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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moven news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: All right, I'm reading speaking of Bloomberg Intelligence, I'm reading

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Speaker 1: some research here. It says most commodities are melting except

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Speaker 1: for gold. What stops it? Let's go right to the

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Speaker 1: person who wrote this stuff. Mike mcclooney covers all the

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Speaker 1: commodity stuff. He's a senior macro strategist for Bloomberg Intelligence. Mike,

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Speaker 1: what are you thinking about these days in terms of

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Speaker 1: the commodity space? What are you telling your clients? What

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Speaker 1: are the conversations you're having with your clients about commodities?

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Speaker 3: Well, hello, Paul, I appreciate you reading that headline because

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Speaker 3: it's something I like to re iterate periodically, particularly when

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Speaker 3: it's relevant. Is typically historically over time, gold is the

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Speaker 3: best performing commodity now, basically because it's not really a commodity.

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Speaker 3: It's it's a store of value. It's a metal. I mean,

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Speaker 3: you can store it on your body in terms of jewelry.

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Speaker 3: But certainly lately it's been the key case. It's the

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Speaker 3: best performing command this year. It's up ten percent, and

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Speaker 3: the average, the Bloomberg Commodi Index this year is down

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Speaker 3: sixteen percent. And the key thing I like to ask

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Speaker 3: myself is those are bodies in motion. And as a strategist,

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Speaker 3: I say, okay, is it going to stay the same

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Speaker 3: reverse or accelerate. I think it's more likely accelerate, particularly

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Speaker 3: at some point if we get to a point where

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Speaker 3: the FED pivots, it's going to happen. But that's the

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Speaker 3: bottom line is we had this massive pump and commandis

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Speaker 3: last year and they're proving what they always do. Elastic

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Speaker 3: supply demand makes commandies their worst enemy. It's the higher

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Speaker 3: priced cure. As a farmers say, well, that's.

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Speaker 4: Interesting, though, I feel like we're a far bit away

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Speaker 4: at least if you listen to J Powell on Friday

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Speaker 4: from when we see the FED reverse course, I mean,

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Speaker 4: talk me through the timeline there. When would you expect

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Speaker 4: goal to start showing some outporfore? I mean, I guess

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Speaker 4: it is showing out performance.

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Speaker 3: Right, that's the point. Goal's looking ahead, and that's a

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Speaker 3: key point. They will probably not be cutting rates anytime soon,

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Speaker 3: particularly in my view, until the stock market tells them to.

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Speaker 3: And that's part of the lose lose for risk ads.

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Speaker 3: There's then a high high connection and correlation between stock

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Speaker 3: market bouncing this year, all this massive fiscal stimus and

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Speaker 3: the FED hiking another one hundred basis points. They are

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Speaker 3: still on that hiking trajectory. Despite then you look over

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Speaker 3: a commodities, what's the number one source of demand historically

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Speaker 3: at least the last twenty years or so, is China

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Speaker 3: demand estimate revisions heading lower in China are just getting started,

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Speaker 3: so their key customers, their key export customers Europe, US

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Speaker 3: and Europe are in these early days of just getting

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Speaker 3: showing signs of what you expect from high interest rates jumping.

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Speaker 3: And then of course the leader of China, President z

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Speaker 3: cozing up with Putin right before the war, so we

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Speaker 3: see that tilt just get us out, and so that

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Speaker 3: to me is this is early days. So I look

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Speaker 3: at this is what's normally is potentially a very bear

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Speaker 3: scenario for commodities, and you look at yourself so what's

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Speaker 3: going to change is typically also you need a week dollar,

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Speaker 3: and for the dollar to get week, we have a

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Speaker 3: major issue there. It's the hardest, you know, most expensive

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Speaker 3: to short commodity currency in the planet, particularly if you

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Speaker 3: look very compared versus the top top top commodities and

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Speaker 3: I'm sorry economies in the planet China, Japan, and Germany,

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Speaker 3: US is just a much higher rate. So that to

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Speaker 3: me is basically a train wreck heading for commodities and

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Speaker 3: for deflation.

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Speaker 1: So, Mike, I know you come from the land of

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Speaker 1: the great American farmer. I wonder how the American farmers

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Speaker 1: doing here. I'm looking at corn down thirty percent year

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Speaker 1: to date, soybeans down eight percent year to date, wheat

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Speaker 1: down twenty six percent year to date. How is the

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Speaker 1: farmer doing these days?

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Speaker 3: They are crushing it, so it will price us down

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Speaker 3: so much, oh well down from where they were. So

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Speaker 3: corn right now the number one, as I'm going back

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Speaker 3: next to next week and lesson I learned going and

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Speaker 3: raised and having owned the farm in the corn belt,

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Speaker 3: we plant soybe so we can plant corn. We plant

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Speaker 3: corn because that's what we do and that's where we

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Speaker 3: make our Money's world's most significant commoditybeans the plant corn

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Speaker 3: that fit. It's a rotation because soybeans add nitrogen and

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Speaker 3: fertilizer to the soil and they're a legome. Corn takes

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Speaker 3: it away. It's very nitro and expensive. It's a grass.

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Speaker 3: It's just that rotation that the corn belt has crushed.

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Speaker 3: But the bottom line is, partly because of this war

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Speaker 3: in Europe, you've had prices well above their cost of

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Speaker 3: productions and the cost of costs of production. For instance,

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Speaker 3: anhydrous ammonia is collapsing, and so we're making a lot

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Speaker 3: of money. It's just called profits. What a profits mean

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Speaker 3: for farmers production. So this year is probably gonna be

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Speaker 3: close to the biggest production year ever for corn, just

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Speaker 3: in the weather is not so great. And also what

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Speaker 3: did they do with corn and soybeans in Argentina and

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Speaker 3: I'm sorry in South America, but most noted in Brazil

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Speaker 3: record production I mean off the charts. So this is

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Speaker 3: just a normal lasticity of supplying demand in the area

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Speaker 3: of the commodites. We can bring on that supplying one

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Speaker 3: year and the bottom line is are making a lot

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Speaker 3: of money, and that means more supply, more production, and

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Speaker 3: it means typically lower prices. But I'll just end with this.

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Speaker 3: September is the worst monthly year for grains, typically buys

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Speaker 3: a harvest, and that's how futures came about because it

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Speaker 3: needed to start hedging, most knownly when they all try

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Speaker 3: to sell at the same time.

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Speaker 4: And I've been looking at it. I've been I've been

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Speaker 4: pulling out, pulling back a little bit our our commodity

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Speaker 4: price for corn, and we're levels where we were in

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Speaker 4: late twenty twenty, but those are substantially higher than where

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Speaker 4: we were in previous to that. Talk me through, Mike's

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Speaker 4: what's happening in wheat, because you know we have all

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Speaker 4: this stuff with a grain deal in Turkey. Very interesting

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Speaker 4: to see where you think this is going.

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Speaker 3: Also, so the significance of wheat is that was at

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Speaker 3: the epicenter of what happened with Russia's I'm sorry, President

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Speaker 3: Putin's invasion of Ukraine. But it's been in a straight

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Speaker 3: downward trajectory since reaching that high last year, right around

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Speaker 3: thirteen dollars a bushel. But typically what we does now

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Speaker 3: it's back to a level that was kind of en

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Speaker 3: during before. Because what happens is you can bring on

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Speaker 3: rate supply rapidly, and it's the most widely grown agricultural

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Speaker 3: crop on almost every country will can grow wheat. Now,

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Speaker 3: Ukraine was a big exporter US we explored over fifty

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Speaker 3: five percent of our week. We grow less of it

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Speaker 3: every day because it's so much easier to produce. It's

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Speaker 3: basically considered a weed, and it's one commodity you never

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Speaker 3: want to be long after it goes up. It's just

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Speaker 3: the way it works because you're bringing on so we

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Speaker 3: it's been a good indicator. Right now it's around six

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Speaker 3: dollars a bushel, and I view it's all going to

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Speaker 3: continue to trend lower unless we get some kind of

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Speaker 3: surprise out of that war, which means hopefully not but

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Speaker 3: something nuclear could do. But there's this is a situation

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Speaker 3: similar to World War two for the grain, for the

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Speaker 3: grain belt, corn belt which where I'm from, and that

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Speaker 3: is prices and the war in Europe kept prices rather high,

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Speaker 3: which meant US did very well, created more and more

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Speaker 3: production and profited, and then it all collapsed when the

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Speaker 3: war ended and we had way too much supply. That

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Speaker 3: is the risk, and that's markets are looking ahead to.

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Speaker 5: That so real quick.

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Speaker 1: WTI crude oil going to switch gears here eighty dollars

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Speaker 1: or barrel seems to found a little bit of a

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Speaker 1: home here for a while.

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Speaker 3: Yes, it's happy, it's consolidating. Well, it's the same prices.

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Speaker 3: I'll put this back into history. This price here was

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Speaker 3: first traded in two thousand and seven. Imagine we said

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Speaker 3: that about the stock market. Yet over that time period

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Speaker 3: the PPIs of fifty percent. In terms of gold, here's

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Speaker 3: one for you. It takes point zero four to two

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Speaker 3: ounces of gold to buy one barrel of cruel. That's

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Speaker 3: the same price as nineteen thirty one. Cruel is the

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Speaker 3: world's most auto correlated acid and has a lot of

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Speaker 3: reason to continue trade lower after that big pump last year.

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Speaker 3: Fifteen percent of all sales of evs and the world

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Speaker 3: our automobiles are evs. And then course that supply out

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Speaker 3: of the US. The biggest thing that's pressured crude all

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Speaker 3: the last at least almost fifteen years is the US.

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Speaker 3: We just create much more than we need, and with

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Speaker 3: Canada are surplus every day. It's about four million barrels

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Speaker 3: a day of lick with fuels. So we can spell

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Speaker 3: up the spr that's cheating Pasolium reserve in just a

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Speaker 3: few months.

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Speaker 1: Interesting, all right, Mike always learned something with you. You put

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Speaker 1: in soybeans the ducorn I learned that at That's new

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Speaker 1: Mike mcglohone's senior macro strategist and Bloomberg's resident a farmer

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Speaker 1: for Bloomberg Intelligence.

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Speaker 6: You're listening to the team Ken's are Live program Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,

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Speaker 6: the iHeartRadio app and the Bloomberg Business App, or listen

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Speaker 6: on demand wherever you get your podcasts.

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Speaker 1: The I field market looks like it might be heating

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Speaker 1: up a little bit. Had a couple of filings late

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Speaker 1: last week arm Holdings, the chip maker, and then the

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Speaker 1: grocery delivery company Instacart.

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Speaker 5: So we want to talk about that deal.

