WEBVTT - Analyst Mike Mayo: Banks Are On the Road To Record Efficiency 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.640 at Bloomberg dot com slash podcast. Greig Jera, thank you 0:00:22.720 --> 0:00:25.080 so much. We appreciate it. Well. Bank stocks are on 0:00:25.120 --> 0:00:26.520 the move. I'm looking at some of the big money 0:00:26.520 --> 0:00:28.800 center banks on a you today basis up anywhere from 0:00:28.840 --> 0:00:34.440 fifteen to uh. Good moves for a long time beleaguered group. 0:00:34.600 --> 0:00:37.560 Let's see what's moving this group. We talked to Mike Mayo, 0:00:37.640 --> 0:00:41.080 of course, senior banking analysts at Wells Fargo, joining us 0:00:41.159 --> 0:00:43.639 on the phone from New York. Mike, thanks so much 0:00:43.640 --> 0:00:46.440 for joining us here. Nice move here for the banks. 0:00:46.600 --> 0:00:50.240 Love to get your take on the group. Uh sure, 0:00:50.280 --> 0:00:52.800 and thanks for having me on. I'd say we have 0:00:53.120 --> 0:00:56.520 more confidence that banks are on the road again to 0:00:56.680 --> 0:01:01.280 the pre pandemic returns evaluations they had before the last 0:01:01.400 --> 0:01:04.240 year year and a half, and we think banks are 0:01:04.240 --> 0:01:08.040 on the road to record efficiency. They're demonstrating resiliency through 0:01:08.080 --> 0:01:11.199 this recession, and they're showing that this is not your 0:01:11.240 --> 0:01:14.959 parents banking industry. I mean, it's night and day versus 0:01:15.000 --> 0:01:18.320 the past recession. If you remember the last recession, the 0:01:18.319 --> 0:01:21.360 global financial crisis, what a mess for for banks. I mean, 0:01:21.800 --> 0:01:24.600 but instead of out of control credit costs, now you're 0:01:24.600 --> 0:01:29.440 seeing banks actually release reserves for problem with credits. They 0:01:29.520 --> 0:01:32.960 are still sobering times. Look, you have individuals and companies 0:01:33.240 --> 0:01:36.120 you know, likely to go bankrupt having difficult times, but 0:01:36.160 --> 0:01:39.080 it's just not as bad as expected, and banks have 0:01:39.160 --> 0:01:42.080 gotten ahead of that. They're not being so Mike, They're 0:01:42.080 --> 0:01:46.039 not being brazen and releasing reserves. You think they're genuine genuinely, 0:01:46.319 --> 0:01:50.480 isn't such a huge risk of you know, cascading bankruptcies 0:01:50.520 --> 0:01:55.040 that Joe Stiglitz was warning about last year. That's correct, 0:01:55.280 --> 0:01:58.200 and banks have been pretty conservative. I mean, it was 0:01:58.240 --> 0:02:02.160 the biggest build up of reserves for problem loans in 0:02:02.200 --> 0:02:04.640 the history of banking in the first half of last year, 0:02:05.120 --> 0:02:08.680 and in the fourth quarter they released only about you 0:02:08.720 --> 0:02:11.919 know that, So you still have you know the other 0:02:12.840 --> 0:02:16.520 of reserves to to you know, cushion against different losses 0:02:16.800 --> 0:02:19.880 and another change versus the last recession, banks issued all 0:02:19.960 --> 0:02:23.359 kinds of new equity to show up the balance sheets. 0:02:23.440 --> 0:02:27.160 And now like literally as we speak, banks are allowed 0:02:27.200 --> 0:02:30.560 to buy back their stock after the most stressful bed 0:02:30.600 --> 0:02:33.920 stress tests in history in December. And then instead of 0:02:33.919 --> 0:02:38.000 the big charges and mishaps and problems that banks caused, 0:02:38.680 --> 0:02:41.480 now this time banks are more a part of the solutions. 0:02:41.560 --> 0:02:45.239 So it's really uh, you know, I think reform school 0:02:45.280 --> 0:02:49.200 worked for banks. You know, thank your regulators for you know, 0:02:49.639 --> 0:02:53.040 making banks shape up and have more liquidity and capital 0:02:53.120 --> 0:02:56.240 or resiliency. And and there's this, it's a very technical 0:02:56.280 --> 0:02:59.760 phrase called level three assets. These are assets that are 0:03:00.240 --> 0:03:03.640 hard to value and you you kind of value on 0:03:03.680 --> 0:03:06.560 your own, UM. But you know, these level three assets 0:03:06.560 --> 0:03:11.600 are down from the last recession. So that's just one 0:03:11.760 --> 0:03:14.480 area of one example of how banks have really reduced 0:03:14.639 --> 0:03:18.519 risk and showing much more sustainable results. And I'd say, 0:03:18.560 --> 0:03:21.400 nowhere do you see this more than Bank of America. 