's both some of the costs associated with rebuilding. State
Speaker 10: and local governments will need to issue more debt, both
Speaker 10: to shore up infrastructure, water resiliency rebuild, but also bigger picture,
Speaker 10: long term, what's the biggest risk for Muni's out migration right,
Speaker 10: look at Detroit, think of some of those examples, and
Speaker 10: so as you think through it, I think the average
Speaker 10: individual buying a home is not really thinking through the
Speaker 10: climate rest long term big picture airs like Florida, at
Speaker 10: some point people will and when that well.
Speaker 5: They're going to think about it when they go there
Speaker 5: and they can't get insurance homewards insurance, for instance. That's
Speaker 5: happening everywhere, not just Florida.
Speaker 10: And that's not always the case a lot of times
Speaker 10: when people really think about it, and there was a
Speaker 10: lot published on this topic earlier this year around insurance,
Speaker 10: it's when the event happens to them.
Speaker 7: So it's a little bit of hindsight.
Speaker 5: Alex, that was great. I hope we didn't get too
Speaker 5: far Afield.
Speaker 10: If you're yeah, this is fantastic, Lively Friday, Alex Patrol,
Speaker 10: the director of fixed income at Rockefeller Asset Management.
Speaker 8: You're listening to the tape Cat's are live program Bloomberg
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Speaker 5: You know, it's been a tough one for Google as
Speaker 5: of late. We had the story earlier this week about
Speaker 5: their fight with Epic Games. They lost, but is their
Speaker 5: trouble over. There's a tough, tough road ahead potentially. Let's
Speaker 5: bring in our next guest. Jenrie is the senior litigation
Speaker 5: analyst with Bloomberg Intelligence on the Anti Trust Watch. So
Speaker 5: what's the panther the head for Google at this point
Speaker 5: or should I say alphabet?
Speaker 6: Well, John and Bailey. I think Google's going to have
Speaker 6: a rough year next year. You know, first they've lost
Speaker 6: with this jury trial on the play store side, and
Speaker 6: the judge will be deciding what the appropriate remedy is
Speaker 6: next year. Now there will appeal, and they have some
Speaker 6: chances there given how different this was from Epics lawsuit
Speaker 6: against Apple, But I don't really think that they're going
Speaker 6: to win that appeal and be able to overturn this verdict.
Speaker 6: It's a very high standard, So they're going to face
Speaker 6: a remedy in that area. The other thing that's going
Speaker 6: to happen is that there will be a verdict or
Speaker 6: a ruling in the Department of Justices lawsuit against Google
Speaker 6: that finished trial earlier this year over its search business
Speaker 6: and whether or not it's maintaining a monopoly in Google Search.
Speaker 6: And I think that decision is probably going to come
Speaker 6: out maybe late first half, sometime in the second quarter.
Speaker 6: And again I think that was a bit that's a
Speaker 6: very close call, but I tend to lean toward the
Speaker 6: DOJ winning that one. So they may also be looking
Speaker 6: at a potential remedy imposed on their search business. Then
Speaker 6: the third thing, which I actually think is the most important,
Speaker 6: or I should say the riskiest lawsuit that Google's going
Speaker 6: to face, is a Department of Justice suit that's challenging
Speaker 6: its entire ad tech business, and that is in a
Speaker 6: Virginia court that moves really fast and could possibly get
Speaker 6: to trial toward the end of the first half of
Speaker 6: next year.
Speaker 5: How far does that go. It goes right up to
Speaker 5: the Supreme Court.
Speaker 6: Do you think, Well, they only go up to the
Speaker 6: Supreme Court if there's anell. If there's an appeal and the
Speaker 6: Supreme Court agrees to take the case, the Supreme Court
Speaker 6: doesn't have to, and in fact, they actually only accept
Speaker 6: a very small percentage of the cases that apply to
Speaker 6: be heard. So I guess I'm assuming Google would appeal
Speaker 6: anything that it loses. So these things could actually drag
Speaker 6: out for a couple of years. But at the very least,
Speaker 6: what it could see is some really bad headlines next
Speaker 6: year that impact the stock. Because if they have losses
Speaker 6: at the district court, while it's not over, because they
Speaker 6: will appeal and it will continue on. You know, those
Speaker 6: initial losses aren't a good thing.