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Speaker 1: Brian Lynch joints as she's head of market insight at

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Speaker 1: Equity Zen. She joins us here, so brand talked to

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Speaker 1: us about Instacart here. What do we learn from their

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Speaker 1: IPO filing last week?

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Speaker 7: Yeah, thanks for having me. I think Instacart really painted

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Speaker 7: a picture in that file of what companies are going

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Speaker 7: to need to show if they want to have potentially

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Speaker 7: a successful IPO. So this is a company that is growing.

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Speaker 7: They grew transaction revenue thirty nine percent year over year.

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Speaker 7: They're profitable with fifteen percent operating margins, which a lot

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Speaker 7: of other players in the gig economy space that are public,

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Speaker 7: like uber lyft Dash, you know, they all are not

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Speaker 7: presenting profitability yet. And this is both a brand that

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Speaker 7: people recognize and a business model that people know, so

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Speaker 7: definitely a strong one that could potentially open up the

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Speaker 7: IPO market for others.

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Speaker 8: Well.

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Speaker 4: The interesting bit as well to me, and we were

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Speaker 4: talking with this about this with our equity reporter Bailey

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Speaker 4: Lipshits earlier, is that this company had been valued much

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Speaker 4: much higher as of twenty twenty one, I believe thirty

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Speaker 4: nine billion dollars according to pitchbook, And now you know

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Speaker 4: the valuation here is going to be maybe seventy percent less.

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Speaker 4: Talk to me about how investors can I get comfortable

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Speaker 4: allowing this company or going along with the company's plans

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Speaker 4: to ibo here. How does this change the dialogue between

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Speaker 4: the company and its existing investors.

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Speaker 7: Sure so, Instacart has already been priming its investors about this.

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Speaker 7: So while they did raise that thirty nine billion dollar

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Speaker 7: round in twenty twenty one, their internal valuations have gone

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Speaker 7: as low as ten billion dollars now closer to thirteen billion.

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Speaker 7: So this is for the equity that they're issuing to

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Speaker 7: new employees or you know, new stock grants. That's the

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Speaker 7: valuation that they've given themselves. So internally at least they've

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Speaker 7: accepted that haircut, and I think that's ultimately the tough

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Speaker 7: pill that a lot of these venture backed companies are

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Speaker 7: going to have to swallow. As we raised money at

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Speaker 7: a crazy valuation in twenty twenty one, it's not where

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Speaker 7: the market is anymore. And if we're going to raise

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Speaker 7: capital and either the private or public markets, it's most

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Speaker 7: likely going to be at a discount. And I think

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Speaker 7: investors understand that as well, just given where multiples are.

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Speaker 7: With a case of instacart, you have Dash as a

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Speaker 7: public market competitor. That's a pretty good comp that helps

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Speaker 7: from a valuation perspective.

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Speaker 1: So speaking of DoorDash brand, I mean this has become

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Speaker 1: a crowded space really since the pandemic, as this market's

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Speaker 1: really developed and evolved. Where does instacart kind of position

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Speaker 1: itself in terms of its competition, whether it is DoorDash

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Speaker 1: or Uber Eats or Amazon and all the type of thing.

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Speaker 7: Yeah, so they're by far the market leader. Both uber

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Speaker 7: and DoorDash have less than one percent of the grocery market,

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Speaker 7: and it's a market that they're aggressively pursuing, but they

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Speaker 7: still are not big players in it. When you look

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Speaker 7: at all of the grocery players, instackcart has partnerships with

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Speaker 7: over eighty five percent of them, and this is a

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Speaker 7: one point one trillion dollar market. Largest retail market is grocery,

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Speaker 7: so it's a huge market where they are already the leaders.

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Speaker 7: So there is a lot of competition, but they are

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Speaker 7: one foot ahead. But to your point, it's not just

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Speaker 7: these other kind of gig economy players they're up against.

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Speaker 7: They're up against Amazon Fresh, They're up against Walmart, Grocery

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Speaker 7: and other players that you have a lot more resources

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Speaker 7: just from being bigger companies. So there is a lot

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Speaker 7: of competition.

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Speaker 4: Yeah, does that competition scare would be investors in this

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Speaker 4: space at all? Because you know, you think of Amazon

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Speaker 4: coming into any space and it's just sort of you know,

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Speaker 4: that has the potential to be transformative, even if they've

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Speaker 4: struggled a little bit with their with expanding their grocery footprint.

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Speaker 7: Yeah, so they got a strong vote of confidence by Pepsi,

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Speaker 7: who's investing one hundred and seventy five million in this

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Speaker 7: IPO and a lot of the thesis or you know,

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Speaker 7: the bulk that they see is around the advertising piece

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Speaker 7: of instacarts business. So about thirty percent of their revenue

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Speaker 7: comes from advertising. So when they highlight different products you know,

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Speaker 7: on their marketplace to users, and this actually helps diversify

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Speaker 7: their revenue stream in ways that you know, some of

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Speaker 7: these other players haven't done yet. And it's also the

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Speaker 7: piece of their business that is driving their profitability. So

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Speaker 7: that's kind of a unique or you know, a strong

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Speaker 7: point that they have now that investors have found compelling.

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Speaker 1: Growth has slowed a little bit for this company. Is

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Speaker 1: that just a post pandemic kind of evening out of

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Speaker 1: this marketplace in terms of number of subscribers in terms

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Speaker 1: of that metric.

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Speaker 7: Yeah, in terms of I would say they haven't saturated

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Speaker 7: the market fully, but you know, they did see such

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Speaker 7: growth during the pandemic that it's probably more about activation.

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Speaker 7: So of these customers you have who have used instacart,

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Speaker 7: how do you get people, you know, more captive on

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Speaker 7: the platform. They haven't admitted and understand that it's not

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Speaker 7: going to be onlinely for every customer. People will still

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Speaker 7: be going to stores. So it's more about you know,

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Speaker 7: activating those customers and then just improving their margins. You know,

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Speaker 7: amongst those who are transacting, so they have grown revenue,

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Speaker 7: They've grown grown average cart size over the same period,

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Speaker 7: So even if their customer base isn't growing, you know,

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Speaker 7: their revenue is growing.

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Speaker 4: We saw as well, filing by ARM for its megalistic

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Speaker 4: I believe it was a filing, but we uh, what

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Speaker 4: threads are there here for you that you're starting to

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Speaker 4: see evolve in the the IPO space, because I think

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Speaker 4: there was a bit, a fair bit of hesitancy for

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Speaker 4: a while, just given what had happened to IPOs in

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Speaker 4: twenty twenty one, and now maybe we were turning around.

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Speaker 7: It looks like we're starting to turn around. This year

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Speaker 7: has been the worst year for IPOs since two thousand

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Speaker 7: and nine. We really haven't seen that many blockbuster names

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Speaker 7: hit the market, and Instacart and ARM those will be

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Speaker 7: the largest IPOs in the US since Rivian in twenty

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Speaker 7: twenty one, So definitely starting to signify this turning tide,

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Speaker 7: and ultimately you have over fourteen hundred unicorn tech companies

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Speaker 7: sitting in the private markets, many of who have been

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Speaker 7: waiting for the right opportunity to have an exit. Their

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Speaker 7: investors are ready for an exit. Their employees who maybe

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Speaker 7: have got in some liquidity but are looking for you know,

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Speaker 7: broader liquidity, are looking for an exit. And I think

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Speaker 7: the fact that you know, while there's been some recent

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Speaker 7: market volatility, you have the nastac up thirty percent, You've

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Speaker 7: seen a few successful IPOs though not tech ipo is

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Speaker 7: like Kava oddity and can you hit the market. People

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Speaker 7: are feeling a little bit more comfortable, like this may

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Speaker 7: be the time if they're looking to exit this year.

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Speaker 1: I think for a lot of investers, I think for me,

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Speaker 1: the thing that jumped out of me is, as Simone

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Speaker 1: was mentioning earlier, the dramatic reduction in valuation. I think

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Speaker 1: that's kind of been kind of a gating issue for

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Speaker 1: a lot of these companies not tapping the public markets

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Speaker 1: because they didn't want to take that big write down

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Speaker 1: on valuation. Is the expectation that maybe Instacartal maybe opened

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Speaker 1: the way for more companies to kind of bite the

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Speaker 1: bullet if you will.

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Speaker 7: Absolutely, I think Instacart doing this and kind of taking

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Speaker 7: it on the chin is going to open the door

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Speaker 7: for others who realize it will become less taboo. Essentially, as

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Speaker 7: more companies accept these valuation right downs, it becomes less

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Speaker 7: of you know, a negative and just more reflection of

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Speaker 7: how multiples have cracked. So I do think that they

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Speaker 7: will make it easier for other companies doing this as well.

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Speaker 7: You know, Klavio is another company, a marketing automation platform

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Speaker 7: that also filed their S one on Friday. Got a

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Speaker 7: little lost in the Instacart news, but this is a

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Speaker 7: company that raised at a nine and a half billion

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Speaker 7: dollar valuation twenty twenty one, so they are likely to

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Speaker 7: be one that is you know, trading down from those

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Speaker 7: levels as well. So it's just kind of a reality

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Speaker 7: for where we are in the market.

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Speaker 1: All right, Brian, thanks so much for joining us. I

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Speaker 1: really appreciate getting your thoughts there. We're getting some IPO

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Speaker 1: filing starting to hit the tape. Maybe get a little

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Speaker 1: bit of a action in the fall here with the

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Speaker 1: IPO market Brand Lynch, head of market insight at Equity

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Speaker 1: Zen and again, you like to think maybe we're going

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Speaker 1: get a little bit of deal activity once everybody comes

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Speaker 1: back from the summer.

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Speaker 4: Yeah, i mean busy Friday, even though even though Klavio

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Speaker 4: is not quite as large a company and likely will

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Speaker 4: not be quite as large a company when Instacart.

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Speaker 1: Yeah, Instacart, you know, it's going to be a pretty

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Speaker 1: big transaction. We're going to have all the big investment banks.

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Speaker 1: So this deal is being led by Goldman Sachs, so

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Speaker 1: it'll be certainly a deal that people will pay attention to.

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Speaker 1: And there are some comps out there, as brand was mentioning,

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Speaker 1: so see how that plays out.

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Speaker 6: You're listening to the tape cans are live program Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 6: tune in app, Bloomberg dot Com, and.

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Speaker 9: The Bloomberg Business App.

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Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

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Speaker 5: I'm looking.

