WEBVTT - Fed Alarms at SVB Began More Than Year Ago 0:00:01.280 --> 0:00:05.640 This is Bloomberg Business Week inside from the reporters and 0:00:05.840 --> 0:00:09.400 editors who bring you America's most trusted business magazine, plus 0:00:09.480 --> 0:00:13.640 global business, finance and tech news. The Bloomberg Business Week 0:00:13.680 --> 0:00:18.600 Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio. 0:00:19.640 --> 0:00:23.520 All Right, yeah, you know, hey, we're living in funny times, 0:00:23.520 --> 0:00:26.800 interesting times. Bank runs Yep, they have happened last week, 0:00:27.440 --> 0:00:29.360 and this is what we're trying to figure out. How 0:00:29.440 --> 0:00:32.680 far there? How much further does some of the bank 0:00:32.760 --> 0:00:35.279 stress go right now? And I think there's a lot 0:00:35.320 --> 0:00:37.120 of questions out there. We know at least four banks 0:00:37.120 --> 0:00:39.279 have curbs on trades with Credit Suite. We got this 0:00:39.400 --> 0:00:43.080 from Reuter's First Republicans Bank, that thirty billion cash injection 0:00:43.600 --> 0:00:46.280 not calming down investors. And then you've got a most 0:00:46.280 --> 0:00:49.920 read and Bloomberg exclusive story right now on the alarms 0:00:49.920 --> 0:00:52.440 at the San Francisco FED that went off months ago. 0:00:52.479 --> 0:00:55.080 When it comes to Silicon Valley Bank, you know from 0:00:55.520 --> 0:00:59.680 this morning that SVB Financial did file Chapter eleven bankruptcy 0:00:59.680 --> 0:01:03.960 in year. So let's get an update and where we 0:01:04.040 --> 0:01:06.200 are and how we got here, because it's all important. 0:01:06.360 --> 0:01:08.479 Joining us right now is Bloomberg News finance reporter hand 0:01:08.520 --> 0:01:10.640 to eleven along with Herman chand he's senior Alice for 0:01:10.720 --> 0:01:15.800 US regional banks with our Bloomberg Intelligence team. So investors 0:01:15.840 --> 0:01:19.520 continue to sell bank stocks, including First Republic. And I'd 0:01:19.560 --> 0:01:21.959 want to start with you, where are we what's the 0:01:22.000 --> 0:01:24.000 assessment of kind of where we are in the banking 0:01:24.040 --> 0:01:27.800 sector right now? Yeah, Well that's the that's the question 0:01:27.880 --> 0:01:30.240 that investors are trying to figure out themselves, right Are 0:01:30.280 --> 0:01:33.960 these banks that we've seen, you know, having issues and 0:01:34.040 --> 0:01:37.560 the ones that were seized by regulators? Are those the 0:01:37.640 --> 0:01:40.440 problem ers at a warning sign of just you know, 0:01:40.520 --> 0:01:42.160 more to come. And that's the question. I mean, we've 0:01:42.200 --> 0:01:44.880 seen these just massive stock moves over the past couple 0:01:44.880 --> 0:01:48.680 of days that really speak to you know, investors kind 0:01:48.720 --> 0:01:52.640 of trying to figure that out themselves. In Herman, we 0:01:52.760 --> 0:01:56.360 are seeing shares of First Republic down a lot again 0:01:56.440 --> 0:01:59.320 today even after yesterday, with what happened with these big 0:01:59.320 --> 0:02:01.560 institutions coming in to try to rescue it. And you 0:02:01.600 --> 0:02:04.240 have a no doubt to day specifically about First Republic. 0:02:04.480 --> 0:02:09.360 Why hasn't that thirty billion dollars rescue basically quelled investors fears? 0:02:09.440 --> 0:02:12.960 Right now? Sure, that's right, there's a couple of issues 0:02:13.080 --> 0:02:18.040 with both the thirty billion dollars deposit. It's only for 0:02:18.080 --> 0:02:22.520 one hundred twenty days, so it's shortly viewed as a 0:02:22.560 --> 0:02:26.400 short term bridge to a long term solution. And what 0:02:26.400 --> 0:02:30.280 that solution is it remains to be seen. But I 0:02:30.320 --> 0:02:33.960 can tell you that First Republics update after the market 0:02:34.000 --> 0:02:39.000 closed yesterday was frankly a bit eye opening because in 0:02:39.040 --> 0:02:41.800 particular that they noted that they had borrowed up to 0:02:41.840 --> 0:02:44.440 one hundred and nine billion dollars from the Federal Reserve, 0:02:44.840 --> 0:02:48.000 and you compare that to only the thirty billion that's 0:02:48.040 --> 0:02:52.799 