WEBVTT - The Vultures Are Circling Russian Debt 0:00:01.800 --> 0:00:04.440 This is Bloomberg Business Week. I'm Karl Masser and I'm 0:00:04.480 --> 0:00:07.280 Bloomberg Quick Takes Tim Stanovk. We're here every day bringing 0:00:07.320 --> 0:00:09.840 you the latest news from the world to business and finance, 0:00:09.840 --> 0:00:13.640 plus technology, politics, economics, all purtnising the power of Business 0:00:13.680 --> 0:00:17.160 Week reporters and editors, not to mention our journalists and 0:00:17.120 --> 0:00:20.000 analysts in more than one twenty countries. You can download 0:00:20.000 --> 0:00:23.479 Bloomberg Business Weekend iTunes, SoundCloud, or Bloomberg dot Com. You 0:00:23.480 --> 0:00:25.439 can also listen to our radio show at two pm 0:00:25.440 --> 0:00:28.400 Eastern Time on Bloomberg Radio, or watch us on YouTube 0:00:28.400 --> 0:00:32.600 search Bloomberg Global News. All right, gotta say this story 0:00:32.640 --> 0:00:35.240 caught my attention reading in this morning, especially as I 0:00:35.320 --> 0:00:39.640 keep trying to understand Russian President Vladimir Vladimir Putin's ultimate 0:00:39.680 --> 0:00:43.879 intentions and his rational rationalizations for the invasion in war 0:00:43.880 --> 0:00:46.440 with Ukraine. Most would argue there are no rationalizations for 0:00:46.479 --> 0:00:49.360 this um, but it leads us to this Bloomberg Opinion 0:00:49.400 --> 0:00:52.760 columnist by Leonide Borshitski, who writes about this today. Leonard 0:00:52.760 --> 0:00:55.120 Borshitski is a column this or Bloomberg Opinion. He joins 0:00:55.160 --> 0:00:58.280 us now on the phone from London. The opinion column 0:00:58.320 --> 0:01:01.000 available on the Bloomberg terminal and blue dot com. Putin's 0:01:01.040 --> 0:01:06.080 new alter ego is Igor Stralkov uh Igor Stralkov Leonard. 0:01:06.160 --> 0:01:10.119 It's also known as Igor Ghirkin, his name that he's 0:01:10.160 --> 0:01:16.000 known by his Stralkov though. Who is he Um? He's 0:01:16.959 --> 0:01:22.919 a Russian UM veteran of both the military and special services, 0:01:23.160 --> 0:01:27.000 and he's a historian by education, and he's got a 0:01:27.959 --> 0:01:32.000 UM a pretty long history as a volunteer and all 0:01:32.040 --> 0:01:36.920 sorts of local concerts from Yugoslavia to transm Austria. UM. 0:01:37.000 --> 0:01:41.400 He's a you know, a Russian US from nationalistm monarchist, 0:01:42.040 --> 0:01:46.240 and he Um basically single handed we started the war 0:01:46.319 --> 0:01:52.160 in eastern Ukraine and two thousand fourteen, according to both 0:01:52.240 --> 0:01:56.360 himself and many others who were you know, who covered 0:01:56.400 --> 0:02:02.840 those events, m he Um crossed the Russian Ukrainian border 0:02:03.440 --> 0:02:07.360 April from thousand fourteen with a tiny force of about 0:02:07.400 --> 0:02:12.000 fifty people and went on very quickly to become the 0:02:12.000 --> 0:02:17.160 defense minister the so called Dominic People's Republic, which is 0:02:17.200 --> 0:02:21.160 one of these unrecognized stateless in the east of Ukraine 0:02:21.400 --> 0:02:25.560 that Russia has backed and that Russia is basically waging 0:02:25.639 --> 0:02:30.079 this war extensively to defense. Lean, did we know you're 0:02:30.120 --> 0:02:32.200 at an event in London? So we really appreciate you 0:02:32.200 --> 0:02:33.919 squeezing in because I really feel like this is such 0:02:33.919 --> 0:02:37.440 an important column to bring to our Bloomberg