0:03:21.440 --> 0:03:24.919 Remember Bank of America was the poster child for mortgage 0:03:24.960 --> 0:03:29.160 problems after they bought countrywide very ill time deal will 0:03:29.160 --> 0:03:31.480 go down in history is one of the worst acquisitions 0:03:31.919 --> 0:03:35.480 ever pursued by a bank. UM. But you know, our 0:03:35.880 --> 0:03:39.240 view is that maybe because I read the book Sapience. 0:03:39.320 --> 0:03:42.839 But ten thousand years ago was the agricultural revolution? Well, well, 0:03:42.840 --> 0:03:47.720 Bank of America's has had its own personal agricultural revolution. 0:03:47.760 --> 0:03:51.200 They've gone from hunter gatherers to farmers. In the past, 0:03:51.360 --> 0:03:53.800 they would kind of hunt for a new mortgage or 0:03:53.920 --> 0:03:58.080 gather a trade or season acquisition. And now they're like 0:03:58.200 --> 0:04:01.920 farmers are cultivating relations ships, They're they're reading what they sew. 0:04:02.040 --> 0:04:05.320 Are they do this year and year out? Much more disciplined, 0:04:05.560 --> 0:04:09.680 sustainable than you've ever seen before, by the way, So 0:04:09.680 --> 0:04:12.400 what are the crops that that matter most? In that case? 0:04:12.440 --> 0:04:14.480 I mean, we've seen interest rates go off. That's good 0:04:14.480 --> 0:04:18.280 for net interest margins, right, we have forecasts for volatility 0:04:18.400 --> 0:04:21.919 continue and equities and FX so uh and obviously in 0:04:21.960 --> 0:04:25.440 fixed income, so that's good for for trading and um 0:04:25.640 --> 0:04:28.120 M and A. Everyone I talked to says this is 0:04:28.160 --> 0:04:30.680 gonna be a better year for M and A as well. 0:04:30.800 --> 0:04:33.240 And last year wasn't even that bad considering the pandemic. 0:04:33.400 --> 0:04:36.920 What's the most important, Well, for I'm gonna give you 0:04:36.920 --> 0:04:40.160 the general answer, and then that's specific. It's not you're 0:04:40.160 --> 0:04:42.320 asking the question wrong. You're asking a question like it 0:04:42.360 --> 0:04:45.960 was last century. What are the most important crops for 0:04:45.960 --> 0:04:49.000 for banks? So at least like a bank American JP 0:04:49.120 --> 0:04:51.359 Morgan and from the big banks now and the question 0:04:51.440 --> 0:04:54.560 is what's the most important meal, What's the meal that's 0:04:54.560 --> 0:04:56.839 going to satisfy the customers? More so, it's more of 0:04:56.880 --> 0:05:00.520 a relationship approach as opposed to a product approach. Now, 0:05:00.720 --> 0:05:03.040 I will answer your question of having said that there 0:05:03.080 --> 0:05:05.840 are certain areas that are growing faster than others, and 0:05:05.920 --> 0:05:10.080 capital markets are stronger for longer. You've heard uh, just 0:05:10.320 --> 0:05:15.160 this morning. JP Morrigan's chief financial officer expects meniateuly stronger 0:05:15.240 --> 0:05:21.040 trading year every year, meniately better investment banking year every year. Uh. 0:05:21.440 --> 0:05:25.920 You've heard other banks UM say that the backlog for 0:05:26.080 --> 0:05:28.359 mergers is that a record Goldman Sax has said that 0:05:28.720 --> 0:05:33.200 record year to day um uh, equity underwriting and I 0:05:33.279 --> 0:05:37.360 p O s So capital markets are are here for long, Mike. 0:05:37.600 --> 0:05:42.000 That's really do do investors does the market Mike typically 0:05:42.000 --> 0:05:45.960 play a similar multiple for capital markets earnings as they 0:05:45.960 --> 0:05:49.880 do for the bread and butter net interest income earnings. No, 0:05:50.000 --> 0:05:51.760 And that's that's a fair question. Like a lot of 0:05:51.800 --> 0:05:54.800 times investors think of it as one time but