coming in from JP Morgan, Bank of America and others 0:02:53.160 --> 0:02:57.480 in the largest US banks, it just shows that there's 0:02:57.560 --> 0:03:00.240 a lot of the positive outflow that they still need 0:03:00.280 --> 0:03:02.560 the stem or they need to find some sort of 0:03:02.600 --> 0:03:10.400 strategic resolution that could appease regulators and really put the 0:03:10.680 --> 0:03:15.400 safety of their depositors and their customers eddies. Yeah, banks 0:03:15.400 --> 0:03:17.959 not apples to apples. First Republic is certainly one thing 0:03:18.240 --> 0:03:21.240 Silicon Valley Bank, you know, Hannah, it's amazing. It was 0:03:21.280 --> 0:03:24.760 what one we could ago yesterday that the shares of 0:03:24.840 --> 0:03:29.080 Silicon Valleys Holding Company, if you will just plummeted. They 0:03:29.080 --> 0:03:33.120 came tumbling down. You and the team a Bloomberg exclusive 0:03:33.160 --> 0:03:36.960 about what FED bank regulators, San Francisco Fed regulators new 0:03:37.040 --> 0:03:40.680 months ago tell us about it. Yeah, what a crazy 0:03:40.680 --> 0:03:45.280 week it's spent. Right, So, Silicon Valley Bank, it's supervision 0:03:45.360 --> 0:03:48.120 within the Federal Reserve system was done through the San 0:03:48.120 --> 0:03:51.960 Francisco FED branch, and that FED branch has a program 0:03:52.000 --> 0:03:55.000 for supervising what it calls community in regional banks, the 0:03:55.080 --> 0:03:58.520 smaller banks, and then one for the large banks. And 0:03:59.320 --> 0:04:02.360 the large thing supervisors are typically you know, the more 0:04:02.520 --> 0:04:04.600 the more senior team there. They're dealing with the bigger, 0:04:04.640 --> 0:04:08.280 mark complex banks. So remember Silicon Valley five years ago 0:04:08.400 --> 0:04:11.960 was just a fraction of the size that it ultimately was. 0:04:12.280 --> 0:04:14.920 Um you know at the time of its failure last week, Yeah, 0:04:14.920 --> 0:04:19.480 it really is. It really ballooned. Yeah, So it ballooned 0:04:19.480 --> 0:04:21.920 in size over the past couple of years. To start 0:04:22.200 --> 0:04:25.720 UM twenty twenty two, the bank was moved from the 0:04:25.800 --> 0:04:29.120 smaller of the community regional bank supervision group to the 0:04:29.240 --> 0:04:33.400 larger one. And you know, as that transition happened, those 0:04:33.440 --> 0:04:38.520 more senior examiners started firing off a series of warnings. 0:04:38.800 --> 0:04:41.600 These are confidential warnings that are part of the regulatory process, 0:04:41.640 --> 0:04:44.240 and they can you know, set up for for more 0:04:44.640 --> 0:04:47.280 um serious and public things like consent orders which we've 0:04:47.320 --> 0:04:49.839 seen you know those and complic consequences like even in 0:04:49.880 --> 0:04:52.800 the most extreme case cappin growth. UM. But so these 0:04:52.839 --> 0:04:54.839 these so called MRIs and MRIs are kind of the 0:04:54.880 --> 0:04:59.159 first step in that process. UM. And the FED that 0:04:59.160 --> 0:05:01.560 that new more seam your team fired off warnings about 0:05:02.279 --> 0:05:06.560 operations in technology and then also late last year flagged 0:05:07.120 --> 0:05:11.800 interest rate risks, which is ultimately, you know, the massive 0:05:11.880 --> 0:05:15.599 problem that contributed very heavily to the bank failure that 0:05:15.640 --> 0:05:17.800 we saw last week. Well, and I want to come 0:05:17.839 --> 0:05:19.760 on in on this because the interest rate risk is 0:05:19.800 --> 0:05:21.679 something that we're all trying to figure out. It feels 0:05:21.720 --> 0:05:24.800 like a lot of banks have this exposure potentially, well 0:05:24.839 --> 0:05:28.200 as Frickie was a big outlier because you had mentioned 0:05:28.240 --> 0:05:31.839 they had grown and ballooned their balance sheet, and that 0:05:31.960 --> 0:05:37.880 ballooning happened largely within their deposit franchise, and so they 0:05:37.920 --> 0:05:41.120 didn't have enough lending opportunities to absorb all those deposits, 0:05:41.160 --> 0:05:44.360 so they parked all this cash from the deposits into 0:05:44.440 --> 0:05:48.160 the securities portfolio when rates were really