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Speaker 1: I mean, we're talking about Vinfest. You know what a

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Speaker 1: crazy name that is. Story that is the exact opposite,

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Speaker 1: might be Minnesota mining and manufacturing three m. You're talking

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Speaker 1: industrial heartland, been around forever. I'm looking at this stock

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Speaker 1: over the last five years, it's down ten percent on

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Speaker 1: a compounded annual basis, where the S and P's up

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Speaker 1: a little more than ten percent, so really underperformed the market.

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Speaker 1: But they're in the news today and we want to

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Speaker 1: talk about three M. We want to talk about industrial America.

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Speaker 1: What's happening out there? Brooks Southerland. She covers all that

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Speaker 1: so well for us. She's a columns covering.

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Speaker 5: Industrials and deals for Bloomberg Opinion.

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Speaker 1: She joins us live here in our Bloomberg Interactive Brooker Studio.

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Speaker 1: So three M, I guess the story today Brooke agrees

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Speaker 1: to pay more than five point five billion dollars over

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Speaker 1: combat earplugs.

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Speaker 5: Can you give us the background of this story? Sure?

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Speaker 10: So threems sold. They were dual ended earplugs to the

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Speaker 10: US military through its Arrow Technology subsidiary which it acquired,

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Speaker 10: and the idea was that on one side it was

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Speaker 10: sort of block out everything, and the other would block

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Speaker 10: out sort of immediate near term gunfire sounds that you

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Speaker 10: could still hear the person sitting next to you, which

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Speaker 10: obviously has a lot of appeal for the US military.

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Speaker 10: But the veterans have claimed that these airplugs did not

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Speaker 10: in fact work and left them instead with hearing loss

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Speaker 10: and tonightis and so this has been sort of a

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Speaker 10: mushrooming legal challenge for three M. Veterans were increasingly winning

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Speaker 10: bell weather trials at THREEM then made the move last

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Speaker 10: summer to put the aerotechnology sublicidiary into bankruptcy as a

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Speaker 10: means of sort of speeding up the resolution of those claims. Now,

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Speaker 10: a judge earlier in June said you can't do that.

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Speaker 10: This is not a valid reorganization purpose, and you know,

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Speaker 10: the company was appealing that, but it looked like a

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Speaker 10: rocky road. We've seen J and J run into legal

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Speaker 10: challenges with a similar ploy involving some of those talk

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Speaker 10: claims for that company, and so it looks like the

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Speaker 10: company three M is instead moving toward a settlement, which

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Speaker 10: makes sense. I mean, this was really the only way

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Speaker 10: that this probably was going to end for the company.

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Speaker 4: Now I understand that there are more issues the three

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Speaker 4: AM space, But first, is this it for this specific issue?

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Speaker 4: Is this likely to kind of settle all the claims

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Speaker 4: around the ear plug issue?

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Speaker 10: So we don't know a lot of the details, and

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Speaker 10: so Bloomberg News has reported on this Sunday that this

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Speaker 10: was in the works. It's a tentative deal at this point.

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Speaker 10: I think it'll be interesting to see what the actual

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Speaker 10: details look like once we get the final paperwork. One

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Speaker 10: of the things that's been reported is that this settlement

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Speaker 10: would be paid out over five years, which is not

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Speaker 10: what Wall Street was expecting. If you think about the

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Speaker 10: type of hearing loss we're talking talking about. If you,

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Speaker 10: you know, lost your hearing because you were exposed to

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Speaker 10: very loud gunfire, this is not something that plays out

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Speaker 10: over time that we were sort of waiting to see happen,

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Speaker 10: like you would with cancer coins. Okay, so I think

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Speaker 10: analysts had been bracing for more sort of an upfront payment,

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Speaker 10: So it wo'd be interesting to see what that actually

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Speaker 10: looks like. But you know, theoretically, I don't think they

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Speaker 10: would be moving forward with something like this unless they

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Speaker 10: thought it was really going to put this issue behind them.

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Speaker 10: Now there will be sort of ramification down the road.

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Speaker 10: I do think you have to worry about a dividend

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Speaker 10: cut at three M just given the fact that they've

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Speaker 10: also separately agreed to a twelve point five up to

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Speaker 10: twelve point five billion dollar settlement. Regarding p Fast and

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Speaker 10: drinking water, but that is not the end of their

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Speaker 10: p Fast liabilities by any stretch. And I think that

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Speaker 10: dividend is just going to be under pressure.

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Speaker 1: He Yeah, the dividend you'll looking just about five point

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Speaker 1: eight percent, So that might be that's some risk there.

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Speaker 5: For three M.

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Speaker 1: I mean, was this hearing were these hearing aid issues

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Speaker 1: just from the left since f Afghanistan in Iraq from

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Speaker 1: that time period or is it even before that.

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Speaker 10: I'm not sure exactly on the dates of the claims,

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Speaker 10: but like I said, this has been sort of a

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Speaker 10: mushrooming issue that has you.

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Speaker 1: Know, certain of stocks stocks up about three or four percent,

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Speaker 1: So I guess the Marco's thinking maybe it would have

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Speaker 1: been a bigger number.

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Speaker 10: Maybe sure, And so you know a lot of analysts

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Speaker 10: have been bracing for something in the ten billion dollar range,

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Speaker 10: and you know, I think the stock is up because

435
00:22:18,600 --> 00:22:21,359
Speaker 10: quite frankly, any progress is good progress for three M

436
00:22:21,440 --> 00:22:23,960
Speaker 10: on its legal issues. You know, the stock has lost

437
00:22:24,040 --> 00:22:27,520
Speaker 10: more than fifty billion dollars in market values since CEO

438
00:22:27,640 --> 00:22:30,520
Speaker 10: mic Roman took over in twenty eighteen. Like you said,

439
00:22:30,520 --> 00:22:33,199
Speaker 10: it's been a serious underperformer, and some of that has

440
00:22:33,240 --> 00:22:37,040
Speaker 10: to do with execution issues, operational hiccups within the company,

441
00:22:37,119 --> 00:22:39,240
Speaker 10: tougher industrial markets, but a lot of it has to

442
00:22:39,240 --> 00:22:41,399
Speaker 10: do with these legal liabilities that have just been hanging

443
00:22:41,440 --> 00:22:43,959
Speaker 10: over the company's head. And they're very open ended and

444
00:22:43,960 --> 00:22:46,000
Speaker 10: nobody could really put a number on it. So the

445
00:22:46,040 --> 00:22:48,160
Speaker 10: fact that we now have a number that we're talking about,

446
00:22:48,200 --> 00:22:50,600
Speaker 10: I think is a relief to shareholders.

447
00:22:50,880 --> 00:22:52,760
Speaker 4: Yeah, can you talk to us a little bit about

448
00:22:52,920 --> 00:22:57,720
Speaker 4: these PFEST obligations. There's one twelve plus billion dollars, but

449
00:22:58,160 --> 00:22:59,560
Speaker 4: there may be more than that.

450
00:23:00,119 --> 00:23:03,560
Speaker 10: Sure, So the settlement that they've agreed to covers claims

451
00:23:03,560 --> 00:23:07,200
Speaker 10: that Pfast polluted drinking water supplies, and that's with US

452
00:23:07,320 --> 00:23:08,560
Speaker 10: public water systems.

453
00:23:08,840 --> 00:23:12,840
Speaker 4: But these are forever chemicals. They exist forever. You ingest

454
00:23:12,880 --> 00:23:14,480
Speaker 4: them somehow and then they're bad.

455
00:23:14,640 --> 00:23:17,200
Speaker 10: So three M manufactured them for a range of products

456
00:23:17,200 --> 00:23:20,560
Speaker 10: for years. They stopped making some of the most problematic

457
00:23:20,640 --> 00:23:23,239
Speaker 10: compounds several decades ago, and then more recently have come

458
00:23:23,280 --> 00:23:25,439
Speaker 10: out and said we're getting out of past altogether. But

459
00:23:25,520 --> 00:23:28,560
Speaker 10: so we're talking about legacy manufacturing from years and years back.

460
00:23:29,160 --> 00:23:31,879
Speaker 10: So the settlement involves drinking water claims, but then there

461
00:23:31,880 --> 00:23:37,360
Speaker 10: are also potentially liabilities involving state attorney generals, potentially the EPA,

462
00:23:37,520 --> 00:23:40,119
Speaker 10: the military. Then there are also foreign governments to consider

463
00:23:40,200 --> 00:23:42,879
Speaker 10: because three M has factories all over the world. So

464
00:23:42,960 --> 00:23:46,040
Speaker 10: Barclay's analyst, Julian Mitchell has put some of these outstanding

465
00:23:46,080 --> 00:23:49,520
Speaker 10: liabilities at about sixteen billion addition to the twelve point

466
00:23:49,560 --> 00:23:51,760
Speaker 10: five billion that we've been talking about, and that does

467
00:23:51,800 --> 00:23:54,359
Speaker 10: not include any sort of deals with the foreign government.

468
00:23:54,400 --> 00:23:55,320
Speaker 8: That's just us.

469
00:23:55,600 --> 00:23:58,360
Speaker 10: One of the biggest budgets is personal injury claims, property

470
00:23:58,440 --> 00:24:02,000
Speaker 10: damage claims. They just brought in a very big lawyer

471
00:24:02,400 --> 00:24:04,200
Speaker 10: or trying to bring in a big lawyer to help

472
00:24:04,520 --> 00:24:06,400
Speaker 10: with some of those claims. He was the one who

473
00:24:06,400 --> 00:24:09,280
Speaker 10: got the big tobacco settlement, and so I think we

474
00:24:09,280 --> 00:24:11,960
Speaker 10: could still see some big, multi billion dollar settlements.

475
00:24:12,200 --> 00:24:14,919
Speaker 1: Brooke, you cover a lot of the big industrial companies.

476
00:24:14,960 --> 00:24:18,159
Speaker 1: A lot of those companies are conglomerates and conglomerates. It

477
00:24:18,160 --> 00:24:20,520
Speaker 1: seems like in time and time are in favor, some

478
00:24:20,600 --> 00:24:22,840
Speaker 1: of the times are out of favor. I've pitched it

479
00:24:22,880 --> 00:24:25,000
Speaker 1: both ways. As a banker, you know which way the

480
00:24:25,160 --> 00:24:27,239
Speaker 1: winds are blowing. You have a fascinating column out on that.

481
00:24:27,560 --> 00:24:31,520
Speaker 1: Where are we now with just conglomerates to investors like them,

482
00:24:31,520 --> 00:24:32,760
Speaker 1: did they not like them? What's going on?