Speaker 3: And just to call out this week, Alphabet down two
Speaker 3: and a half percent. That compares in a backdrop with
Speaker 3: the NASDAC up three point four percent and the S
Speaker 3: and p F two and a half percent. Jen just
Speaker 3: wondering how much could this cost Google from a monetary standpoint,
Speaker 3: given the number of cases ongoing.
Speaker 6: Well, look, it's so hard to say so on the
Speaker 6: search side. Let me start there, because I think it's
Speaker 6: the easiest. I actually don't think even if they lose
Speaker 6: on liability and there's a remedy imposed that it's really
Speaker 6: going to impact them in any significant way because at
Speaker 6: this point they're entrenched. I mean, people use Google Search.
Speaker 6: Most people prefer Google Search to being or to Duck
Speaker 6: Doc Go. And even if they're in a position where
Speaker 6: they have to offer up choice screens, Let's say somebody
Speaker 6: buys an Android device and they're using it for the
Speaker 6: first time and they get to choose the default search
Speaker 6: engine rather than Google just being automatically installed, or if
Speaker 6: they have to sort of open up open up the
Speaker 6: space to other competing search engines, people are still going
Speaker 6: to use Google. So I'm not so sure that's whatever
Speaker 6: happens there, it's going to hurt them very much. Now
Speaker 6: in the play Store, it could hurt a lot more.
Speaker 6: You know, they make a lot lot of revenues from
Speaker 6: the fifteen to thirty percent commissions they charge to developers,
Speaker 6: and that's really going to change if these remedies that
Speaker 6: we expect stick, you know, if they don't win on appeal,
Speaker 6: because they're no longer going to be able to keep
Speaker 6: competing app distributors off Android devices, which means people can
Speaker 6: download these apps outside of the play Store, and they're
Speaker 6: also no longer probably going to be able to link
Speaker 6: an app developer within the Play Store using Google's payment services,
Speaker 6: which is how they collect those fees, and so I
Speaker 6: think there will be an impact. They will obviously find
Speaker 6: some other way probably to make up for that revenue
Speaker 6: and charge developers for using their services. But if competition increases,
Speaker 6: that alone is going to force them to push down
Speaker 6: their commissions. So I think that one hurt.
Speaker 5: This Department of Justice has been particularly aggressive in antitrust cases.
Speaker 5: Can I say that absolutely? Why don't they just, like
Speaker 5: you know, try to weigh out this administration and hope
Speaker 5: for a change at the top.
Speaker 6: You know, they very well could, because if they can
Speaker 6: do whatever they can to drag their heels, you know,
Speaker 6: they can appeal, they can try to slow those appeals down,
Speaker 6: They can do those sorts of things to try to
Speaker 6: drag it out. You know, if you think about it,
Speaker 6: way back in two thousand, when Microsoft lost a really
Speaker 6: big monopolization suit, they actually got out of it in
Speaker 6: a sense because the administration changed George Bush became the president.
Speaker 6: It was remanded to the district court, and in the meantime,
Speaker 6: George Bush's administration settled the case, and so that kind
Speaker 6: of thing does happen. Things change with administration, so certainly
Speaker 6: they can try to do that. You know, I have
Speaker 6: to tell you, John, I wonder all the time why
Speaker 6: all these big deals I'm seeing get signed up don't
Speaker 6: just wait, Because they're also aggressive when it comes to
Speaker 6: challenging mergers and transactions.
Speaker 3: And when you look at some of the antitrust battles
Speaker 3: that Alphabet is working through, are there similar cases that
Speaker 3: come to mind that you can kind of look back
Speaker 3: at as examples of what could play out in the
Speaker 3: coming months and years.
Speaker 6: Well, the Microsoft case I mentioned, even though it's really
Speaker 6: old at this point, is one of the best examples.