low. So as 0:05:48.279 --> 0:05:51.960 rates roves, the value of those securities decline, and ultimately 0:05:51.960 --> 0:05:54.680 they were sitting on a fifteen billion dollar loss paper 0:05:54.720 --> 0:06:00.479 loss position, which was really the reason why a lot 0:06:00.520 --> 0:06:04.760 of the investment community lost confidence with the bank after 0:06:04.800 --> 0:06:07.160 the announcement that they were going to raise capital and 0:06:07.440 --> 0:06:11.760 sell some of these securities. As First Republic others same exposure, 0:06:11.960 --> 0:06:16.200 not too much. So SPB was an at wire with 0:06:16.320 --> 0:06:20.120 the size of their portfolio. Signature was a bit of 0:06:20.160 --> 0:06:23.240 a different breed because they had crypto exposure and there 0:06:23.080 --> 0:06:27.200 was there was they were running down those crypto related 0:06:27.240 --> 0:06:30.960 deposits and got sucked into the vortex of the SVB fallout. 0:06:32.480 --> 0:06:36.200 First Republic doesn't have that same sort of issue. It's 0:06:36.279 --> 0:06:41.200 more the issue with First Republic was Signature and SVB 0:06:41.400 --> 0:06:45.559 is that they all have very chunky deposits. So when 0:06:45.920 --> 0:06:49.760 you have a large commercial or highnet worth relationship exit, 0:06:50.440 --> 0:06:53.720 that has a big effect on your ultimate deposit balances. 0:06:53.800 --> 0:06:56.640 So if you have a lot of those chunky deposit 0:06:56.720 --> 0:06:58.640 sleeves and that that does create a hole in your 0:06:58.640 --> 0:07:00.560 balance shot kind of So I want you to come 0:07:00.560 --> 0:07:02.800 back in here. So as we start, as you guys 0:07:02.839 --> 0:07:06.599 reported out and you're exclusive, you know what, officials certainly 0:07:06.640 --> 0:07:09.000 there were things on their radar. I mean, how are 0:07:09.000 --> 0:07:12.360 you thinking about, you know, what's the follow through or 0:07:12.400 --> 0:07:15.920 what's the next especially as this comes out there. I 0:07:15.920 --> 0:07:18.000 guess my point is regulators were where that there was 0:07:18.000 --> 0:07:21.800 stuff going on. So was it that the systems weren't 0:07:21.800 --> 0:07:25.880 in place, people weren't listening? Where did it break down? Yeah, 0:07:25.880 --> 0:07:28.560 So that's a fantastic question and definitely something that will 0:07:28.560 --> 0:07:32.520 be learning more about in the coming weeks. The FET 0:07:32.560 --> 0:07:36.320 itself has promised to investigate its own supervision of Silicon 0:07:36.400 --> 0:07:39.720 Valley Bank and publish the results by May first, so 0:07:39.920 --> 0:07:42.680 I will be very excited to read that one it 0:07:42.800 --> 0:07:45.960 hits report on. In the meantime, Carol and I were 0:07:46.000 --> 0:07:48.560 actually just talking about as far as going into this weekend, 0:07:48.640 --> 0:07:51.480 just thinking about what transpired last weekend. Where are we 0:07:51.560 --> 0:07:53.800 at heading into the weekend, Herman, as far as should 0:07:53.800 --> 0:07:57.920 we be prepared for potentially other headlines to come through. Well, 0:07:58.120 --> 0:08:01.520 I'll be on my Bloomberg term at seven o'clock on 0:08:01.560 --> 0:08:04.640 Sunday just waiting for something to pop up. So I'm 0:08:04.680 --> 0:08:07.280 anticipating something. I don't know if we should expect it, 0:08:07.320 --> 0:08:10.680 but we just should be vigilant in terms of something 0:08:10.760 --> 0:08:13.520 coming out of First Republic or from the regulators. So 0:08:13.640 --> 0:08:16.280 that's something to watch well. And what's interesting, you know, Hannah, 0:08:16.280 --> 0:08:17.800 just to bring you back in here, I mean, I'm 0:08:17.800 --> 0:08:20.120 looking at your story. I mean, the San Francisco FED 0:08:20.520 --> 0:08:25.400 had this program right for overseeing regional institutions, so they 0:08:25.400 --> 0:08:31.320 were on it. Yes, Um, that's true. But the large institutions, 0:08:31.320 --> 0:08:34.040 I mean we're talking like the you know, in the 0:08:34.080 --> 0:08:36.520 biggest example like Wells Fargo for example. So those are 0:08:36.600 --> 0:08:40.160 much larger, much more complex than some of the smaller banks, 