audience. Why 0:02:37.560 --> 0:02:40.600 is it that you think it's important that we understand about, 0:02:40.639 --> 0:02:44.079 as you termed it, Putin's new alter ego? Is this guy? 0:02:44.160 --> 0:02:46.600 Why is it important that we understand about this guy? 0:02:46.600 --> 0:02:49.640 I mean, are they friends? And how does he ultimately 0:02:49.720 --> 0:02:53.080 potentially impact Vladimir Putin, whether in his thinking or in 0:02:53.120 --> 0:03:02.160 his actions? Um? Well, he UM still coost motivation UM 0:03:02.680 --> 0:03:06.720 always had to do with a sort of vision of 0:03:06.840 --> 0:03:11.240 an imperial Russia that has never really existed outside of 0:03:11.720 --> 0:03:18.720 UH certain nostalgic literature. UM. And this is the empire 0:03:18.840 --> 0:03:23.160 that uh he has always wanted to put into rebuild. 0:03:23.880 --> 0:03:27.760 And that's what by going into Ukraine into thousand fourteen, 0:03:27.840 --> 0:03:32.679 he tried to provoke Russia into doing into invading um 0:03:32.760 --> 0:03:37.760 all of Ukraine, and UH the nexting large parts of 0:03:37.960 --> 0:03:42.320 Ukraine that are Russian speaking. And so he had um 0:03:43.360 --> 0:03:48.120 sort of the ideological way, the ideological foundations of what 0:03:48.280 --> 0:03:55.240 Putting is actually doing. Eight years later, UM, he's uh 0:03:55.440 --> 0:04:00.440 sort of carrying out a plan that Croppo will back 0:04:00.520 --> 0:04:04.720 and fourteen, but that wasn't really accepted. Uh so was 0:04:04.760 --> 0:04:09.080 considered too much of a sort of a romantic French 0:04:09.280 --> 0:04:13.200 figure for the Kremlin. And the Kremlin was much more 0:04:13.240 --> 0:04:19.479 pragmatic back then, and once it's keep working relationship with 0:04:19.560 --> 0:04:25.839 the West, didn't want to subject itself to um, you know, 0:04:25.920 --> 0:04:30.400 to to hell Is sanctions, and so the men's deals 0:04:30.520 --> 0:04:34.680 were made in two thousands, fourteen months fifteen um. Now 0:04:34.760 --> 0:04:37.440 that it is all out the window and so Putton 0:04:37.520 --> 0:04:42.239 has basically gone all out so both Well, that's something 0:04:42.279 --> 0:04:45.120 that really stuck out to me from this column, Leonard. 0:04:45.240 --> 0:04:48.080 You wrote that the President Putin appears to be past 0:04:48.120 --> 0:04:51.440 caring about the open economy. He certainly cares little about 0:04:51.480 --> 0:04:54.760 the fortunes of the wealthiest Russians, those billionaires who have 0:04:54.839 --> 0:04:58.360 been sanctioned by the United States, the EU and the UK. 0:04:59.000 --> 0:05:03.039 This term though, empire or death. That really stuck out 0:05:03.040 --> 0:05:07.680 to me. What does that mean to Vladimir Putin? Well, 0:05:07.720 --> 0:05:11.200 that is it's it's really a new kind of behavior 0:05:11.360 --> 0:05:18.520 for him. He was always a cautious risk taker. Uh 0:05:18.560 --> 0:05:24.520 he never went far enough to to break off ties 0:05:25.200 --> 0:05:30.200 um with the with the West. Uh, and to completely 0:05:30.240 --> 0:05:33.479 cut off the Rustional League from the West and the 0:05:33.520 --> 0:05:37.760 rest of the Tienship as well. Um. It's you know, 0:05:38.160 --> 0:05:41.520 it was always seen as a kind of okay, a 0:05:41.640 --> 0:05:48.039 strong and maybe that someone with strong authoritarian tendences, maybe 0:05:48.080 --> 0:05:54.359 even a dictator, but uh, still a European ruler. You 0:05:54.440 --> 0:05:57.800 could