483
00:24:33,240 --> 00:24:35,400
Speaker 10: So it's interesting because we went through a moment during

484
00:24:35,440 --> 00:24:37,560
Speaker 10: the pandemic where all of a sudden, diversity was an

485
00:24:37,600 --> 00:24:40,040
Speaker 10: asset again because it was very helpful to not just

486
00:24:40,119 --> 00:24:43,159
Speaker 10: be an aerospace company, for example, but even beyond that,

487
00:24:43,200 --> 00:24:45,680
Speaker 10: you sort of had different markets were covering at different

488
00:24:45,760 --> 00:24:47,720
Speaker 10: rates as we came out of the pandemic, and you

489
00:24:47,760 --> 00:24:50,320
Speaker 10: actually heard a lot more companies talking about diversity as

490
00:24:50,359 --> 00:24:53,600
Speaker 10: an asset, and that message is not resonating in the

491
00:24:53,640 --> 00:24:55,480
Speaker 10: same way now that we're sort of on the other

492
00:24:55,600 --> 00:24:59,200
Speaker 10: side of that initial robust COVID comeback, and we're sort

493
00:24:59,200 --> 00:25:02,200
Speaker 10: of seeing some market slow down, other markets being more robust,

494
00:25:02,280 --> 00:25:05,040
Speaker 10: and diversity is becoming a liability again. Now there's not

495
00:25:05,200 --> 00:25:09,840
Speaker 10: that many big diversified industrial conglomerates left just because so

496
00:25:09,920 --> 00:25:13,800
Speaker 10: many have done breakups, spinoffs, what have you. Even three

497
00:25:13,960 --> 00:25:16,040
Speaker 10: MS you know is planning to spin off its healthcare

498
00:25:16,119 --> 00:25:17,520
Speaker 10: unit at the end of this year. But there are

499
00:25:17,600 --> 00:25:19,720
Speaker 10: a couple and I think, you know, we may see

500
00:25:19,760 --> 00:25:21,240
Speaker 10: them under more scrutiny.

501
00:25:21,880 --> 00:25:26,080
Speaker 4: Is this a cyclical sort of thing, because are there

502
00:25:26,320 --> 00:25:30,320
Speaker 4: various times, you know, over when you look over periods

503
00:25:30,320 --> 00:25:32,600
Speaker 4: of decades where it helps to be diversified because it

504
00:25:32,640 --> 00:25:35,159
Speaker 4: helps insulate you from some risk, and then all of

505
00:25:35,200 --> 00:25:37,959
Speaker 4: a sudden, you know, the market recovers and activists say

506
00:25:38,080 --> 00:25:39,760
Speaker 4: get rid of your XYZ division.

507
00:25:40,000 --> 00:25:43,399
Speaker 10: It definitely is cyclical, and to your point, you know,

508
00:25:43,640 --> 00:25:45,760
Speaker 10: it's one thing to argue that diversity is a liability,

509
00:25:45,760 --> 00:25:47,280
Speaker 10: and then when times get tough and you're just an

510
00:25:47,320 --> 00:25:50,480
Speaker 10: aerospace company, then the numbers don't look so great. But

511
00:25:50,880 --> 00:25:53,480
Speaker 10: you know, I do think it goes in waves. And

512
00:25:53,520 --> 00:25:55,639
Speaker 10: one of the comments that the industrials always make is

513
00:25:55,640 --> 00:25:59,000
Speaker 10: if you look outside of manufacturing, look at finance, for example,

514
00:25:59,280 --> 00:26:01,439
Speaker 10: some of the big banks are in a wide variety

515
00:26:01,480 --> 00:26:04,399
Speaker 10: of businesses. Look at the tech companies. Amazon will deliver

516
00:26:04,480 --> 00:26:06,280
Speaker 10: goods to your front door, but then they also sell

517
00:26:06,320 --> 00:26:09,159
Speaker 10: cloud computing services, and they own whole foods, and so

518
00:26:09,600 --> 00:26:12,439
Speaker 10: there is you know a number of examples of conglomerate

519
00:26:12,520 --> 00:26:14,560
Speaker 10: out there in the markets. And I think one of

520
00:26:14,600 --> 00:26:16,840
Speaker 10: the ironic things is for all the times that this

521
00:26:17,280 --> 00:26:20,080
Speaker 10: business structure has been pronounced dead, it actually has quite

522
00:26:20,119 --> 00:26:23,240
Speaker 10: a lot of staying power and just reincarnates itself into

523
00:26:23,240 --> 00:26:24,480
Speaker 10: sort of different visions.

524
00:26:24,800 --> 00:26:26,440
Speaker 5: What are you working on these days. What's the next

525
00:26:26,480 --> 00:26:29,760
Speaker 5: cool thing coming out of your Bloomberg terminal?

526
00:26:30,240 --> 00:26:33,760
Speaker 10: Oh, well, I mean all kinds of things. But certainly,

527
00:26:33,840 --> 00:26:35,800
Speaker 10: watching this diversity issue and how it plays out, I

528
00:26:35,800 --> 00:26:37,880
Speaker 10: think will be really interesting. And we haven't really seen

529
00:26:37,920 --> 00:26:40,760
Speaker 10: a lot of activists investors in the industrial sector for

530
00:26:40,800 --> 00:26:43,800
Speaker 10: a while. The last big time I can remember somebody

531
00:26:43,800 --> 00:26:46,760
Speaker 10: pushing for changes at an industrial conglomerate was in twenty

532
00:26:46,840 --> 00:26:50,000
Speaker 10: nineteen with D. E. Shaw and Emerson Electrics, So it's really.

533
00:26:49,760 --> 00:26:51,600
Speaker 5: While and Emerson did do something.

534
00:26:51,760 --> 00:26:54,400
Speaker 10: They did break up, although that was not so much

535
00:26:55,520 --> 00:26:57,720
Speaker 10: I don't know how much that was connected to the activist.

536
00:26:57,760 --> 00:26:59,560
Speaker 10: They got a new CEO who had a lot of

537
00:26:59,640 --> 00:27:01,480
Speaker 10: energy and a lot of vision for what he wanted

538
00:27:01,480 --> 00:27:03,080
Speaker 10: this company to look like, and I think that was

539
00:27:03,119 --> 00:27:06,000
Speaker 10: sort of more the driving force in that case. But

540
00:27:06,040 --> 00:27:08,320
Speaker 10: we really haven't seen that many activists in industrials, which

541
00:27:08,359 --> 00:27:10,280
Speaker 10: is fascinating, And so I wonder if you know now

542
00:27:10,280 --> 00:27:12,240
Speaker 10: that sort of the pendulum is swinging the other way

543
00:27:12,320 --> 00:27:14,879
Speaker 10: on diversity, if we might diversity of businesses, if we

544
00:27:14,960 --> 00:27:17,000
Speaker 10: might see, you know, some activists come out of the

545
00:27:17,000 --> 00:27:19,040
Speaker 10: woodwork and take a look at these companies. Honeywell, stock

546
00:27:19,080 --> 00:27:22,040
Speaker 10: in particular has been under pressure since they announced a

547
00:27:22,119 --> 00:27:24,679
Speaker 10: CEO change, and I think investors are just sort of

548
00:27:24,680 --> 00:27:27,359
Speaker 10: waiting and watching to see what that new CEO of

549
00:27:27,400 --> 00:27:29,600
Speaker 10: vim Wi Kapor might do with that mix of businesses.

550
00:27:29,600 --> 00:27:33,520
Speaker 10: They're sort of the last remaining really big industrial conglomerate

551
00:27:33,520 --> 00:27:35,680
Speaker 10: that has not done a massive spin off. They spent

552
00:27:35,720 --> 00:27:38,920
Speaker 10: off two smaller businesses in twenty eighteen, but we haven't

553
00:27:38,960 --> 00:27:41,320
Speaker 10: seen the kind of full scale breakup we've seen elsewhere.

554
00:27:41,480 --> 00:27:43,600
Speaker 1: All Right, brook thanks so much for joining us. As always,

555
00:27:43,600 --> 00:27:46,520
Speaker 1: Brooks Subland and Calumnists. She covers industrials and deals for

556
00:27:46,520 --> 00:27:50,440
Speaker 1: Bloomberg Opinion. Joining us here on all things industrial, including

557
00:27:50,680 --> 00:27:52,360
Speaker 1: Minnesota mining and manufacturing.

558
00:27:53,920 --> 00:27:57,760
Speaker 6: You're listening to the Team Cancer Live program, Bloomberg Markets

559
00:27:57,800 --> 00:28:01,720
Speaker 6: weekdays at ten am Easter and on Bloomberg, the iHeartRadio

560
00:28:01,760 --> 00:28:04,480
Speaker 6: app and the Bloomberg Business App, or listen on demand

561
00:28:04,560 --> 00:28:06,080
Speaker 6: wherever you get your podcast.

562
00:28:08,480 --> 00:28:10,359
Speaker 1: Our next guest, I would say it just feels like

563
00:28:10,480 --> 00:28:14,600
Speaker 1: consistently bullish on the state of California. Several weeks ago,

564
00:28:14,640 --> 00:28:17,679
Speaker 1: we discussed San Francisco, and the numbers bear out a

565
00:28:17,720 --> 00:28:21,840
Speaker 1: bullish outlook there. Today it's the city of Angels, Los Angeles.

566
00:28:21,880 --> 00:28:25,680
Speaker 1: Matt Winker joins us. He is the founder of Bloomberg News.

567
00:28:25,720 --> 00:28:28,560
Speaker 1: He is the editor emeritus right now of Bloomberg News,

568
00:28:29,400 --> 00:28:32,600
Speaker 1: joining us via zoom Matt. When I think LA, I

569
00:28:32,640 --> 00:28:36,520
Speaker 1: think Hollywood, because I'm a former media analyst, and Hollywood's

570
00:28:36,600 --> 00:28:38,920
Speaker 1: kind of on its backside these days with the actors

571
00:28:38,920 --> 00:28:41,320
Speaker 1: on strike, the writers on strike. Tell us about what

572
00:28:41,320 --> 00:28:44,640
Speaker 1: the numbers show you about the health of the LA economy.