Speaker 6: Up until now, Up until the last two years, the enforcers,
Speaker 6: which includes the Federal Trade Commission too, not just the
Speaker 6: Department of Justice, rarely ever sued a big company for
Speaker 6: a monopolistic conduct. This is really new. So you had Microsoft,
Speaker 6: you had a few other little cases, and then about
Speaker 6: five years ago, the Trade Commission suit Qualcom for monopolization
Speaker 6: in the chip markets. They lost that case. They wanted
Speaker 6: the diss report, they lost on appeal. That case ended
Speaker 6: when the Supreme Court refused to review. So we don't
Speaker 6: have a lot of examples, and what we saw with Microsoft.
Speaker 6: I think that's really important for all these cases is
Speaker 6: that while Microsoft was found guilty, one of the things
Speaker 6: the appellate court said is that a structural remedy in
Speaker 6: these instances is really drastic, and it has to be
Speaker 6: applied only with enormous caution, and the least sort of
Speaker 6: imposing or intrusive remedy that will fix the problem is
Speaker 6: the one that should be used. And so it suggests
Speaker 6: to me that if the courts are following that precedent,
Speaker 6: even if there is liability found here with Google, that
Speaker 6: structural remedies are really unlikely.
Speaker 5: And then when it comes to social media and the
Speaker 5: debate over whether or not it's addictive, particularly for youngsters,
Speaker 5: what's happening on that front, and what are the risks
Speaker 5: to Google alphabet.
Speaker 6: You know, there's a lot of activity on that front.
Speaker 6: But on that one, I'm afraid I'm going to have
Speaker 6: to refer you to my colleague Matt Chattenhelm, who is
Speaker 6: covers more of the consumer protection side of the Federal
Speaker 6: Trade Commissioning. He has been all over what's happening on
Speaker 6: the privacy front, and I think you'll have to speak
Speaker 6: to him. Because on the FTC side, when it comes
Speaker 6: to Facebook Meta, I should say I am much more
Speaker 6: focused on the current lawsuit that the FTC has to
Speaker 6: try to force Meta to sell off Instagram and WhatsApp.
Speaker 6: That's the one that I'm following more so than the
Speaker 6: privacy seats, although the privacy seats have more immediacy right now.
Speaker 3: I guess what other you mentioned it? But what other
Speaker 3: trials are you keeping an eye on or should we
Speaker 3: be keeping an eye on in terms of whether it's
Speaker 3: the anti trust space or kind of other big tech names.
Speaker 6: Well, you know, we have a lot going on, as
Speaker 6: you both mentioned earlier, against big tech, So there's been
Speaker 6: a lot of focus on Google. There are a lot
Speaker 6: of cases against Google. But bear in mind we also
Speaker 6: have a pretty big case against Amazon that's pending by
Speaker 6: the Federal Trade Commission, and that's challenging some of Amazon's
Speaker 6: third party seller practices anti discounting practices they call it.
Speaker 6: That basically force sellers to provide the lowest price that
Speaker 6: they provide anywhere on Amazon. So that's pending. The lawsuit
Speaker 6: I've just mentioned is also pending and could even get
Speaker 6: to trial next year, where the Federal Trade Commission has
Speaker 6: challenged Meta, saying, hey, you just run around and you
Speaker 6: have for years buying up your competitors so that you
Speaker 6: don't have viable competitors down the road. You look at
Speaker 6: these nascent up and coming startups and if you think
Speaker 6: they could threaten you down the road, buying them so
Speaker 6: as not to compete with them. And that's what the
Speaker 6: FTC allege has happened with WhatsApp and with Instagram, and
Speaker 6: so we have that pending too. So among kind of
Speaker 6: the big four big tech platforms that we all understood
Speaker 6: were under scrutiny, the only ones, if are that isn't
Speaker 6: facing a Department of Justice or Federal Trade Comission law
Speaker 6: Foo is Apple, and that could still happen. I understand
Speaker 6: that investigation is still.
Speaker 5: Ongoing, and we haven't brought up Europe and the regulators there,
Speaker 5: but that's a discussion for another day. Jen. Thanks. It
Speaker 5: always a pleasure to see Jen Reed, the senior litigation
Speaker 5: analyst Anti Truns with the Bloomberg Intelligence.
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