compare him with someone like the Toorban and Hungary 0:05:58.040 --> 0:06:05.440 or the the Polish nationalists. Uh uh, but this is 0:06:05.480 --> 0:06:09.679 no longer true. Um. He has sort of crossed every 0:06:09.720 --> 0:06:16.360 read line. He doesn't care about. Um. You know what 0:06:16.600 --> 0:06:20.280 people think of him externally, and this is you know, 0:06:20.360 --> 0:06:26.119 this is Russia turning inward in one sense and expanding 0:06:26.160 --> 0:06:32.960 militarily in another. Uh, rebuilding the empire, thanking everything on 0:06:33.120 --> 0:06:37.279 this on this um um you know, the military advent 0:06:37.440 --> 0:06:41.320 right if it certainly feels like defeat is no option. Um. 0:06:41.480 --> 0:06:44.240 Leonid Bressitski, thank you so much, really appreciate you weaning in. 0:06:44.320 --> 0:06:48.200 He is columnist of Bloomberg Opinion, joining us on the 0:06:48.320 --> 0:06:51.560 phone from London. A Bloomberg Opinion colonist, he was also 0:06:51.560 --> 0:06:53.920 a founding out of the Russian business deliver. Maatski also 0:06:54.040 --> 0:06:57.680 did the recent translation of This Is Bloomberg. You're listening 0:06:57.720 --> 0:07:01.560 to Bloomberg Business Week with Carol Measure and Bloomberg Quick 0:07:01.600 --> 0:07:05.800 Takes Tim Stinovic on Bloomberg Radio. Top two stories on 0:07:05.839 --> 0:07:07.760 the Bloomberg in the past sixty minutes. They have to 0:07:07.800 --> 0:07:10.720 do with Apple. Apple working to bring more financial services 0:07:10.720 --> 0:07:13.800 in house. That's an exclusive, buyer Mark German. Also that 0:07:13.960 --> 0:07:17.480 Apple and Meta giving user data to hackers who fortunately 0:07:17.520 --> 0:07:20.200 go requests also a Bloomberg exclusive. Mark German is a 0:07:20.200 --> 0:07:23.400 technology reporter. He covers all things Apple, Peloton and more. 0:07:23.520 --> 0:07:26.640 He joins us live from the Bloomberg Los Angeles Bureau. 0:07:26.640 --> 0:07:29.400 Mark another day, another exclusive. Grateful to have you with 0:07:29.480 --> 0:07:32.360 us this afternoon. When you say financial services, what do 0:07:32.400 --> 0:07:33.960 you mean when it comes to Apple? What are they 0:07:33.960 --> 0:07:36.480 working on? Yes, so Apple's working on a few new 0:07:36.520 --> 0:07:40.040 fintech services. One would be a buy now later service 0:07:40.240 --> 0:07:42.920 to compete with the firm and some of the other companies, 0:07:42.960 --> 0:07:46.000 allowing you to buy something and pay for it over time. 0:07:46.560 --> 0:07:50.520 Other elements of financial services would be their iPhone hardware 0:07:50.520 --> 0:07:54.480 subscription service that they're developing. Um By financial services in 0:07:54.480 --> 0:07:58.080 the house, what means the underlying fintech infrastructure right Apple 0:07:58.120 --> 0:08:00.880 has been using partners like Golden Sack, some Core Card, 0:08:00.960 --> 0:08:04.760 and green Dot Bank to power their current financial offer offerings, 0:08:04.800 --> 0:08:08.680 which is basically Apple pay Um and some of their 0:08:08.680 --> 0:08:11.560 other offerings like a wallet app and the Apple Card. 0:08:11.760 --> 0:08:15.000 And then they're also working to create their own payment processor, 0:08:15.160 --> 0:08:17.720 right that is the very core of credit cards or 0:08:17.720 --> 0:08:22.160 other fin sech platforms sending transactions to banks for approval. Right, 0:08:22.200 --> 0:08:23.520 So they're going to be bringing