0:08:40.440 --> 0:08:42.560 which is why the more the more senior people are 0:08:42.559 --> 0:08:44.560 the ones in the in the large fing gerups. So definitely, 0:08:44.920 --> 0:08:47.959 you know, in my understanding of it from talking sources 0:08:48.000 --> 0:08:52.120 and whatnot and my own research, it was a different 0:08:52.559 --> 0:08:57.240 level of scrutiny once Cilicon Valleybank moved into the new group, Okay, 0:08:57.280 --> 0:09:00.280 so that they were certainly getting looked at. And I 0:09:00.280 --> 0:09:02.760 would say, Silicon Valley, what's actually going to go through 0:09:02.920 --> 0:09:06.280 the annual stress test starting next year if they were around? 0:09:06.400 --> 0:09:09.760 So they just grew so fast that I think they're 0:09:09.800 --> 0:09:13.120 like Lakanna was saying that it took some time for 0:09:13.200 --> 0:09:16.840 the regulators to come together and realize what sort of 0:09:16.880 --> 0:09:19.840 institution SBB really was. I just feel like in some ways, 0:09:19.840 --> 0:09:21.360 and I feel like we've seen this movie before a 0:09:21.360 --> 0:09:24.120 little bit, and that things just are kind of moving 0:09:24.160 --> 0:09:27.080 so fast and regulators can't keep up. Herman Wade in 0:09:27.080 --> 0:09:29.240 on what he's watching out for. What are you watching 0:09:29.240 --> 0:09:32.520 out for us we go into a weekend. Yeah, you know, 0:09:32.600 --> 0:09:34.680 that's a great question. And I'll note it's only three 0:09:34.800 --> 0:09:38.360 sixteen pms, so a lot a lot could evolve between 0:09:38.400 --> 0:09:42.240 now and then. I mean, I'm watching all the things 0:09:42.280 --> 0:09:44.640 that we've talked about on this call. Um, you know, 0:09:44.679 --> 0:09:48.280 what happens with the other firms that people have been 0:09:48.320 --> 0:09:50.680 talking about, and whether there's any news on the front 0:09:50.679 --> 0:09:54.520 of what happens to I guess the corpses of Silicon 0:09:54.600 --> 0:09:57.360 Valley and Signature. Yeah, and let's not forget credit spieces 0:09:57.400 --> 0:10:00.080 holding weekend meetings, just as it's scenarios. Again, not all 0:10:00.120 --> 0:10:02.240 apples to apples, but it's just you kind of start 0:10:02.280 --> 0:10:04.199 to layer these things on top of each other. And 0:10:04.920 --> 0:10:07.559 this is why we are seeing stress, certainly within the 0:10:07.600 --> 0:10:10.320 banking sector and banking stocks in particular. Hey, guys, thank 0:10:10.320 --> 0:10:12.320 you so much different angles to the story, so we 0:10:12.360 --> 0:10:15.480 really appreciate you both weighing in. Hannah Levitt is financial 0:10:15.520 --> 0:10:17.839 porter at Bloomberg News and our interactive Nope, she was 0:10:17.880 --> 0:10:20.600 on the phone forgive me in our interactive broker studios. 0:10:20.640 --> 0:10:22.760 Herman Chan he has been a go to for us 0:10:23.120 --> 0:10:24.920 throughout the week and I know he will be next 0:10:24.920 --> 0:10:27.840 week as well. Senior analyst for regional banks in the 0:10:27.960 --> 0:10:32.280 United States at our Bloomberg Intelligence Team. Herman, thank you 0:10:32.320 --> 0:10:35.320 so much, really appreciate it. You're listening to the Bloomberg 0:10:35.360 --> 0:10:39.280 Business Week podcast. Catch us live weekday afternoons from three 0:10:39.280 --> 0:10:42.560 to six Eastern Listen on Bloomberg dot com, the Ion 0:10:42.679 --> 0:10:45.640 Radio app, and the Bloomberg Business app, or watch us 0:10:45.720 --> 0:10:51.200 live on YouTube. Well. Earlier this month, Octa reported earnings 0:10:51.200 --> 0:10:53.680 that sended stock storring some thirteen percent and gave an 0:10:53.720 --> 0:10:57.320 upbeat first quarter revenue forecast. Like many tech companies, though 0:10:57.640 --> 0:11:00.360 it is finding a focus on efficiency, it is paying 0:11:00.360 --> 0:11:02.320 off for the company. The stock by the way, up 0:11:02.360 --> 0:11:04.760 more than twenty percent year to date. So let's get 0:11:04.760 --> 0:11:08.240 to lots of questions for our next guest. Todd McKinnon 0:11:08.360 --> 0:11:10.640 is the CEO and founder of Octa. It's a fourteen 0:11:10.679 --> 0:11:15.439 year old software maker known for authentication services, count Sono, Assume, Hpe, 0:11:15.440 --> 0:11:17.800 and open Ai among its customers and lucky for us 0:11:18.040 --> 0:11:21.200 Todd's and our Blueberg Interactive broker studio. So nice to 0:11:21.240 --> 0:11:23.920 have you here. I do have a million questions that 0:11:24.000 --> 0:11:28.000 we're to cram into eight minutes. First of all, Silicon 0:11:28.080 --> 0:11:31.440 Valley Bank, tell us about the relationship you guys have 0:11:31.559 --> 0:11:35.080 had with them and how you see this situation. Silicon 0:11:35.160 --> 0:11:38.040 Dollars Bank is a key part of the tech ecosystem. 