573
00:28:45,560 --> 00:28:48,560
Speaker 11: Always great to be with you, and truth be told,

574
00:28:48,760 --> 00:28:53,600
Speaker 11: it's not just Hollywood actors and screenwriters. At some point

575
00:28:53,640 --> 00:28:58,720
Speaker 11: this year, you've had airports, shuttle drivers, boat captains, crane operators,

576
00:28:58,760 --> 00:29:03,920
Speaker 11: sanitation workers, duty mechanics, custodians, longshoremen which handled, by the way,

577
00:29:03,960 --> 00:29:07,520
Speaker 11: forty percent of US imports from Asia, and nurses and

578
00:29:07,560 --> 00:29:14,360
Speaker 11: school teachers all on strike. However, that pervasive perception of paralysis,

579
00:29:14,400 --> 00:29:19,040
Speaker 11: if you like, is really belied by the reality that

580
00:29:19,800 --> 00:29:22,960
Speaker 11: not only does Los Angeles still work, its ten largest

581
00:29:23,000 --> 00:29:27,360
Speaker 11: publicly traded companies are number one in sales and employee

582
00:29:27,400 --> 00:29:30,360
Speaker 11: growth among the same group of firms based in each

583
00:29:30,400 --> 00:29:33,520
Speaker 11: of the ten most populated US cities now and for

584
00:29:33,600 --> 00:29:36,440
Speaker 11: the foreseeable future. And what are we talking about The

585
00:29:36,560 --> 00:29:40,760
Speaker 11: ten run the gamut from banks, financial services, insurance to

586
00:29:40,880 --> 00:29:48,920
Speaker 11: consumer discretionary staples and industrials healthcare. They're doing better as

587
00:29:48,960 --> 00:29:52,680
Speaker 11: a group than any top ten companies in any of

588
00:29:52,720 --> 00:29:54,200
Speaker 11: the top ten US cities.

589
00:29:54,840 --> 00:29:59,400
Speaker 4: Now, does this analysis that you've done here apply to

590
00:30:00,200 --> 00:30:04,680
Speaker 4: having more people work from these firms in LA itself

591
00:30:04,800 --> 00:30:07,880
Speaker 4: or is it just simply that these firms are based

592
00:30:07,880 --> 00:30:11,560
Speaker 4: in LA they're successful. I guess I'm trying to connect

593
00:30:11,600 --> 00:30:16,240
Speaker 4: to the home base of these companies and actually bringing

594
00:30:16,240 --> 00:30:18,200
Speaker 4: benefits back for the city itself.

595
00:30:19,080 --> 00:30:23,440
Speaker 11: Okay, so that's a great question, And of course, none

596
00:30:23,440 --> 00:30:28,240
Speaker 11: of this would be meaningful unless, as you query, all

597
00:30:28,320 --> 00:30:31,440
Speaker 11: the people we're talking about are in LA proper and

598
00:30:31,600 --> 00:30:36,680
Speaker 11: we are talking about employee growth within Los Angeles, not

599
00:30:36,800 --> 00:30:41,440
Speaker 11: outside Los Angeles, inside Los Angeles. And there really is

600
00:30:41,480 --> 00:30:46,760
Speaker 11: no city that comes close to this double digit sales

601
00:30:46,800 --> 00:30:50,680
Speaker 11: gain from its top ten firms. San Jose, by the way,

602
00:30:51,120 --> 00:30:54,800
Speaker 11: is the closest firm at ten percent, and LA is

603
00:30:54,840 --> 00:31:00,560
Speaker 11: way above that, and way above Chicago, Phoenix, Philadelphia, and Diego.

604
00:31:00,680 --> 00:31:04,360
Speaker 11: They're all distant. Also, rans San Antonio and Dallas are

605
00:31:04,560 --> 00:31:09,080
Speaker 11: going to have average revenue decline. So LA really is

606
00:31:10,360 --> 00:31:14,400
Speaker 11: out front here and employee growth. It's the same story

607
00:31:14,640 --> 00:31:17,120
Speaker 11: all over again. So and you can see that, by

608
00:31:17,120 --> 00:31:19,280
Speaker 11: the way, on the Bloomberg terminal, if you were to

609
00:31:19,360 --> 00:31:24,600
Speaker 11: graph Los Angeles, for example, against the Russell three thousand,

610
00:31:24,680 --> 00:31:27,920
Speaker 11: which is big and small companies alike publicly traded, the

611
00:31:28,080 --> 00:31:32,080
Speaker 11: gap between the two has widened, maybe close to a

612
00:31:32,160 --> 00:31:33,360
Speaker 11: record actually.

613
00:31:33,200 --> 00:31:35,800
Speaker 1: Right now, Hey, Matt, if I were to listen to

614
00:31:35,840 --> 00:31:38,800
Speaker 1: the leaders of states like Florida and Texas, I would

615
00:31:38,800 --> 00:31:41,200
Speaker 1: get a different narrative. It seems like that, Oh, everybody's

616
00:31:41,280 --> 00:31:44,480
Speaker 1: leaving California the high taxes. That's not pro business. They're

617
00:31:44,480 --> 00:31:49,280
Speaker 1: coming down here to lower no tax states. What's what

618
00:31:50,000 --> 00:31:52,000
Speaker 1: is the data show you?

619
00:31:52,000 --> 00:31:55,760
Speaker 11: You could fit Florida, maybe a couple of them inside California.

620
00:31:56,600 --> 00:31:59,720
Speaker 5: Yep, without missing a being exactly you could fit you.

621
00:31:59,680 --> 00:32:04,360
Speaker 11: Could probably all of corporate Florida, all of corporate Florida

622
00:32:04,400 --> 00:32:07,480
Speaker 11: inside of LA and not miss abeat. The point is

623
00:32:07,480 --> 00:32:12,120
Speaker 11: that California is huge, all right, Let's be clear about this.

624
00:32:12,280 --> 00:32:15,280
Speaker 11: So there's been a according to the Census, you know,

625
00:32:15,400 --> 00:32:18,760
Speaker 11: three percent decline in population since twenty twenty in Los Angeles.

626
00:32:18,840 --> 00:32:22,480
Speaker 11: Having said that California is thirty nine million people, Okay,

627
00:32:22,560 --> 00:32:25,520
Speaker 11: that's at least ten million more than any other state.

628
00:32:25,760 --> 00:32:31,920
Speaker 11: Texas is number two, and then corporate California dwarfs corporate anywhere,

629
00:32:32,040 --> 00:32:35,920
Speaker 11: Corporate Texas, Corporate New York, corporate Florida. You could fit

630
00:32:36,200 --> 00:32:43,840
Speaker 11: any of those economies comfortably into California without so much

631
00:32:43,880 --> 00:32:48,000
Speaker 11: as a bulge. That's the reality. And you know, look,

632
00:32:49,080 --> 00:32:51,920
Speaker 11: George Orwell said this best. He said, you know, to

633
00:32:52,000 --> 00:32:54,560
Speaker 11: see what is in front of one's nose needs a

634
00:32:54,600 --> 00:32:59,440
Speaker 11: constant struggle. And that's really the reality for California, particularly

635
00:32:59,520 --> 00:33:02,600
Speaker 11: Los Angele is that it's a very diverse city. By

636
00:33:02,640 --> 00:33:06,280
Speaker 11: the way, it's still got the largest manufacturing base that's

637
00:33:06,280 --> 00:33:09,360
Speaker 11: five hundred thousand plus people of any city in the

638
00:33:09,440 --> 00:33:13,120
Speaker 11: United States. So it's not only you know, a place

639
00:33:13,200 --> 00:33:17,000
Speaker 11: where you have if you like Hollywood screenwriters, but you

640
00:33:17,080 --> 00:33:22,160
Speaker 11: also have aerospace going back decades, and that's just a

641
00:33:22,160 --> 00:33:24,120
Speaker 11: bigger footprint than anywhere else.

642
00:33:24,320 --> 00:33:24,480
Speaker 8: You know.

643
00:33:24,600 --> 00:33:27,680
Speaker 4: Interestingly, Los Angeles is one of those places that's struggling

644
00:33:27,720 --> 00:33:33,000
Speaker 4: with these these empty office or not empty, but much

645
00:33:33,040 --> 00:33:37,320
Speaker 4: more much high office buildings with very high vacancy rates,

646
00:33:37,360 --> 00:33:42,160
Speaker 4: to the point that their owners are sometimes giving the

647
00:33:42,240 --> 00:33:46,280
Speaker 4: keys back to the banks. Do you get any sense

648
00:33:46,320 --> 00:33:49,240
Speaker 4: of how Los Angeles is going to tackle that problem.

649
00:33:49,280 --> 00:33:52,960
Speaker 4: Is it any different than somewhere like San Francisco might

650
00:33:53,080 --> 00:33:55,920
Speaker 4: be trying to tackle that problem.

651
00:33:57,000 --> 00:33:59,960
Speaker 11: Well, look, it's early days. We're talking about a peer

652
00:34:00,800 --> 00:34:04,000
Speaker 11: really since the pandemic, which was unprecedented in our lifetime,

653
00:34:04,440 --> 00:34:08,480
Speaker 11: So who's to say, you know, what kind of calamity

654
00:34:08,520 --> 00:34:12,200
Speaker 11: this really is. Certainly in the short term it seems so.

655
00:34:12,560 --> 00:34:16,640
Speaker 11: But look, one of the people that we have followed

656
00:34:17,120 --> 00:34:21,120
Speaker 11: closely is a thirty three year old co founder and

657
00:34:21,200 --> 00:34:24,520
Speaker 11: chief executive officer of a company called Relativity Space. It's

658
00:34:24,520 --> 00:34:27,920
Speaker 11: an eight year old startup. Made the first three D

659
00:34:28,080 --> 00:34:32,920
Speaker 11: printed rocket to enter space. That's the one hundred and

660
00:34:32,960 --> 00:34:36,399
Speaker 11: ten foot Tehran. One is the largest metal object three

661
00:34:36,520 --> 00:34:39,280
Speaker 11: D printed. Okay, it's right in the backyard of Los Angeles.

662
00:34:39,320 --> 00:34:42,560
Speaker 11: It's actually in Long Beach, but it's close enough, and

663
00:34:42,719 --> 00:34:46,080
Speaker 11: their offices are in Los Angeles. And he'll tell you,

664
00:34:47,400 --> 00:34:50,680
Speaker 11: speaking about downtown and everything else, that most of his

665
00:34:50,680 --> 00:34:54,960
Speaker 11: friends are engineered, but he's friends with artists, people in fashion,

666
00:34:55,040 --> 00:34:58,360
Speaker 11: people in other industries. And that's the kind of innovation

667
00:34:58,440 --> 00:35:01,080
Speaker 11: and mentality says that with take to do something as

668
00:35:01,120 --> 00:35:05,520
Speaker 11: crazy as put a million people on Mars and I

669
00:35:05,560 --> 00:35:10,480
Speaker 11: forgot to mention he's from Plano, Texas, right, Okay, he

670
00:35:10,560 --> 00:35:15,440
Speaker 11: loves California. So be careful. You know what the prevailing

671
00:35:15,560 --> 00:35:19,799
Speaker 11: narrative is, because this being Bloomberg, you look at the data, and,

672
00:35:19,840 --> 00:35:22,919
Speaker 11: as our owner likes to say, you know, in God

673
00:35:22,960 --> 00:35:24,959
Speaker 11: we trust, but everybody else bring data.