that all in the 0:08:23.520 --> 0:08:26.440 house over the long term. What's the endgame mark for 0:08:26.480 --> 0:08:29.640 Apple here? What's what's the big aspirations with this? The 0:08:29.680 --> 0:08:32.320 big aspiration is to own the whole widget, right Apple, 0:08:32.400 --> 0:08:34.319 as you've seen with their software and their hardware, they 0:08:34.360 --> 0:08:36.600 like to do everything in the house, right, So that's 0:08:36.600 --> 0:08:39.480 owning all the underlying components. Now Apple wants to do 0:08:39.480 --> 0:08:41.680 the same thing with it for their financial services because 0:08:41.720 --> 0:08:44.240 they know how critical that is to the company's future 0:08:44.440 --> 0:08:46.800 and all these other buy now, pay later, debit card, 0:08:46.880 --> 0:08:49.240 all the other things that they're that they're working toward. Okay, 0:08:49.240 --> 0:08:52.840 are they going to alienate some some partners here? Goldman 0:08:52.840 --> 0:08:54.920 Sachs is the company that they work with on the 0:08:54.960 --> 0:08:57.599 Apple card, right, Well, you'll see it's probably likely that 0:08:57.600 --> 0:08:59.760 when they expand the Ample cards to other regions, they 0:08:59.760 --> 0:09:02.400 won't be working with Golden Secs. Core Card is their 0:09:02.400 --> 0:09:05.120 payment processor for the Apple Card. They probably won't be 0:09:05.160 --> 0:09:08.280 working with them for future fintech products. They'll be using 0:09:08.320 --> 0:09:11.160 their own core processor for that. Uh. And then when 0:09:11.160 --> 0:09:13.360 you see green dot bank for the Apple Cash card 0:09:13.360 --> 0:09:15.719 in the US, you'll probably see different partners outside of 0:09:15.720 --> 0:09:18.719 the US, right, no, go ahead, I'm sorry. Yeah, I 0:09:18.760 --> 0:09:21.120 don't think those three partners are going to disappear today 0:09:21.200 --> 0:09:23.800 or in the near term for like the current offerings, 0:09:23.840 --> 0:09:26.520 but for future offerings you'll see new partners. How much 0:09:26.520 --> 0:09:29.400 of this mark too, that was about making the iPhone, 0:09:29.400 --> 0:09:32.880 which come on to be fair is pretty expensive and 0:09:32.920 --> 0:09:35.679 making it more accessible to a wider audience. Perhaps you 0:09:35.800 --> 0:09:40.319 might pass because of the cost. The definitely the buy now, 0:09:40.360 --> 0:09:43.960 pay later and the iPhone hardware subscription service that those 0:09:43.960 --> 0:09:46.480 are both designing to allow people to buy not only 0:09:46.520 --> 0:09:49.439 Apple products, but third party products right from third party 0:09:49.480 --> 0:09:51.559 merchants to be able to buy products and pay for 0:09:51.600 --> 0:09:54.720 them over time in order to drive down the upfront cost. 0:09:54.880 --> 0:09:57.400 So this is definitely gonna help their revenue, right, this 0:09:57.480 --> 0:09:59.920 is gonna juice revenues. They're gonna be making more per 0:10:00.000 --> 0:10:02.800 customer on an annual basis because of this, and they're 0:10:02.840 --> 0:10:05.120 also going to be driving traffic to more merchants because 0:10:05.120 --> 0:10:06.920 of this. So I think it's a win win for Apple, 0:10:07.000 --> 0:10:09.439 for mergency and for consumers. Is it a surprise that 0:10:09.480 --> 0:10:11.120 all that Apples moving further into this, I mean it 0:10:11.120 --> 0:10:13.120 was a big deal when Apple launched the Apple Card 0:10:13.160 --> 0:10:16.200 and partner with Golden