0:11:38.080 --> 0:11:40.360 It's for many companies ought to included. It was the 0:11:40.400 --> 0:11:42.720 first bank we had as a company. We raised our 0:11:42.760 --> 0:11:44.720 financing and we put it in there and started running 0:11:44.720 --> 0:11:47.719 the business. And over the years the relationship. Would you 0:11:47.720 --> 0:11:49.720 put more than two hundred and fifty thousand dollars on deposit? 0:11:49.880 --> 0:11:51.720 For sure? I mean our first our first seed round 0:11:51.760 --> 0:11:53.439 was a million dollars and the next round was ten 0:11:53.440 --> 0:11:55.800 million dollars and it went in all yeah in Silicon 0:11:55.920 --> 0:11:58.800 Valley Bank. Sorry yeah. And so over the years what 0:11:58.840 --> 0:12:01.239 happens is you grow and you in the big diversification 0:12:01.280 --> 0:12:02.920 point I think for a lot of companies is when 0:12:02.960 --> 0:12:05.440 they go international it's really you have to have a 0:12:05.440 --> 0:12:08.320 big diverse set of banking partners to pay internationally, to 0:12:08.360 --> 0:12:11.600 accept payments internationally. So that was the point of diversification. 0:12:11.679 --> 0:12:14.040 But for a company that's early in its life cycle, 0:12:14.120 --> 0:12:18.079 it's it was really a it's a serious issue for 0:12:18.120 --> 0:12:20.240 a company that has operationals. So a lifeline for you 0:12:20.240 --> 0:12:24.040 guys are crucial, right, Yeah, well we've evolved passing yeah 0:12:24.120 --> 0:12:25.640 in the early days, but once you get to a 0:12:25.640 --> 0:12:28.000 certain size and scale like we are, you're pretty diverse. 0:12:28.080 --> 0:12:30.080 But it did bring back memories if when we were 0:12:30.320 --> 0:12:33.000 Octa was founded in the right after the financial crisis 0:12:33.240 --> 0:12:35.560 fourteen years old, started in two thousand and nine, so 0:12:35.600 --> 0:12:38.160 it really brought back some memories of banks failing and 0:12:38.600 --> 0:12:40.720 you know, being that early stage of a company where 0:12:40.720 --> 0:12:42.880 you're trying to survive and trying to get product market fit. 0:12:42.920 --> 0:12:44.320 And the last thing you want to deal with as 0:12:44.360 --> 0:12:47.120 a small startup is you're something you trusted as being 0:12:47.600 --> 0:12:49.839 really something that could never go away, is to have 0:12:49.880 --> 0:12:51.439 a serious question about it. If it would be around 0:12:51.520 --> 0:12:53.560 Todd no Silicon Valley Bank, what does it mean then 0:12:53.600 --> 0:12:58.600 for entrepreneurs, like, what's what Todd McKinnon today do well? 0:12:58.720 --> 0:13:03.560 Entrepreneurs are by definition pretty adaptive and different. Todd McKinnon, Yeah, 0:13:03.640 --> 0:13:08.479 exactly exactly. They're pretty adaptive and they're good at navigating 0:13:08.559 --> 0:13:11.800 changes and uncertainty. If you wanted a stable, static environment, 0:13:11.800 --> 0:13:15.520 you'd never be an an entrepreneur. So I think other 0:13:15.640 --> 0:13:18.240 folks will step in to fill the wood, and I'm 0:13:18.320 --> 0:13:21.600 very optimistic in the opportunistic future of both the world 0:13:21.640 --> 0:13:24.640 in general and also Silicon Valley specifically. What are your 0:13:24.679 --> 0:13:28.080 overall thoughts of this collapse as it's been playing out. 0:13:28.440 --> 0:13:31.560 I just think it's fast. You know, I'm not I'm 0:13:31.640 --> 0:13:35.240 running a six thousand person, you know, five hundred million 0:13:35.240 --> 0:13:38.800 dollars plus a quarter enterprise software company. So the last 0:13:38.800 --> 0:13:42.960 thing I'm worried about is financial stability of the banking system. 