these 0:05:54.839 --> 0:05:58.039 are once again going back to the idea of a relationship, 0:05:58.440 --> 0:06:00.680 and so you might be getting a doing a trade 0:06:00.720 --> 0:06:03.280 with the customer one time and doing a little more 0:06:03.320 --> 0:06:06.440 lending with them another time, and doing some prime brokers 0:06:06.560 --> 0:06:09.280 a third time. But so that's why the steeper yield 0:06:09.279 --> 0:06:13.479 curve that helps the net entrance margins and spread revenues 0:06:14.200 --> 0:06:16.680 that's likely to stay around for a lot longer. So 0:06:16.760 --> 0:06:21.280 the fact that you have the highest UH ten year 0:06:21.320 --> 0:06:25.600 treasury yield in a year that is significant. As Bloomberg 0:06:25.640 --> 0:06:29.600 reported yesterday, banks at a fourteen year high yesterday, and 0:06:29.680 --> 0:06:32.440 part of that certainly is on the steeper yolk curve, 0:06:32.760 --> 0:06:35.839 higher rates, and that certainly helps the bread and butter 0:06:36.200 --> 0:06:39.400 traditional banking activities that banks have done, you know, for 0:06:39.400 --> 0:06:42.520 the last couple of hundred years, um. So that you 0:06:42.560 --> 0:06:45.080 get the spread revenues doing better at least for a 0:06:45.080 --> 0:06:48.360 little longer, you get capital markets doing well. But underlying 0:06:48.400 --> 0:06:52.719 all of this is technology, and technology is helping banks 0:06:52.760 --> 0:06:56.080 to control costs like they've never done before. Going back 0:06:56.120 --> 0:06:59.240 to the the Bank of America, Bank of America is a 0:06:59.320 --> 0:07:02.000 digital bank banking leader. They're one of the best fintech 0:07:02.080 --> 0:07:06.560 companies in the world. Um, they have over four thousand patents. 0:07:06.920 --> 0:07:10.080 They had a record number of patent last year. And 0:07:10.400 --> 0:07:12.320 you know, I I joke maybe they need to move 0:07:12.400 --> 0:07:15.600 their headquarters from Charlotte to Silicon Valley to get more 0:07:15.600 --> 0:07:18.200 credit for what they've been doing. But this is what 0:07:18.240 --> 0:07:21.160 they've been doing behind the scenes, you know, before the pandemic. 0:07:21.320 --> 0:07:25.560 During the pandemic, they've actually shined U through the pandemic 0:07:26.160 --> 0:07:30.640 because digital banking usage has really accelerated as a result 0:07:30.680 --> 0:07:33.240 of a change in customer behavior. So I don't know 0:07:33.280 --> 0:07:36.120 if you were going into branches before, but certainly during 0:07:36.120 --> 0:07:39.480 the pandemic, Uh, you and everybody else you know started 0:07:39.480 --> 0:07:41.960 a youth digital banking a lot more so the laggards 0:07:42.120 --> 0:07:45.680 I finally jumped on the digital banking fanwagon, and that 0:07:45.760 --> 0:07:50.480 allows uh, the large banks to close more branches uh 0:07:50.520 --> 0:07:53.640 as people use more digital banking and makes sense. So 0:07:53.680 --> 0:07:56.240 I guess that's part of the problem here here, Mike. 0:07:56.280 --> 0:07:59.400 I mean, I'm in Germany, which is you know, which is? 0:07:59.520 --> 0:08:02.239 Initially I would ask the question about which is more important, 0:08:02.240 --> 0:08:04.400 because you know, Christian Saving wanted to go a lean 0:08:04.520 --> 0:08:07.880 on corporate banking and lending and phase out trading as 0:08:07.920 --> 0:08:10.040 an important source of revenue. Now it's gone the other way. 0:08:10.320 --> 0:08:12.400 I know you cover US banks and I see that 0:08:12.440 --> 0:08:16.120 you have overweights on almost all of them, or more 0:08:16.160 --> 0:08:18.920 than half, let's say, right, but only underweights on a couple. 0:08:19.560 --> 0:08:22.120 What are the US banks doing right or what is 0:08:22.160 --> 0:08:25.840 the setup that allows them to be stronger than than 0:08:25.920 --> 0:08:28.960 Germany's banks or Europe's banks? Is it the technology piece? 