Sacks toad and did Apple Pay. Yeah, 0:10:16.280 --> 0:10:18.080 I don't think so. I think over time they like 0:10:18.160 --> 0:10:21.120 to expand their offerings. So when they first entered Apple Pay, 0:10:21.160 --> 0:10:24.000 they said their goal was to replace everything in your wallet, 0:10:24.000 --> 0:10:26.360 and they're doing so much now, from digital i ds 0:10:26.400 --> 0:10:29.120 to this wallet app to Apple Pay, to Apple Cash, 0:10:29.200 --> 0:10:31.200 to peer to peer payments. So it makes a lot 0:10:31.280 --> 0:10:32.920 of sense to me that they're going to be, you know, 0:10:32.960 --> 0:10:36.040 sort of spreading their wings here. And I'm interesting interested 0:10:36.120 --> 0:10:38.439 to see how well Apple Pay later, this by now 0:10:38.440 --> 0:10:41.520 pay leader service they're working on takes off mark what 0:10:41.640 --> 0:10:42.839 we have you want to get you too, just in 0:10:42.880 --> 0:10:44.400 the last minute that we have you to touch on this. 0:10:44.559 --> 0:10:47.920 Another exclusive about Apple, this one by our colleague William Turton, 0:10:48.160 --> 0:10:50.800 about Apple and Meta giving user data to hackers who 0:10:50.880 --> 0:10:55.040 forged legal requests. Um, what do we know about what 0:10:55.120 --> 0:10:58.679 happened here? This is actually fascinating. So right now, if 0:10:58.679 --> 0:11:00.679 you're a law enforcement agency, you can reach out to 0:11:00.720 --> 0:11:03.880 Apple or Meta or other companies to get data if 0:11:03.920 --> 0:11:06.800 you're doing a criminal investigation. And so what these hackers 0:11:06.800 --> 0:11:09.319 did is they pretended to be law enforcement. They contacted 0:11:09.360 --> 0:11:12.600 Apple and other companies asking for data on you know, 0:11:12.720 --> 0:11:16.160 random people or random to us, but not random to them, 0:11:16.160 --> 0:11:19.160 I'm sure, and in some of these cases that data 0:11:19.240 --> 0:11:22.720 was actually received. Obviously, this is a big breach, um 0:11:22.760 --> 0:11:24.560 and so great story by William on that I would 0:11:24.640 --> 0:11:29.760 encourage anyone to read that as well. Unbelievable. All right, Um, 0:11:29.840 --> 0:11:32.120 Mark Ivan, thank you so much, So glad we could 0:11:32.120 --> 0:11:34.520 get to the stories we mentioned. The top two stories 0:11:34.600 --> 0:11:37.800 on the Bloomberg terminal at this hour has to do 0:11:37.880 --> 0:11:42.439 with Mark's exclusive on for j Moore into financial services 0:11:42.440 --> 0:11:44.240 bringing them in house Apple, and then of course on 0:11:44.360 --> 0:11:48.480 that Apple Meta giving out some data from their users 0:11:48.800 --> 0:11:53.199 to hack tow hackers, and unbelievable Mark story moving stocks, 0:11:53.360 --> 0:11:57.239 payment stocks slumping this afternoon after Mark wrote that story. Yeah, exactly. 0:11:57.559 --> 0:12:01.559 This is Bloomberg Business Week with Carol Messer and Bloomberg 0:12:01.640 --> 0:12:05.920 Quick Takes Tim Stenovic on Bloomberg Radio. This week's international 0:12:05.960 --> 0:12:08.600 cover of Bloomberg business Week magazine. Quite a cover image, 0:12:08.600 --> 0:12:11.240 I might point out as well, about the financial vultures 0:12:11.240 --> 0:12:14.640 tapping into what maybe the opportunity of a lifetime. Here 0:12:14.760 --> 0:12:18.079 come the vulture. That's the cover of the international edition 0:12:18.080 --> 0:12:20.679 at Bloomberg Business Week. The story. It's by Eric Schatzker, 0:12:20.800 --> 