0:13:42.960 --> 0:13:45.360 So you hear stories about it on Wednesday and on Thursday, 0:13:45.360 --> 0:13:47.480 all of your friends are talking about what they're going 0:13:47.559 --> 0:13:49.440 to do with their company finances and the treasury and 0:13:49.440 --> 0:13:52.120 are they moving money around. So it happened incredibly fast, 0:13:53.000 --> 0:13:55.400 and it's a little unsettling for I think every company's 0:13:55.400 --> 0:13:58.480 Do you think about your early days of a startup 0:13:58.480 --> 0:14:00.200 and what that means for other startups When you think 0:14:00.240 --> 0:14:04.319 about potential customers. You may have partners, how you're gonna 0:14:05.040 --> 0:14:08.480 We still use still Silicon Valley in parts of our business, 0:14:08.600 --> 0:14:11.760 relatively small parts now for us, Like I said, we're 0:14:11.840 --> 0:14:13.640 lucky enough to be able to diversify away and use 0:14:13.640 --> 0:14:16.600 our other banking partners. So it takes work by the team, 0:14:16.600 --> 0:14:18.560 but we're able to power through it. Why did you 0:14:18.600 --> 0:14:22.520 decide to still have certain parts work with SPB. It's 0:14:22.520 --> 0:14:25.280 just part of it's just a history of having that relationship. 0:14:26.160 --> 0:14:29.120 You integrate things, you wire up payment sites, and you 0:14:29.760 --> 0:14:33.120 have payroll relationships, and it just keeps going and going 0:14:33.120 --> 0:14:35.800 and going. I guess what gives you confidence. Are there 0:14:35.800 --> 0:14:38.600 particular segments, like what exposure is it to there that 0:14:38.640 --> 0:14:41.200 you think it's a bit more shielded and wouldn't be 0:14:41.600 --> 0:14:43.560 happening like these other people that had to go through 0:14:43.600 --> 0:14:46.600 these kind of deposit type nightmares. Well, I think it 0:14:46.680 --> 0:14:50.120 depends on the company, and I think to draw two 0:14:50.200 --> 0:14:53.320 broad categories. There's one companies that are single threaded with 0:14:53.360 --> 0:14:55.880 one banking partner, right, and there's companies that are big 0:14:56.000 --> 0:14:58.320 enough and diverse enough to have mini banking partners. And 0:14:58.360 --> 0:15:00.560 so I think it's really this is real an impact 0:15:00.560 --> 0:15:03.560 for the first category, which is small companies really just 0:15:03.600 --> 0:15:07.800 trying to find product market fit and aren't diversified in 0:15:07.840 --> 0:15:10.160 what they So I want to talk all right, So 0:15:10.360 --> 0:15:12.720 you put reported earnings before all of this started to happen, 0:15:13.080 --> 0:15:16.160 so investors liked what they heard. They set the stock soaring. 0:15:16.520 --> 0:15:18.040 Tell us a little bit about what you're seeing in 0:15:18.120 --> 0:15:20.240 terms of the business environment. You know, you have customers 0:15:20.240 --> 0:15:22.680 that we all know, we know the names. What does 0:15:22.720 --> 0:15:26.800 it feel like right now out there? It's what we 0:15:26.920 --> 0:15:30.400 do is very important for a lot of different areas 0:15:30.440 --> 0:15:32.520 of a company and initiatives that a company that a 0:15:32.520 --> 0:15:35.560 company is working on. And we're lucky enough to be 0:15:35.680 --> 0:15:39.520 not only mission critical for our customers, but also mission 0:15:39.520 --> 0:15:42.920 critical any economic environment. So simple example is if you're 0:15:43.440 --> 0:15:46.480 part of our portfolio workforce. Identity helps companies adopt new 0:15:46.480 --> 0:15:51.160 technology and make their workforce more efficient and give them 0:15:51.200 --> 0:15:54.800 the best tools and give them flexible, be flexible with 0:15:54.840 --> 0:15:58.240 different working environments. So in an economic time of uncertainty 0:15:58.320 --> 0:16:00.800 or macro conditions are not clear, or what's happening with 0:16:00.840 --> 0:16:03.600 the banking system, you want flexibility and you want efficiency, 0:16:03.600 --> 0:16:05.360 and you can do that with a good identity system. 