0:08:29.240 --> 0:08:31.760 Is it the fact that they're not as um that 0:08:31.800 --> 0:08:36.120 they're not as the US isn't as overbanked. Well, I'll 0:08:36.160 --> 0:08:39.120 start with the last global financial crisis, and the US 0:08:39.160 --> 0:08:44.719 banking system certainly recapitalized stronger and faster. So if you 0:08:44.800 --> 0:08:48.400 look at the level of capital of US banks, it's 0:08:48.440 --> 0:08:52.880 it's stronger. The second thing would be, UH, cost control. 0:08:53.640 --> 0:08:58.640 There's a greater flexibility of US banks to go ahead 0:08:58.840 --> 0:09:02.160 and UH do what it takes to control costs. And 0:09:02.200 --> 0:09:07.000 sometimes that does relate to personnel. UM, so the uh 0:09:07.160 --> 0:09:09.120 you know, it's painful in the short term, but it 0:09:09.160 --> 0:09:12.079 can allow for growth longer term. And I say the 0:09:12.200 --> 0:09:15.840 third thing would be capital markets. And the US has 0:09:15.840 --> 0:09:19.800 a deeper, wider capital markets then in Europe, and you've 0:09:19.800 --> 0:09:23.040 seen the five largest US banks continue to gain share. 0:09:23.200 --> 0:09:26.560 So that's City Group, Bank America, JP, Morgan Morgan, Stanley, 0:09:26.600 --> 0:09:29.600 Goldman Sachs continue to gain share against the big European 0:09:29.679 --> 0:09:35.320 players like UBS, Credits, REEF, HSBC, Barclays, and Deutsche Bank UM. 0:09:35.480 --> 0:09:38.480 And so that's that's that's kind of across the board. 0:09:38.559 --> 0:09:41.960 So I'd call it the differences the three fees of 0:09:42.440 --> 0:09:46.320 capital costs and capital markets that are differentiating the US 0:09:46.360 --> 0:09:49.880 banks versus the European banks. Hey, Mike, thanks so much 0:09:49.920 --> 0:09:51.960 for joining us. We really appreciate getting your thoughts here. 0:09:51.960 --> 0:09:53.960 A good move here for the banks. Great to get 0:09:54.000 --> 0:09:57.480 your perspective. Mike Mayo, senior banking analysts at Wells Fargo Security. 0:10:00.200 --> 0:10:01.839 We just heard a couple of stories about the real 0:10:01.920 --> 0:10:06.719 estate market. It is hotting up, as the British say, um, 0:10:06.720 --> 0:10:09.240 and let's bring in best Freeman to talk about this 0:10:09.280 --> 0:10:12.880 for a second. She's the CEO of Brown Harris Stevens 0:10:12.960 --> 0:10:17.880 in New York City. Best Um, I am shocked that 0:10:18.000 --> 0:10:21.600 the market is getting so tight. Zillo is actually going 0:10:21.679 --> 0:10:25.760 to offer people cash on five thousand homes if they want. 0:10:25.920 --> 0:10:28.679 This estimate could be a little low, but it still 0:10:28.720 --> 0:10:31.440 seems like, Um, that's the sign of a little bit 0:10:31.440 --> 0:10:35.000 of froth. Yeah, I mean in New York City is 0:10:35.040 --> 0:10:37.800 definitely what was the word you said, hawking up? I 0:10:37.920 --> 0:10:40.520 like that, I might have cotton hotting they say, instead 0:10:40.520 --> 0:10:43.680 of heating up, they say hotting up, it's hawking up. Well, 0:10:43.760 --> 0:10:46.480 in New York City is definitely doing that. As far 0:10:46.520 --> 0:10:49.440 as zillo AND's estimates, you know, in New York City, 0:10:49.760 --> 0:10:52.400 that would not work. And we don't use that sort 0:10:52.440 --> 0:10:54.800 of format because you really do need people in the 0:10:54.840 --> 0:10:57.600 process because, as you know, New York City, for the 0:10:57.679 --> 0:11:00.800 most part, the housing stock that you can purchase is 0:11:00.880 --> 0:11:04.200 comprised of cooperatives, which require a human being to help 0:11:04.240 --> 0:11:07.199 you walk through the process. So's estimates might work and 0:11:07.280 --> 0:11:09.280 more like a team of human beings, right and some 0:11:09.440 --> 0:11:13.360 lawyers exactly, it's a it's you know, you have to 0:11:13.640 --> 0:11:16.920 give a financial portrait of who you are UM as 0:11:16.920 --> 0:11:20.280 a corporation. So's estimates work in some places, but New 0:11:20.320 --> 0:11:23.679 York City would not work. UM. But the market we're 0:11:23.840 --> 0:11:27.200 very um optimistic because we had one of the strongest 0:11:27.280 --> 0:11:31.520 januaries in five years for the luxury market for