0:12:23.880 Editor at Large at Bloomberg Bloomberg News. He's with us 0:12:23.920 --> 0:12:27.000 in the Bloomberg INTERACTI Broker Studio. Also joining us remotely 0:12:27.040 --> 0:12:29.920 Joel Webber, editor at Bloomberg Business Week. So, Joel, what 0:12:30.040 --> 0:12:32.360 is the opportunity that some hedge funds are seeing when 0:12:32.360 --> 0:12:34.640 it comes to Russia's invasion of Ukraine. Let me just 0:12:34.679 --> 0:12:37.080 say that this is a product of first and foremost 0:12:37.120 --> 0:12:40.320 returned to office. So for all of those bosses out 0:12:40.320 --> 0:12:43.280 there wondering why r t O is a thing, is 0:12:43.520 --> 0:12:46.439 a product of Eric and I having a brief conversation 0:12:47.200 --> 0:12:50.079 about Russian dead and me saying like who is buying stuff? Oh, 0:12:50.120 --> 0:12:52.280 Meaning that the only reason this story came together is 0:12:52.320 --> 0:12:54.760 because you guys physically saw each other in person. Well, 0:12:54.760 --> 0:12:56.640 when Joel and I you know, hang out by the 0:12:56.679 --> 0:12:59.960 water cooler, we typically talk about Russian dead I hope 0:13:00.040 --> 0:13:05.000 the and and Eric was like, you know, let me 0:13:05.040 --> 0:13:06.600 make some calls and see what we can come up with. 0:13:06.720 --> 0:13:09.520 And and it is a story that I think we've 0:13:09.559 --> 0:13:12.880 all been wondering about, because this stuff is the thing 0:13:12.920 --> 0:13:15.480 that if, if there's ever going to be a buying opportunity, 0:13:15.920 --> 0:13:19.040 Russian debt could be a thing that, as as Eric writes, 0:13:19.160 --> 0:13:22.240 becomes a once in a lifetime thing. But you know, 0:13:22.360 --> 0:13:27.480 really this is a there's a whole morality quandary that 0:13:27.520 --> 0:13:29.680 comes into play because it's it's really something that you 0:13:29.720 --> 0:13:32.360 want to profit off of. And the answer is if 0:13:32.360 --> 0:13:35.680 the numbers are probably big enough, yes, right Eric, Hey, 0:13:36.720 --> 0:13:40.840 it's complicated. Um, you definitely do have to get over 0:13:40.880 --> 0:13:43.600 the moral hump um. And then of course you have 0:13:43.640 --> 0:13:46.280 to do what every credit investor does, which is evaluate 0:13:46.720 --> 0:13:49.959 the various scenarios that may unfold and and figure out 0:13:49.960 --> 0:13:51.559 whether you're gonna get paid or not one way or 0:13:51.600 --> 0:13:53.320 the other, whether you get paid by coupon, whether you 0:13:53.320 --> 0:13:55.880 get repaid in principle, or whether you end up having 0:13:55.880 --> 0:13:58.880 to go to court and try to seize assets from somebody. 0:13:58.920 --> 0:14:03.560 But that you know that standard distressed fair. What makes 0:14:03.600 --> 0:14:07.320 this so unusual and perhaps even a maybe I wouldn't 0:14:07.320 --> 0:14:10.120 even say, perhaps a more extreme case than others, such 0:14:10.120 --> 0:14:13.560 as say Venezuela or sovereign defaults like Ecuador for example, 0:14:14.280 --> 0:14:17.920 is that this is a product of a hostile invasion. 0:14:18.480 --> 0:14:20.640 We haven't seen anything like this in the Western world, 0:14:20.640 --> 0:14:24.240 as many people have said, since World War Two. And 0:14:25.720 --> 0:14:29.120 that's a whole different calculus than deciding whether you want 0:14:29.160 --> 0:14:31.560 to do business with a dictator, for example, that's what 0:14:31.640 --> 0:14:34.840 some people think of Nicolas Manduro and Venezuela as or 0:14:34.880 --> 0:14:36.800 whether you want to profit off what other people may 0:14:36.840 --> 0:14:39.560 describe as a humanitarian crisis in a country like Sudan. 