674
00:35:25,600 --> 00:35:26,960
Speaker 5: Hey, Matt, thanks so much for joining us.

675
00:35:27,000 --> 00:35:30,000
Speaker 1: Matt Winkler, he is the founder of Bloomberg News fascinating

676
00:35:30,040 --> 00:35:33,400
Speaker 1: column on the great city of Los Angeles and how

677
00:35:33,400 --> 00:35:35,480
Speaker 1: well it is doing economically.

678
00:35:35,520 --> 00:35:37,560
Speaker 5: At this point, you're listening to the tape.

679
00:35:37,680 --> 00:35:41,040
Speaker 6: Can's our live program Bloomberg Markets weekdays at ten am

680
00:35:41,040 --> 00:35:45,040
Speaker 6: Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.

681
00:35:45,040 --> 00:35:46,319
Speaker 9: The Bloomberg Business App.

682
00:35:46,360 --> 00:35:49,200
Speaker 6: You can also listen live on Amazon Alexa from our

683
00:35:49,200 --> 00:35:53,600
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

684
00:35:55,520 --> 00:35:58,320
Speaker 1: Goldman is offloading a wealth unit to two hundred and

685
00:35:58,320 --> 00:36:02,359
Speaker 1: forty billion dollar money manager. Shrinana Rojen reported that story.

686
00:36:02,400 --> 00:36:04,720
Speaker 1: He joins us here in our Bloomberg Interactive Broker studio,

687
00:36:04,960 --> 00:36:06,680
Speaker 1: shre what is Goldman doing here?

688
00:36:06,680 --> 00:36:08,600
Speaker 5: I thought they liked the wealth management business.

689
00:36:08,680 --> 00:36:10,920
Speaker 12: Well, they still like the wealth management business. But what

690
00:36:10,960 --> 00:36:13,439
Speaker 12: they're doing here is another strategic flip flop, and we've

691
00:36:13,480 --> 00:36:15,200
Speaker 12: seen a little bit of that over the course of

692
00:36:15,200 --> 00:36:18,840
Speaker 12: the last twelve months. This is an ria investment advisory

693
00:36:18,880 --> 00:36:22,000
Speaker 12: business that purchased in twenty nineteen for seven hundred and

694
00:36:22,000 --> 00:36:26,400
Speaker 12: fifty million dollars. Goldman has a dominant presence when catering

695
00:36:26,440 --> 00:36:29,960
Speaker 12: to the ultra rich, the ultra high net worth individuals.

696
00:36:30,440 --> 00:36:32,560
Speaker 12: No one does it better than Goldman. You know, people

697
00:36:32,600 --> 00:36:35,360
Speaker 12: who have twenty five thirty fifty million dollars per account.

698
00:36:36,080 --> 00:36:40,040
Speaker 12: The most affluent market is one where people could have

699
00:36:40,320 --> 00:36:43,239
Speaker 12: a million dollar account on average. One point to one

700
00:36:43,280 --> 00:36:45,440
Speaker 12: point three million dollar account is what they got when

701
00:36:45,440 --> 00:36:49,560
Speaker 12: they purchased United Capital with about twenty two thousand clients.

702
00:36:49,920 --> 00:36:52,600
Speaker 12: Four years in, they've realized that really is not where

703
00:36:52,600 --> 00:36:54,799
Speaker 12: they want to be. It has been a little bit

704
00:36:54,840 --> 00:36:57,160
Speaker 12: of a drag on their profit pre tax margins as well,

705
00:36:57,280 --> 00:37:00,719
Speaker 12: so they've decided to shed that. They're selling it to

706
00:37:00,800 --> 00:37:03,520
Speaker 12: this two hundred and forty billion dollar wealth manager called

707
00:37:03,600 --> 00:37:06,600
Speaker 12: Creative Planning, which is run by a very interesting gentleman

708
00:37:06,640 --> 00:37:09,640
Speaker 12: by the name of Peter Muluk. But for Goldman What

709
00:37:09,680 --> 00:37:13,399
Speaker 12: that means is you refocus your attention on the part

710
00:37:13,400 --> 00:37:15,520
Speaker 12: of the business that you're really good at, which is

711
00:37:15,760 --> 00:37:20,120
Speaker 12: serving the ultra rich. It mirrors some of their stumbles

712
00:37:20,120 --> 00:37:22,759
Speaker 12: with consumer banking, which is something we've spoken about a

713
00:37:22,840 --> 00:37:25,560
Speaker 12: lot over the course of the last year. Again another

714
00:37:25,640 --> 00:37:29,040
Speaker 12: way to expand beyond their core roots and go into

715
00:37:29,040 --> 00:37:31,400
Speaker 12: the retail banking markets. And in many ways, I think

716
00:37:31,440 --> 00:37:34,719
Speaker 12: it's fair to call it an attempt that flopped, and

717
00:37:34,719 --> 00:37:38,120
Speaker 12: they're getting out of much of that through trying to

718
00:37:38,120 --> 00:37:40,239
Speaker 12: sell off its credit cards businesses, trying to sell off

719
00:37:40,239 --> 00:37:45,360
Speaker 12: the installment lender, shutting off its lending platform for consumers.

720
00:37:45,400 --> 00:37:48,240
Speaker 12: All that they've left is that Marcus Savings business, which

721
00:37:48,400 --> 00:37:51,720
Speaker 12: by the way, is very successful, is a big benefit

722
00:37:51,760 --> 00:37:56,000
Speaker 12: to Goldman because it doesn't mind accumulating deposits that way

723
00:37:56,040 --> 00:37:57,840
Speaker 12: because what it has to pay out on that is

724
00:37:57,920 --> 00:37:59,400
Speaker 12: less than what it has to pay out when it

725
00:37:59,440 --> 00:38:02,319
Speaker 12: has to raise my from the market, so that they

726
00:38:02,320 --> 00:38:05,239
Speaker 12: will stick with. But pretty much every other vestige of

727
00:38:05,280 --> 00:38:09,640
Speaker 12: their consumer banking for a is either being you know,

728
00:38:09,800 --> 00:38:13,560
Speaker 12: chucked overboard or in the process of being chucked overboard.

729
00:38:13,640 --> 00:38:16,880
Speaker 4: Well, yeah, so this was purchased United Capital. This RII

730
00:38:16,960 --> 00:38:20,160
Speaker 4: was purchased for seven hundred and fifty million dollars back

731
00:38:20,200 --> 00:38:23,759
Speaker 4: in twenty nineteen. Is that where does that seven hundred

732
00:38:23,800 --> 00:38:24,719
Speaker 4: fifty million dollars go.

733
00:38:25,719 --> 00:38:28,320
Speaker 12: That's a good question because when Goldman announced the deal,

734
00:38:28,960 --> 00:38:31,879
Speaker 12: which came a little bit after our story a few

735
00:38:31,920 --> 00:38:34,240
Speaker 12: minutes back, they did confirm the sale of this business,

736
00:38:34,600 --> 00:38:36,879
Speaker 12: they didn't give us a price, so we don't know

737
00:38:36,920 --> 00:38:39,440
Speaker 12: what price this platform fetched. But they do have an

738
00:38:39,440 --> 00:38:41,640
Speaker 12: important line in their press release that says when this

739
00:38:41,719 --> 00:38:43,400
Speaker 12: deal closes, which they expect by the end of the

740
00:38:43,400 --> 00:38:45,520
Speaker 12: fourth quarter, there will be a gain. There will be

741
00:38:45,520 --> 00:38:48,720
Speaker 12: an accounting gain. That doesn't necessarily mean that the buyer

742
00:38:48,800 --> 00:38:51,080
Speaker 12: is paying more than seven hundred and fifty million dollars,

743
00:38:51,360 --> 00:38:53,480
Speaker 12: But the way with most of these transactions is you

744
00:38:53,520 --> 00:38:57,719
Speaker 12: buy something, you have some goodwill. That goodwill gets amortized,

745
00:38:57,719 --> 00:39:01,200
Speaker 12: appreciates over the years. Relative to that, I think you

746
00:39:01,239 --> 00:39:03,440
Speaker 12: will see an accounting gain. And I think that's what

747
00:39:03,480 --> 00:39:06,200
Speaker 12: they're signating at rather than necessarily telling us that this

748
00:39:06,239 --> 00:39:08,040
Speaker 12: is something where they will get in excess of seven

749
00:39:08,040 --> 00:39:08,680
Speaker 12: to fifty million.

750
00:39:08,840 --> 00:39:11,760
Speaker 1: Sure, the beginning of this discussion, you characterize this deals

751
00:39:11,760 --> 00:39:16,520
Speaker 1: perhaps a flip flop. Investors don't like flip flops. What's

752
00:39:16,560 --> 00:39:18,480
Speaker 1: going on at the senior ranks of Goldman sacks here

753
00:39:18,480 --> 00:39:20,239
Speaker 1: a lot of flip flopping in terms of what they own,

754
00:39:20,280 --> 00:39:21,480
Speaker 1: what they don't own, strategies.

755
00:39:21,840 --> 00:39:24,600
Speaker 12: Two ways to look at it. Right, When David Solomon

756
00:39:24,640 --> 00:39:27,720
Speaker 12: took over in October twenty eighteen, there were two key pillars,

757
00:39:27,760 --> 00:39:31,560
Speaker 12: which is, expand the businesses you're really good at, grow earnings.

758
00:39:31,600 --> 00:39:35,880
Speaker 12: There they benefited hugely benefited from that boom in trading

759
00:39:35,920 --> 00:39:38,359
Speaker 12: and deal making set off by the pandemic and every

760
00:39:38,360 --> 00:39:41,200
Speaker 12: other dynamic that continued after that. But the other important

761
00:39:41,200 --> 00:39:43,680
Speaker 12: pillar for David Solomon and his management team was to

762
00:39:43,760 --> 00:39:48,080
Speaker 12: try and improve the stock multiple, try and convince investors

763
00:39:48,200 --> 00:39:50,560
Speaker 12: the stock is worth a lot more that their price

764
00:39:50,600 --> 00:39:54,239
Speaker 12: to book creature, price earnings, whatever fancy technical metric you

765
00:39:54,239 --> 00:39:57,240
Speaker 12: want to throw out there, deserves more. They haven't really

766
00:39:57,320 --> 00:40:01,239
Speaker 12: succeeded in doing that. A lot of book value growth

767
00:40:01,280 --> 00:40:05,600
Speaker 12: because of earning's growth, but not any success in convincing

768
00:40:05,640 --> 00:40:09,760
Speaker 12: investors that you can do the multiple growth. Maybe now

769
00:40:09,840 --> 00:40:11,960
Speaker 12: that they've done a strategy pivot or have done the

770
00:40:11,960 --> 00:40:14,080
Speaker 12: slip flop, there perhaps in the place where they want

771
00:40:14,120 --> 00:40:15,880
Speaker 12: to be, and maybe investors come on board.