0:16:06.000 --> 0:16:08.320 You can do that with access to the best technologies 0:16:08.400 --> 0:16:11.000 is which what identity does, and that's just part of 0:16:11.000 --> 0:16:13.480 our business. Another big part of our business is customer identity, 0:16:13.520 --> 0:16:17.200 so helping we're lucky enough to work with open ai 0:16:17.320 --> 0:16:19.280 to be the identity to be the log in for 0:16:19.360 --> 0:16:23.320 chat GBT. So no matter what's happening, no matter what 0:16:23.400 --> 0:16:26.080 there are in terms of economic concerns, the march of 0:16:26.160 --> 0:16:29.160 technology goes on and there's innovation. There's amazing breakthroughs like 0:16:29.240 --> 0:16:32.920 chat GBT, and so that's driving part of our business 0:16:32.920 --> 0:16:36.560 and that specific example. So we're broadly diversified across different 0:16:36.560 --> 0:16:38.880 types of businesses. Is that half and half that split, 0:16:39.120 --> 0:16:42.080 it's the split in our two businesses between workforce identity 0:16:42.080 --> 0:16:45.440 and customer identity right now is sixty forty sixty percent 0:16:45.480 --> 0:16:48.200 of the revenue is from workforce. But we think over 0:16:48.280 --> 0:16:51.360 time we're building this broad company that can address all 0:16:51.400 --> 0:16:53.400 of these identity use cases. We want to move that 0:16:53.440 --> 0:16:56.480 toward fifty fifty and have both of them be growing quickly. 0:16:56.520 --> 0:16:58.320 I'd say in general, I mean, I just think about 0:16:58.320 --> 0:17:00.479 what it takes every day to get into our systems 0:17:00.560 --> 0:17:02.760 and just increasingly I'm okay with it. I don't care 0:17:02.800 --> 0:17:04.920 how many layers, whether it's in getting into my own 0:17:04.960 --> 0:17:07.919 bank on my phone like bring it on. So I 0:17:07.960 --> 0:17:10.200 do feel like you're in kind of this sweet spot. 0:17:10.400 --> 0:17:13.480 In terms of a business, you mentioned chat GPT. What 0:17:13.720 --> 0:17:16.679 has changed in the dynamics of that side of the 0:17:16.760 --> 0:17:21.600 business since that Microsoft ten billion dollar investment in open Ai. Well, 0:17:22.359 --> 0:17:25.280 for our business customer identity, it's, like I mentioned, it's 0:17:25.280 --> 0:17:28.000 forty percent of our revenue. And the key thing to 0:17:28.280 --> 0:17:31.159 remember about this business is it's it's kind of a 0:17:31.200 --> 0:17:35.160 new market workforce identity. There's been traditional players you've you've 0:17:35.200 --> 0:17:38.399 purchased your identity technology from maybe in the past, from 0:17:38.440 --> 0:17:41.840 an IBM or an Oracle or companies like that, and 0:17:41.920 --> 0:17:45.040 so we are the cloud version or the modern architecture, 0:17:45.080 --> 0:17:48.600 the flexible modern architecture for that. On the customer identity side, 0:17:48.760 --> 0:17:50.720 it's more of a new market. It's this world where 0:17:51.640 --> 0:17:54.600 developers are innovating, they're building all these new solutions. Chat 0:17:54.760 --> 0:17:57.400 GPT is one example, but this is happening in every industry, 0:17:57.600 --> 0:18:02.240 the media industry, the financial services industry, the every industry 0:18:02.280 --> 0:18:05.680 technology of course, manufacturing. They're trying to retail, they're trying 0:18:05.720 --> 0:18:08.600 to get more closer to the customer, and to do that, 0:18:08.640 --> 0:18:10.760 they have to build websites and build mobile apps and 0:18:10.920 --> 0:18:14.600 deliver a better customer experience. And inevitably they have to 0:18:14.640 --> 0:18:16.280 provide a log in to a user, and they have 0:18:16.320 --> 0:18:18.240 to make sure that they make it easy for the 0:18:18.320 --> 0:18:20.119 user to log in and then make it easy for 0:18:20.160 --> 0:18:24.240 the customer to map that customer, to map that user 0:18:24.280 --> 0:18:27.800 to different backend systems and market to them and progress 0:18:27.880 --> 0:18:31.920 that relationship and track data an additional way for track 0:18:32.000 --> 0:18:35.240 data for sure, for for depending on what the business is, 0:18:35.680 --> 0:18:37.399 you know, it varies, but they want to have a 0:18:37.400 --> 0:18:40.119 great customer relationship and that's a really an identity problem. 