0:14:40.040 --> 0:14:44.480 Those are different calculations. This is something altogether unfamiliar well, 0:14:44.520 --> 0:14:46.600 and we know in the financial community though, where there's 0:14:46.600 --> 0:14:48.400 money to be made, you can find people who want 0:14:48.440 --> 0:14:51.480 to tap into that. In your conversations, though, Eric, you know, 0:14:51.760 --> 0:14:54.840 was it overwhelmingly people like this is an opportunity for us? 0:14:54.960 --> 0:14:56.560 Or were there those who said, I don't even want 0:14:56.560 --> 0:15:00.360 to touch this. Both, Uh, there are more people who 0:15:00.400 --> 0:15:02.800 are not touching this for a couple of reasons. Then 0:15:02.880 --> 0:15:05.840 there are people who are touching it. The two reasons 0:15:05.920 --> 0:15:09.240 are I just can't go near this, as Hans Humes, 0:15:09.280 --> 0:15:11.280 whom I quote, or distrust. That investor whom I quote 0:15:11.280 --> 0:15:14.160 in the story says, this is just to grotesque for 0:15:14.280 --> 0:15:17.200 me um. And there are others who are being told 0:15:17.280 --> 0:15:20.320 by their clients pension funds, for example, or endowments that 0:15:20.400 --> 0:15:23.200 have a principled stance on this issue. I want you 0:15:23.200 --> 0:15:27.240 to sell down Russia right now. It is difficult to 0:15:27.280 --> 0:15:29.360 find people who are buying Russian debt, which is not 0:15:29.480 --> 0:15:32.640 because they're not buying. It's because they're not talking about 0:15:32.640 --> 0:15:34.320 it and they don't want to be public about it. 0:15:34.480 --> 0:15:36.160 Nobody wants to be public about it. In fact, that 0:15:36.160 --> 0:15:38.600 people whom I spoke to who are buying Russian debt 0:15:38.800 --> 0:15:41.560 would only speak to me on the condition of anonymity 0:15:41.600 --> 0:15:44.920 because they know that there is this public approprium waiting 0:15:44.920 --> 0:15:47.800 out there for them. You know, they're gonna be called vultures, 0:15:47.800 --> 0:15:49.800 They're gonna be hanged in the court of public opinion 0:15:50.880 --> 0:15:54.680 at least now. But yet there's still this is a 0:15:54.880 --> 0:15:59.080 there is a textbook, sort of distressed debt playbook here, 0:15:59.240 --> 0:16:01.480 Eric and and when you talk to the people who 0:16:01.680 --> 0:16:05.600 are are skilled at wielding that that playbook. What are 0:16:05.600 --> 0:16:07.680 they what are they exactly looking for? And where are 0:16:07.720 --> 0:16:11.040 they what are they snatching up? What they want is 0:16:11.240 --> 0:16:15.400 again confidence that this is gonna be money good UM. 0:16:15.480 --> 0:16:19.080 And of course the most extreme scenario in any distressed 0:16:19.120 --> 0:16:21.000 play is do I have to go to court and 0:16:21.040 --> 0:16:24.160 do I have to try to arrest assets from the debtor? 