properties 0:11:31.520 --> 0:11:34.320 over four million dollars. And so New York City is 0:11:34.360 --> 0:11:38.319 starting to re emerge. UM and so we're feeling pretty 0:11:38.320 --> 0:11:41.520 good about that. My financial portrait is more like a 0:11:41.600 --> 0:11:45.719 crayon drawing, which is why, which is why I need 0:11:45.760 --> 0:11:49.640 to work somewhere else. Best talk to us, you know, 0:11:50.520 --> 0:11:53.200 there is this I'd love to get your thoughts best 0:11:53.200 --> 0:11:55.960 on kind of this broader theme of Okay, maybe it's 0:11:55.960 --> 0:11:58.920 not the death of New York, but New York is 0:11:58.960 --> 0:12:01.000 not going to be post pandemic. What it was pre 0:12:01.080 --> 0:12:07.120 pandemic in terms of commercial real estate, vibrancy, business, uh 0:12:07.720 --> 0:12:10.240 participation in the city, and that is likely to spill 0:12:10.280 --> 0:12:13.920 over to the residential market. How do you take that narrative? No, 0:12:14.080 --> 0:12:16.800 I mean you're this is true. I mean we definitely 0:12:16.840 --> 0:12:19.760 got hit very hard during the pandemic. We were shut down, 0:12:19.840 --> 0:12:21.880 you know, urban centers were, but we were kind of 0:12:21.880 --> 0:12:25.679 the epicenter, so you know, everything shut down, Broadway restaurants 0:12:25.720 --> 0:12:28.400 and all of that. Um. But of course, when we 0:12:28.480 --> 0:12:31.080 come back completely, we will be a different type of 0:12:31.080 --> 0:12:33.679 New York. But I would argue a better type of 0:12:33.720 --> 0:12:37.640 New York, um with different ideas and new creative thinking 0:12:37.679 --> 0:12:40.199 and that sort of thing. But um, it's going to 0:12:40.320 --> 0:12:42.200 take some time. I think there are a lot of 0:12:42.280 --> 0:12:46.240 issues that we have to wrestle with one. Besides the 0:12:46.320 --> 0:12:50.440 vaccine rollout, which is very important. UM crime, we have 0:12:50.600 --> 0:12:53.840 to you know, make sure that we are addressing uh 0:12:54.640 --> 0:12:57.800 crime and make sure it's a safe city and taxes. 0:12:57.920 --> 0:13:00.080 You know, we do have some political headwinds here in 0:13:00.120 --> 0:13:02.680 New York City. There's a lot of city council seats 0:13:02.679 --> 0:13:05.480 that are coming up in June, uh, something like thirty 0:13:05.520 --> 0:13:08.000 odd seats. You have the controllers race, the Mayor's race, 0:13:08.040 --> 0:13:11.440 and so all of those things are really important for 0:13:11.480 --> 0:13:14.160 the future of New York City. I'm not worried about 0:13:14.200 --> 0:13:16.200 us bouncing back. People want to be here. It's the 0:13:16.200 --> 0:13:18.080 best city in the world. But I think people need 0:13:18.120 --> 0:13:20.120 to start to get involved and pay attention to the 0:13:20.120 --> 0:13:23.640 political landscape, um because otherwise, you know, you're gonna have 0:13:23.679 --> 0:13:25.720 a piano tear at tax for example, and that would 0:13:25.760 --> 0:13:29.640 be very um detrimental to the city. So I grew 0:13:29.720 --> 0:13:32.800 up on ninety answer damn in the seventies. Um, New 0:13:32.880 --> 0:13:36.360 York to me looks incredibly safe. But I hear more 0:13:36.360 --> 0:13:38.760 and more talk about crime. Is that really an issue 0:13:38.800 --> 0:13:42.640 in Manhattan? You know, Look, it is an issue. It's 0:13:42.679 --> 0:13:45.600 definitely picked up. Even the percentages show it, and the 0:13:45.640 --> 0:13:49.920 subway ridership now I think is down se um, so 0:13:50.080 --> 0:13:53.079 there is some of that, and you're seeing more homelessness 0:13:53.120 --> 0:13:56.240 and that during the pandemic was you know, all over 0:13:56.280 --> 0:13:58.719 the place. And that's really important because if we don't 0:13:58.760 --> 0:14:01.240 have a safe city, we're not going to have sixty 0:14:01.240 --> 0:14:04.000 million tourists a year and people who want to not 0:14:04.080 --> 0:14:07.160 want to buy here. So crime is certainly an issue 0:14:07.440 --> 0:14:09.679 and it needs to be addressed. And we need to 0:14:09.720 --> 