772
00:40:16,040 --> 00:40:17,640
Speaker 1: All right, Sre, thanks so much for joining us. Glad

773
00:40:17,680 --> 00:40:19,600
Speaker 1: you could join us here in studio. Shri Nana Rogen

774
00:40:20,600 --> 00:40:22,640
Speaker 1: from Bloomberg News. He covers Goldman Sacks. He covers a

775
00:40:22,640 --> 00:40:25,920
Speaker 1: big investment banks. He is all over Goldman Sachson, including

776
00:40:25,920 --> 00:40:27,880
Speaker 1: some of the recent changes in strategy.

777
00:40:28,239 --> 00:40:31,360
Speaker 6: You're listening to the tape cats are live program Bloomberg

778
00:40:31,400 --> 00:40:35,000
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

779
00:40:35,080 --> 00:40:37,160
Speaker 6: tune in app, Bloomberg dot Com.

780
00:40:36,880 --> 00:40:38,319
Speaker 9: And the Bloomberg Business App.

781
00:40:38,360 --> 00:40:41,160
Speaker 6: You can also listen live on Amazon Alexa from our

782
00:40:41,160 --> 00:40:46,240
Speaker 6: flagship New York station, Just say Alexa play Bloomberg eleven thirty.

783
00:40:46,800 --> 00:40:50,959
Speaker 1: Whyant Electric Industries? It stocks up forty three percent? Looks

784
00:40:50,960 --> 00:40:53,080
Speaker 1: like the company saying, hey, wait a minute, maybe we're

785
00:40:53,120 --> 00:40:55,960
Speaker 1: not so much to blame. Maybe the there's a they're

786
00:40:55,960 --> 00:40:58,520
Speaker 1: putting out a statement on. Maybe there's some other causes

787
00:40:58,920 --> 00:40:59,319
Speaker 1: as and.

788
00:40:59,320 --> 00:41:02,400
Speaker 4: As Billy talking about it still down sixty seven percent

789
00:41:02,440 --> 00:41:02,799
Speaker 4: this year.

790
00:41:02,960 --> 00:41:03,200
Speaker 5: Yep.

791
00:41:03,400 --> 00:41:05,440
Speaker 1: So it's interesting. So I have to get the latest here.

792
00:41:05,440 --> 00:41:07,960
Speaker 1: But let's do that with an analyst who covers the bonds.

793
00:41:07,960 --> 00:41:10,560
Speaker 1: Here covers the credit side of the utilities. Jamon Patel.

794
00:41:10,800 --> 00:41:13,960
Speaker 1: He's a senior Fixed and Come strategist for Bloomberg Intelligence,

795
00:41:14,360 --> 00:41:17,399
Speaker 1: joining us via zoom. Jamie, what do you know about

796
00:41:17,400 --> 00:41:20,520
Speaker 1: what's happening here with Hawaiian Electric? Quite the turnaround here.

797
00:41:21,520 --> 00:41:22,279
Speaker 8: Well, you know.

798
00:41:23,760 --> 00:41:27,400
Speaker 13: What, we're we're really very much in the early days here, right,

799
00:41:27,440 --> 00:41:30,640
Speaker 13: So you're gonna you've had allegations being filed, you've had

800
00:41:30,680 --> 00:41:33,399
Speaker 13: some responses, you've had some findings. But over the next

801
00:41:33,760 --> 00:41:35,680
Speaker 13: you know, weeks, months, as as a pg and Ek

802
00:41:35,840 --> 00:41:37,839
Speaker 13: showed us, this sort of thing can take a really

803
00:41:37,880 --> 00:41:40,200
Speaker 13: long time. There'll be more findings, there'll be more allegations

804
00:41:40,239 --> 00:41:42,319
Speaker 13: and so on. But this latest one seeds to be

805
00:41:42,400 --> 00:41:46,600
Speaker 13: very interesting. Up until we you know this, this particular

806
00:41:46,600 --> 00:41:49,920
Speaker 13: statement that came out from the company, Hawaiian Electric had

807
00:41:49,960 --> 00:41:52,799
Speaker 13: really not mentioned anything about de energizing its lines. In fact,

808
00:41:52,840 --> 00:41:55,840
Speaker 13: it said that it didn't de energize its lines simply

809
00:41:55,880 --> 00:42:01,440
Speaker 13: because they were concerned about emergency usage hospitals, et cetera

810
00:42:01,480 --> 00:42:04,560
Speaker 13: that would you know, be damaged obviously if if the

811
00:42:04,800 --> 00:42:07,480
Speaker 13: if the powers turned off. But today they came out

812
00:42:07,520 --> 00:42:09,399
Speaker 13: with a statement saying that the first fire, the one

813
00:42:09,440 --> 00:42:12,600
Speaker 13: that occurred in the morning, had been contained and then

814
00:42:12,640 --> 00:42:16,359
Speaker 13: according to the Maui Department of Fire, it had been extinguished.

815
00:42:17,120 --> 00:42:19,160
Speaker 13: Then the second fire, which was the one that I

816
00:42:19,200 --> 00:42:21,719
Speaker 13: believe created most of the damage, didn't really start to

817
00:42:21,840 --> 00:42:25,160
Speaker 13: about six hours later, and they apparently, or a little

818
00:42:25,160 --> 00:42:27,439
Speaker 13: bit more than six hours they had de energized their lines,

819
00:42:27,480 --> 00:42:31,400
Speaker 13: presumably because of the first fire. So at the end

820
00:42:31,440 --> 00:42:34,600
Speaker 13: of the day, it really depends upon the findings that

821
00:42:34,719 --> 00:42:36,440
Speaker 13: come out of the next few weeks and months, what

822
00:42:36,480 --> 00:42:39,920
Speaker 13: the courts decide, uh, and then how that liability is

823
00:42:39,920 --> 00:42:40,640
Speaker 13: is apportioned.

824
00:42:40,880 --> 00:42:43,960
Speaker 1: All right, So just the Bloomberg reporting here, Hawaii utility source,

825
00:42:44,000 --> 00:42:47,440
Speaker 1: after pointing blame for the fire at the county Hawaiian

826
00:42:47,480 --> 00:42:51,760
Speaker 1: Electric says power lines de energized before the fire.

827
00:42:52,200 --> 00:42:54,920
Speaker 4: Yeah, And I guess the the interesting bit is there

828
00:42:55,000 --> 00:42:57,319
Speaker 4: there is that they're sort of drawing this line this

829
00:42:57,520 --> 00:43:00,879
Speaker 4: was not a continuation of the first fire, but rather

830
00:43:00,960 --> 00:43:01,759
Speaker 4: a second fire.

831
00:43:01,840 --> 00:43:05,040
Speaker 8: And of course, yeah, exactly exactly.

832
00:43:05,120 --> 00:43:07,560
Speaker 13: I think I think what they you know, what, what

833
00:43:07,719 --> 00:43:11,240
Speaker 13: the litigants, maybe not the county so much, but certainly

834
00:43:11,239 --> 00:43:13,920
Speaker 13: the litigants will will try to claim and try.

835
00:43:13,800 --> 00:43:16,120
Speaker 8: To prove is that the first the first fire.

836
00:43:16,160 --> 00:43:19,000
Speaker 13: Had not been extinguished and and had eventually led to

837
00:43:19,000 --> 00:43:22,600
Speaker 13: the second fire. If that's the case, then the question becomes, well,

838
00:43:22,800 --> 00:43:26,800
Speaker 13: is is Maui County, through the Department of Fire liable

839
00:43:26,920 --> 00:43:29,359
Speaker 13: at the end of the day, I you know, and

840
00:43:29,360 --> 00:43:31,480
Speaker 13: and in addition to all this, I think you sort

841
00:43:31,480 --> 00:43:33,080
Speaker 13: of have to kind of take a step back, you

842
00:43:34,000 --> 00:43:36,600
Speaker 13: so you know, what's going to affect the bonds uh,

843
00:43:36,640 --> 00:43:38,640
Speaker 13: and and the equity, which is you know, where where

844
00:43:38,680 --> 00:43:43,200
Speaker 13: we'd started this. The whole question depends upon how much

845
00:43:43,280 --> 00:43:47,200
Speaker 13: the liability is, how much h E is is determined

846
00:43:47,239 --> 00:43:50,520
Speaker 13: to be responsible for, how much of it will they share?

847
00:43:51,160 --> 00:43:51,399
Speaker 9: Uh?

848
00:43:51,440 --> 00:43:54,279
Speaker 13: And then once that's determined, will that be tax deductible

849
00:43:54,400 --> 00:43:57,880
Speaker 13: for the company, because that obviously reduces the overall.

850
00:43:57,520 --> 00:44:00,040
Speaker 8: Liability, And then where.

851
00:43:59,880 --> 00:44:03,600
Speaker 13: The the regulators will allow them to recover that liability

852
00:44:03,719 --> 00:44:07,000
Speaker 13: as well as the obviously the restoration costs that they

853
00:44:07,040 --> 00:44:10,760
Speaker 13: have to go through through rates. If they don't, that's

854
00:44:10,800 --> 00:44:13,400
Speaker 13: you know, obviously not good for the bonds and and

855
00:44:13,560 --> 00:44:14,840
Speaker 13: certainly not good for the equity.

856
00:44:15,480 --> 00:44:18,520
Speaker 1: So, Jamie, what has the company done to date to

857
00:44:18,600 --> 00:44:21,520
Speaker 1: maybe from a balance sheet perspective, to prepare for, you know,

858
00:44:21,560 --> 00:44:23,520
Speaker 1: maybe some some downside scenarios.

859
00:44:24,480 --> 00:44:26,799
Speaker 13: Well, so far they've they've you know, there's not much

860
00:44:26,800 --> 00:44:28,480
Speaker 13: they can do on the balance sheet side, but they.

861
00:44:28,320 --> 00:44:29,759
Speaker 8: Have tried to shore up their liquidity.