0:18:40.440 --> 0:18:43.880 And so that's done by a developer, and our business 0:18:44.000 --> 0:18:46.360 in the merging customer at any segment is really good 0:18:46.359 --> 0:18:49.080 for developers. It's super easy to use. The open air 0:18:49.200 --> 0:18:51.359 example is a good one because two years ago when 0:18:51.359 --> 0:18:54.040 they started using our products, the reason they did is 0:18:54.040 --> 0:18:56.520 because it's really easy for that developer to use. They 0:18:56.520 --> 0:18:58.760 didn't know it was going to become chat GBT. But 0:18:58.880 --> 0:19:01.480 by having a great developer experience and getting in there early, 0:19:01.880 --> 0:19:04.520 you can provide value in the early days and then 0:19:04.560 --> 0:19:06.440 as it grows in scales. All Right, got to ask 0:19:06.480 --> 0:19:09.880 you glass half full, glass half empty right now, real 0:19:09.960 --> 0:19:13.680 quickly in terms of the outlook, I am a glass 0:19:13.760 --> 0:19:16.240 half full guy. Is it just because you are? Because 0:19:16.280 --> 0:19:18.359 you feel confident about the data points that are coming 0:19:18.400 --> 0:19:22.720 down in the news. I think there's a lot. I mean, 0:19:22.760 --> 0:19:25.240 I think in times of turbulence and times of change, 0:19:25.600 --> 0:19:29.000 the companies that can provide stability to the employees, to 0:19:29.040 --> 0:19:33.359 their customers and provide a path through things to a 0:19:33.400 --> 0:19:35.399 better a better tomorrow are the ones that are going 0:19:35.440 --> 0:19:37.159 to thrive. So that's what we stay focused on. Well, 0:19:37.160 --> 0:19:40.000 I's thinking about, you know, Metta and Mark Zuckerberg, your efficiency, 0:19:40.040 --> 0:19:42.800 It's making people in terms of where they spend, certainly companies. 0:19:42.840 --> 0:19:45.040 I really think about it a lot. This was so 0:19:45.119 --> 0:19:47.920 much fun. I'm so appreciated. Come back soon. Thanks for 0:19:47.960 --> 0:19:49.680 having me. It's great to be here. Todd McKinnon. He's 0:19:49.720 --> 0:19:52.439 co founder and chief executive officer of Octa, Joining us 0:19:52.480 --> 0:19:56.919 here in our Bloomberg Interactive Broker Studio. You're listening to 0:19:57.000 --> 0:20:01.119 the Bloomberg Business Week podcast. Catch us Long weekday afternoons 0:20:01.200 --> 0:20:04.600 from three to six Eastern on Bloomberg Radio, the Bloomberg 0:20:04.680 --> 0:20:07.800 Business app and YouTube. You can also listen live on 0:20:07.880 --> 0:20:11.280 Amazon Alexa from our flagship New York station, Just say 0:20:11.320 --> 0:20:17.480 Alexa playing Bloomberg eleven thirty. Gotta say, after a week 0:20:17.560 --> 0:20:20.760 like this one, it is nice to get a walk outside. 0:20:20.840 --> 0:20:22.600 Check out the sky as a blue. Yeah, they're a 0:20:22.600 --> 0:20:26.000 little bit hazy here in New York City, but I'm 0:20:26.000 --> 0:20:28.800 thinking about that well. I gotta say, earlier this week, 0:20:28.840 --> 0:20:30.480 we want to get a little bit of a check 0:20:30.520 --> 0:20:32.639 on the retail space, in consumer space. We did get 0:20:32.640 --> 0:20:34.560 a check on retail sales earlier this week. You might 0:20:34.600 --> 0:20:37.960 recall when we reported on US retail sales falling last 0:20:38.040 --> 0:20:41.400 month after surge in the prior month in January, suggesting 0:20:41.440 --> 0:20:44.119 consumer spending it's holding up. Yep, we got that, but 0:20:44.200 --> 0:20:47.240 it is getting challenged by continued high inflation, which is 0:20:47.280 --> 0:20:49.480 something we know the Fed will be addressing Jess next week. 0:20:49.680 --> 0:20:51.520 So our next guest has a great vantage point when 0:20:51.520 --> 0:20:54.359 it comes to consumers back with us. Ken Hicks, chairman, 0:20:54.400 --> 0:20:56.879 president and CEO of Academy Sports and Outdoors. The nearly 0:20:56.880 --> 0:21:00.159 five billion dollar market cap sporting goods company stock up 0:21:00.240 --> 0:21:02.639 roughly twenty percent so far here in twenty twenty three, 0:21:02.640 --> 0:21:06.000 and hit a record high yesterday following it's quarterly update, 0:21:06.280 --> 0:21:08.479