0:14:13.800 not have slogans like defund the police, because I don't 0:14:13.800 --> 0:14:16.360 think that helps us. I think we want to you know, 0:14:16.480 --> 0:14:19.960 work with the police and you know, uh maybe educate 0:14:20.040 --> 0:14:22.680 the police and help the police. We want to protect 0:14:22.680 --> 0:14:25.320 our citizens and have a very safe and vibrant city 0:14:25.440 --> 0:14:28.440 as we have had in the past. So best that 0:14:28.480 --> 0:14:30.720 the Bloomberg HQ here in New York is at fifty 0:14:30.720 --> 0:14:32.320 eight and Lex And as we look out our window, 0:14:32.360 --> 0:14:35.720 we see what I deem these silly towers that reached 0:14:35.760 --> 0:14:38.160 to the sky. And a lot of that demand was 0:14:38.240 --> 0:14:41.720 from international buyers, particularly China. Where is the international buyer 0:14:41.840 --> 0:14:44.400 vis you know, as it relates to New York City. No, 0:14:44.520 --> 0:14:46.640 I'm not seeing any of them, uh, you know, with 0:14:46.680 --> 0:14:51.440 the travel restrictions and uh, a lot of other challenges. Politically, 0:14:51.680 --> 0:14:54.240 we have not seen international buyers at all. In fact, 0:14:54.280 --> 0:14:57.440 I was at a project yesterday and you know they 0:14:57.480 --> 0:15:00.720 have had no international buyers and their own sold out. 0:15:01.240 --> 0:15:04.400 Um so it's been mostly domestic what you're seeing lately 0:15:04.440 --> 0:15:06.960 as of late. Um the purchasers here are all just 0:15:07.000 --> 0:15:09.480 like from west coast to east coast or coming from 0:15:09.520 --> 0:15:11.800 the south. I mean we're having a mixture. Um So, 0:15:11.840 --> 0:15:13.560 I think it's gonna be a while before we see 0:15:13.600 --> 0:15:16.080 that re emerge. What about the bourge out of New 0:15:16.160 --> 0:15:19.400 York though, I mean, especially in the age of social distancing, 0:15:19.960 --> 0:15:24.160 don't people want to have outdoor space? You know, um 0:15:24.680 --> 0:15:28.080 three thousand square feet? I mean, isn't Isn't that what 0:15:28.280 --> 0:15:31.160 they're looking for now? I mean that's you know, look, 0:15:31.320 --> 0:15:33.240 you have to have a lot of money to be 0:15:33.240 --> 0:15:35.560 able to afford three thousand square feet, and the a 0:15:35.560 --> 0:15:37.200 lot of you know, the average New York who was 0:15:37.280 --> 0:15:39.560 raising a family here, have kids going to school here, 0:15:39.920 --> 0:15:43.200 they can't afford three thousand square feet. Um So they 0:15:43.240 --> 0:15:46.480 are reimagining the space. Maybe they want a little outdoor, 0:15:46.600 --> 0:15:49.360 maybe they want a home office. Um So people have 0:15:49.680 --> 0:15:53.040 done that and undergone some changes, um and Brooklyn is 0:15:53.040 --> 0:15:56.040 still doing extremely well because there's a lot of townhouse 0:15:56.040 --> 0:15:59.120 inventory there. So you know, people have moved around a 0:15:59.120 --> 0:16:00.720 little bit. But I right to have a lot of 0:16:00.720 --> 0:16:02.840 friends who have moved and they want to there in 0:16:02.920 --> 0:16:06.960 Palm Beach or Connecticut and they missed the city because 0:16:07.160 --> 0:16:10.320 it's born in other places. Hey, best, thank you so 0:16:10.400 --> 0:16:12.640 much for joining us once again. We always appreciate it. 0:16:12.680 --> 0:16:16.840 Best Freedman, CEO, Brown, Howard Stevens, Greig Jerry, thank you 0:16:16.840 --> 0:16:19.720 so much. We appreciate it. Well. Big big news coming 0:16:19.760 --> 0:16:23.240 out of Australia as it relates to the digital news business. 0:16:23.280 --> 0:16:27.720 Australia just passed a law making Facebook and Google actually 0:16:27.760 --> 0:16:31.640 pay for the local news that is generated by operators 0:16:31.680 --> 0:16:35.280 within Australian question is well other countries follow suit and 0:16:35.280 --> 0:16:37.280 what does it mean for these big digital media companies. 