862
00:44:29,760 --> 00:44:32,960
Speaker 13: They drew down the two revolvers that they have, one

863
00:44:33,000 --> 00:44:35,440
Speaker 13: for one hundred and seventy million up at the parent

864
00:44:35,520 --> 00:44:37,799
Speaker 13: and then two hundred million down at the intermediate parent

865
00:44:37,880 --> 00:44:42,440
Speaker 13: Hawaiian Electric Company. So that plus any dividends that may

866
00:44:42,480 --> 00:44:45,840
Speaker 13: come up from American Savings Bank and any cash that

867
00:44:45,880 --> 00:44:49,680
Speaker 13: they have on hand, will hopefully take them through the

868
00:44:49,719 --> 00:44:51,840
Speaker 13: restoration period through to the end of the year so

869
00:44:51,960 --> 00:44:55,759
Speaker 13: that they can they can get their power up and

870
00:44:55,800 --> 00:44:58,440
Speaker 13: running to all the all the customers that don't have it.

871
00:44:58,480 --> 00:45:02,760
Speaker 4: At this point, I'm looking at bonds of Hawaiian Electric

872
00:45:03,520 --> 00:45:06,600
Speaker 4: Do in December twenty twenty eight. It looks like they're

873
00:45:06,600 --> 00:45:10,759
Speaker 4: training around eighty six cents on the dollar. How should

874
00:45:10,800 --> 00:45:16,319
Speaker 4: we interpret that, jaymen? How dire are things for the

875
00:45:16,360 --> 00:45:19,720
Speaker 4: company with respect to its credit worthiness?

876
00:45:20,440 --> 00:45:22,680
Speaker 13: So you have to sort of differentiate between the bonds

877
00:45:22,760 --> 00:45:25,280
Speaker 13: up at the parent level and then the intermediate holding

878
00:45:25,280 --> 00:45:28,319
Speaker 13: company and down at the utilities the parent level bonds have,

879
00:45:28,840 --> 00:45:31,480
Speaker 13: you know, and this is sort of what differentiates Hawaiian

880
00:45:31,480 --> 00:45:33,759
Speaker 13: Electric from PG and E pgn E had just the

881
00:45:33,840 --> 00:45:38,640
Speaker 13: electric utility as its only subsidiary. Hawaiian Electric has American

882
00:45:38,680 --> 00:45:41,800
Speaker 13: Savings Bank as a separate subsidiary through which they can

883
00:45:42,320 --> 00:45:46,200
Speaker 13: upstream dividends in the normal course of business to continue

884
00:45:46,200 --> 00:45:50,080
Speaker 13: to service their debt. Down at the utility level, you

885
00:45:50,120 --> 00:45:53,160
Speaker 13: don't have that. Everything is purely dependent upon the earnings

886
00:45:53,160 --> 00:45:55,920
Speaker 13: at the utility in terms of the ability to service debt.

887
00:45:56,160 --> 00:45:58,400
Speaker 13: But I think you know, we haven't seen the bonds

888
00:45:58,480 --> 00:46:01,040
Speaker 13: move as much today as certainly not as much as

889
00:46:01,080 --> 00:46:04,160
Speaker 13: the share prices. I think you know two reasons for that.

890
00:46:04,239 --> 00:46:07,480
Speaker 13: One is the liquidity most of these bonds are privately placed,

891
00:46:08,440 --> 00:46:10,839
Speaker 13: don't trade as much as you would expect. But two

892
00:46:11,000 --> 00:46:13,200
Speaker 13: also the junk ratings on the bonds, right, and the

893
00:46:13,239 --> 00:46:15,640
Speaker 13: bonds are going to trade in line with their ratings

894
00:46:16,160 --> 00:46:18,280
Speaker 13: until there is a change those ratings.

895
00:46:18,239 --> 00:46:18,680
Speaker 5: So Jim.

896
00:46:18,719 --> 00:46:21,759
Speaker 1: And for these utilities, whether it's you know, you know

897
00:46:21,800 --> 00:46:24,080
Speaker 1: the at in California that we saw several years ago

898
00:46:24,160 --> 00:46:26,560
Speaker 1: or here in Hawaii, there's just a ton of risk

899
00:46:26,640 --> 00:46:29,680
Speaker 1: that these utilities have in a world of climate change

900
00:46:29,800 --> 00:46:33,080
Speaker 1: and more and more fires, some of which are caused

901
00:46:33,080 --> 00:46:36,080
Speaker 1: by utility lines. Is there any way for them to

902
00:46:36,239 --> 00:46:39,120
Speaker 1: ensure against that? Or if you're a creditor or you're

903
00:46:39,120 --> 00:46:42,960
Speaker 1: a shareholder. You just have to assume this growing risk

904
00:46:43,040 --> 00:46:44,760
Speaker 1: going forward.

905
00:46:45,080 --> 00:46:45,400
Speaker 8: Yeah.

906
00:46:45,440 --> 00:46:48,400
Speaker 13: So, I you know, most of the transmission assets that

907
00:46:48,440 --> 00:46:50,200
Speaker 13: are owned by utilities, and those are the ones that

908
00:46:50,239 --> 00:46:52,480
Speaker 13: are you know, generally the most susceptible, whether it's to

909
00:46:52,600 --> 00:46:56,640
Speaker 13: hurricanes or to wildfires, are generally not in short, and

910
00:46:57,120 --> 00:47:01,040
Speaker 13: the understanding there is that if they are damaged, regulators

911
00:47:01,040 --> 00:47:06,440
Speaker 13: will allow the utility to recover through increased rates, recovery

912
00:47:06,480 --> 00:47:09,319
Speaker 13: of those assets, and to rebuild those assets. Certainly, that's

913
00:47:09,320 --> 00:47:12,359
Speaker 13: what we saw with Entergen New Orleans when when Katrina hit.

914
00:47:12,560 --> 00:47:15,120
Speaker 13: That's what we saw with CNP and and FP and

915
00:47:15,239 --> 00:47:21,520
Speaker 13: L when when both those were hit by hurricanes. You know,

916
00:47:21,560 --> 00:47:23,759
Speaker 13: it remains to be seen what's gonna happen over here.

917
00:47:23,800 --> 00:47:26,800
Speaker 8: At PG and E there wasn't the full recovery.

918
00:47:26,640 --> 00:47:29,080
Speaker 13: Because PGNU was found to be liable to to the

919
00:47:29,120 --> 00:47:33,640
Speaker 13: significant extent. So I think I think utilities are not

920
00:47:33,760 --> 00:47:38,480
Speaker 13: those boring UH investments that that they have traditionally been,

921
00:47:39,280 --> 00:47:43,520
Speaker 13: you know, sort of buying and and put away. I

922
00:47:43,520 --> 00:47:47,200
Speaker 13: think you've got more risk perhaps at at at individual

923
00:47:47,320 --> 00:47:49,759
Speaker 13: utilities then at the holding company to the extent that

924
00:47:49,800 --> 00:47:53,040
Speaker 13: the holding company owns more than one utility. Diversification is

925
00:47:53,040 --> 00:47:55,239
Speaker 13: probably the way to go. You have a utility that's

926
00:47:55,239 --> 00:47:59,960
Speaker 13: operating in one jurisdiction, uh and in in different geographic

927
00:48:01,040 --> 00:48:05,640
Speaker 13: localities as opposed to another. So when you've got multiple utilities,

928
00:48:05,640 --> 00:48:08,440
Speaker 13: you've got a little bit of diversification that helps to

929
00:48:08,480 --> 00:48:12,040
Speaker 13: prevent a hit up at the parent level and for

930
00:48:12,120 --> 00:48:12,600
Speaker 13: the equity.

931
00:48:13,800 --> 00:48:16,680
Speaker 4: Yeah, that's interesting. And is PG and E is that

932
00:48:16,760 --> 00:48:20,600
Speaker 4: the sort of situation that we really should see as

933
00:48:20,680 --> 00:48:23,320
Speaker 4: indicative of how this might play out? Or do you

934
00:48:23,360 --> 00:48:25,840
Speaker 4: think we could see some sort of answer as to

935
00:48:25,880 --> 00:48:29,480
Speaker 4: who's liable, et cetera more quickly. And I'm sorry we

936
00:48:29,480 --> 00:48:30,839
Speaker 4: have only about twenty seconds here.

937
00:48:32,200 --> 00:48:37,160
Speaker 13: So in terms of your question, is are we wondering

938
00:48:37,200 --> 00:48:40,239
Speaker 13: how this is going to play out in relative to

939
00:48:40,320 --> 00:48:42,760
Speaker 13: PG and E. So PG and E's you know, obviously

940
00:48:43,440 --> 00:48:48,279
Speaker 13: you had a much bigger utility. The advantage that PG

941
00:48:48,400 --> 00:48:51,319
Speaker 13: and E had as it came out of bankruptcy was

942
00:48:51,520 --> 00:48:56,800
Speaker 13: it shared California primarily with two other solid utilities, investment

943
00:48:56,840 --> 00:48:59,239
Speaker 13: grade utilities. So California was able to set up this

944
00:48:59,280 --> 00:49:02,520
Speaker 13: wildfire farm twenty billion dollars plus, which all of the

945
00:49:02,640 --> 00:49:05,920
Speaker 13: utilities have had to contribute into, and will continue to

946
00:49:05,920 --> 00:49:08,520
Speaker 13: contribute into, and will be at least partially be able

947
00:49:08,520 --> 00:49:12,000
Speaker 13: to recover through rates. That's sort of I don't want

948
00:49:12,000 --> 00:49:14,799
Speaker 13: to use the word subsidizes, but maybe that is the

949
00:49:14,840 --> 00:49:17,960
Speaker 13: one that comes first to mind, subsidized PG and e's

950
00:49:18,000 --> 00:49:20,960
Speaker 13: liabilities with the other two.

951
00:49:21,120 --> 00:49:23,120
Speaker 8: But of course it works all ways.

952
00:49:22,960 --> 00:49:25,040
Speaker 5: Right yep, all right, Jamie, thanks so much for joining us.

953
00:49:25,040 --> 00:49:27,880
Speaker 1: We really appreciate you getting some of your analysis here today,

954
00:49:27,880 --> 00:49:31,399
Speaker 1: big news for Hawaiian Electric jam and Pateel, senior fixed

955
00:49:31,440 --> 00:49:36,400
Speaker 1: income strategists for Bloomberg Intelligence, joining us from Bloomberg Princeton Campus.

956
00:49:38,480 --> 00:49:41,600
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can

957
00:49:41,600 --> 00:49:45,400
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

958
00:49:45,480 --> 00:49:49,200
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

959
00:49:49,400 --> 00:49:51,319
Speaker 2: at Matt Miller nineteen seventy three.

960
00:49:51,800 --> 00:49:54,160
Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.

961
00:49:54,280 --> 00:49:56,920
Speaker 1: Before the podcast, you can always catch us worldwide at

962
00:49:56,960 --> 00:49:58,680
Speaker 1: Bloomberg Radio