0:16:37.520 --> 0:16:39.200 For that answers to that, we go to Jim Manners 0:16:39.240 --> 0:16:41.600 and he's the CEO of Social Flow based in New York. 0:16:41.960 --> 0:16:45.280 UM full disclosure. Social Flow is a platform used by 0:16:45.280 --> 0:16:48.640 Bloomberg for social media purposes. Jim, thanks so much for 0:16:48.720 --> 0:16:52.240 joining us here. So it seems like a big deal 0:16:52.360 --> 0:16:56.680 because todate Google Facebook, other digital players have generally received 0:16:56.720 --> 0:16:59.640 their news at little to no costs. So what does 0:16:59.680 --> 0:17:02.960 this mean? Yeah, it is big news and I think 0:17:02.960 --> 0:17:05.719 it's a win for both parties. The Australian government who 0:17:05.760 --> 0:17:08.240 has pushed more dollars the publishers and is able to 0:17:08.280 --> 0:17:10.360 say that they took on big second one and that's 0:17:10.359 --> 0:17:13.000 great for them. But Facebook made its point as well. 0:17:13.040 --> 0:17:15.879 They preserved their right to just stand news content again 0:17:15.960 --> 0:17:19.160 that they did very briefly in in this negotiation, rather 0:17:19.240 --> 0:17:22.119 than submitting themselves to forced arbitration, and they made it 0:17:22.240 --> 0:17:25.320 very clear to other countries around the world who were 0:17:25.320 --> 0:17:27.880 watching very closely, that there's a point past which they're 0:17:27.920 --> 0:17:30.320 not willing to go. So, you know, there aren't many 0:17:30.359 --> 0:17:32.680 negotiations where you can you can claim both sides wind, 0:17:32.720 --> 0:17:35.040 but this is one I think they did. So how 0:17:35.040 --> 0:17:38.760 does this work? Um? In practice? I mean, if I 0:17:38.800 --> 0:17:46.160 put a New York Times story on my Facebook page, um, 0:17:46.240 --> 0:17:48.840 Facebook has to pay the New York Times to show 0:17:48.840 --> 0:17:52.840 it to my uh to my friends. Well, actually, so 0:17:52.880 --> 0:17:57.040 it's in Australia. This is fairly interesting. It's specifically Australian 0:17:57.119 --> 0:18:00.119 media organizations. That's obviously what the Australian government's move is 0:18:00.160 --> 0:18:03.399 interested in so you're talking about News Corporate Australia and 0:18:03.440 --> 0:18:06.679 other big media companies. Facebook is effectively paying them a 0:18:06.720 --> 0:18:09.840 licensing fee, and so what the law says is that 0:18:09.880 --> 0:18:13.240 they have to reach some kind of licensing agreement working 0:18:13.280 --> 0:18:16.240 with each other. And if they don't reach a licensing agreement, 0:18:16.280 --> 0:18:18.119 that's where the requirements of the law kicked in. It 0:18:18.160 --> 0:18:20.159 doesn't affect you as a user. It doesn't affect the 0:18:20.160 --> 0:18:22.480 New York Times, you know here in the United States. 0:18:22.800 --> 0:18:24.719 The real question though, as you said, is what are 0:18:24.800 --> 0:18:28.959 other government's gonna do. And you can see EU and Canada, uh, 0:18:29.000 --> 0:18:32.320 you know, being jurisdictions where they might follow the Australian approach. 0:18:32.320 --> 0:18:34.600 I'm not so sure that that approach would fly here 0:18:34.600 --> 0:18:36.440 in the United States. It's a little bit too much 0:18:36.520 --> 0:18:40.000 government picking winners and well or Jim, does this Does 0:18:40.040 --> 0:18:43.080 this mean that Australians are now going to have a 0:18:43.320 --> 0:18:48.480 much bigger exposure to foreign media? No, I don't think 0:18:48.480 --> 0:18:50.840 it does. Interestingly, you know what Facebook has said all 0:18:50.880 --> 0:18:53.760 along is, you know, media companies choose to put their 0:18:53.760 --> 0:18:56.359 content on Facebook, whether it be an Australian media company 0:18:56.440 --> 0:19:00.119 or foreign media companies, They of course have algorithms that 0:19:00.200 --> 0:19:02.600 can bubble content up or down, and we see that 0:19:02.640 --> 0:19:04.800 all the time with our media clients. You know, the 0:19:04.840 --> 0:19:07.119 reach rises in the reach balls. And that's been one 0:19:07.160 --> 0:19:09.560 of the criticisms as well, is it's so unpredictable what 0:19:09.600 --> 0:19:13.200 Facebook does. But there's nothing in this law that requires, 0:19:13.320 --> 0:19:15.560 you know, that reach to be any higher. There are 0:19:15.680 --> 0:19:18.680 some requirements of that disclosure of algorithms, and and those 0:19:18.720 --> 0:19:20.280 don't think to be talked about a lot. I think 0:19:20.320 --> 0:19:22.600 that's in practice gonna be a lot harder than what 0:19:22.640 --> 0:19:25.760 they were hoping for in theory. So, Jimmy, is this 0:19:25.840 --> 0:19:29.959 a risk to the economics of a Facebook, of a Google. 0:19:31.680 --> 0:19:33.679 You would think it would be if it was uncapped. 0:19:33.720 --> 0:19:36.880 You know, every company is going to be wildly reluctant 0:19:36.920 --> 0:19:39.120 to take on an uncapped liability. And I think that's 0:19:39.119 --> 0:19:42.199 what this forced arbitration looked a little bit like. But 0:19:42.440 --> 0:19:45.200 they've gotten a lot of certainty here. They have preserved 0:19:45.240 --> 0:19:47.399 their right to just walk away if the if the 0:19:47.440 --> 0:19:49.840 stakes get too high or the cost get too high. 0:19:50.160 --> 0:19:52.600 But Facebook made some news this morning, I think it 0:19:52.680 --> 0:19:54.280 was they said they were going to commit more than 0:19:54.320 --> 0:19:57.160 a billion dollars over three three years but I mean, 0:19:57.320 --> 0:19:59.879 your Facebook is a seven and fifty billion dollar company. 0:20:00.040 --> 0:20:02.240 This is very much a constant doing business. It's a 0:20:02.320 --> 0:20:05.359 it's an acceptable cost for both Facebook and Google, and 0:20:05.400 --> 0:20:07.040 I think as long as they can keep it in 0:20:07.080 --> 0:20:09.320 the low billions of dollars, which sounds like a lot 0:20:09.320 --> 0:20:11.919 of money, and it is. But the Facebook and Google, 0:20:11.960 --> 0:20:14.280 you know, it's really not that much money. Except to 0:20:14.320 --> 0:20:17.119 your point, Jim, this is only one country and others. 0:20:17.400 --> 0:20:20.280 I mean, I'm in Berlin and I've had conversations with 0:20:20.359 --> 0:20:24.800 Matthias Duffner, who runs Axel Springer Um. They published build 0:20:25.240 --> 0:20:29.600 Uh newspaper, among many other publications. He has complained about 0:20:29.840 --> 0:20:34.280 the fact that Facebook and Google use their content without 0:20:34.600 --> 0:20:38.239 paying them for it. So does does Germany look at 0:20:38.240 --> 0:20:41.520 this too? Does does the US look at this? Yeah? Well, 0:20:41.560 --> 0:20:45.000 so definitely Germany and and more broadly the European Union 0:20:45.040 --> 0:20:46.800 are going to look at this. I think that's probably 0:20:46.840 --> 0:20:50.639 the jurisdiction that would be most likely to copy the 0:20:50.720 --> 0:20:54.720 Australian approach, and perhaps Canada as well. I just don't 0:20:54.720 --> 0:20:57.400 see that working in the US though. More practically, I mean, 0:20:57.400 --> 0:21:01.000 you've got literally the government taking the role picking a 0:21:01.040 --> 0:21:05.200 winner and a loser. In a commercial negotiation via for starbitration. 0:21:05.280 --> 0:21:07.720 As polar rights as our politics are in the US, 0:21:07.960 --> 0:21:11.159 and as as strong as some conservative beliefs are, is 0:21:11.200 --> 0:21:13.919 that really a role that you want government playing. So 0:21:13.960 --> 0:21:17.320 I don't see that approach applying here, but I very 0:21:17.359 --> 0:21:20.040 much think that the European Union is watching closely and 0:21:20.119 --> 0:21:23.680 may very well choose to follow Australia's approach. So, Jim, 0:21:23.720 --> 0:21:27.040 you follow these, you know, the social media technology space closely. 0:21:27.320 --> 0:21:30.119 What do you think the regulatory risk is for a 0:21:30.200 --> 0:21:32.880 lot of these companies? You know, we've over the last 0:21:32.880 --> 0:21:34.600 couple of years, we've seen CEOs of some of these 0:21:34.600 --> 0:21:37.439 big tech companies hauled before Congress that testify about various 0:21:37.440 --> 0:21:39.560 parts of their business. You know, we now have a 0:21:39.560 --> 0:21:43.840