0:16:24.720 --> 0:16:26.880 And in this case, they're looking at Russian companies that 0:16:26.920 --> 0:16:30.080 have significant operations in the West, like Luke Oil, for example, 0:16:30.120 --> 0:16:34.440 We've all seen those gas stations UM, which has assets 0:16:34.440 --> 0:16:36.240 in the United States, it has assets in Italy, it 0:16:36.240 --> 0:16:39.400 has assets in Spain, its assets in Bulgaria. Luke Oil 0:16:39.440 --> 0:16:42.320 issued bonds in the Netherlands under British law. So in 0:16:42.320 --> 0:16:45.880 that scenario, and Luke Oil isn't the only one, maybe 0:16:45.920 --> 0:16:48.200 I don't have to bet on the Russian sovereign, which 0:16:48.320 --> 0:16:51.920 may even to some distressed guys feel distasteful. I can 0:16:51.960 --> 0:16:55.440 buy a Russian corporate and if Luke Oil were to default, 0:16:55.520 --> 0:16:58.360 I can go to a court that's operating under British 0:16:58.440 --> 0:17:02.120 law and I might quite reasonably gain control of some 0:17:02.200 --> 0:17:05.400 very valuable assets in the process. Now that's a long 0:17:05.520 --> 0:17:08.800 term play. They're clearly hoping to make money in a 0:17:08.840 --> 0:17:11.160 different way. Either they just get paid out in big 0:17:11.200 --> 0:17:13.959 fat coupons because they bought when the yields were high, 0:17:14.160 --> 0:17:16.800 or they get their money back because actually low oil 0:17:16.840 --> 0:17:20.800 doesn't default. Or perhaps the bonds get re rated because 0:17:20.920 --> 0:17:23.120 the rest of the world begins to see things through 0:17:23.119 --> 0:17:26.040 the same lens and the bonds trade up in value, 0:17:26.080 --> 0:17:29.040 And that in fact has been happening. So it's possible 0:17:29.040 --> 0:17:31.119 that some of these people who got in in the 0:17:31.160 --> 0:17:34.000 early days of March are already out. You feature a 0:17:34.040 --> 0:17:37.280 tweet from Bill Browd or the anti Kremlin activist who said, 0:17:37.600 --> 0:17:40.000 it's like asking if you should buy German equities during 0:17:40.000 --> 0:17:43.320 the Holocaust, So a big no from him. Even though 0:17:43.359 --> 0:17:46.439 these folks spoke to you, uh without the on the 0:17:46.440 --> 0:17:49.360 condition of anonymity, how do they rationalize there? And they 0:17:49.359 --> 0:17:51.360 don't see it quite the same way. It's so interesting, 0:17:51.440 --> 0:17:54.720 how you know, the just the arguments in favor of 0:17:54.800 --> 0:17:59.000 the justification, if you will, is very interesting, and you 0:17:59.040 --> 0:18:01.280 can choose to subscriub gribe to it or not. But 0:18:01.480 --> 0:18:04.680 for example, as I said, some of them say, I'm 0:18:04.720 --> 0:18:07.240 willing to participate in Russian corporate debt, but I won't 0:18:07.280 --> 0:18:10.800 touch Russian sovereign debt. I also won't touch Russian equities 0:18:11.359 --> 0:18:14.600 because being a source of equity capital for the Russian market, 0:18:14.640 --> 0:18:18.080 in their mind, is tantamount to supporting the regime. But 0:18:18.240 --> 0:18:20.240 buying the bonds when all you want is to be 0:18:20.320 --> 0:18:24.280 paid back is different. And it's different as well because 0:18:25.040 --> 0:18:29.120 again in their calculus and their rationalization, if you allow 0:18:30.000 --> 0:18:34.080 Russian oligarchs to walk away from their all obligations, who 0:18:34.119 --> 0:18:37.439 wins there? Right? That's that's part of Now there's a 0:18:37.440 --> 0:18:39.399 counter argument to that. I'm not going to go into it, 0:18:39.480 --> 0:18:43.760 but that's some of the reasoning that gets applied, uh 0:18:43.840 --> 0:18:47.280 to sort of counter if you will, the moral weight 0:18:47.440 --> 0:18:50.680 of opposition. Well, this is this week's international cover story. 0:18:50.720 --> 0:18:53.160 Are thanks to Eric Shasker, Editor at large up Bloomberg, 0:18:53.200 --> 0:18:54.840 and of course I thanks to Joe Webber, editor of 0:18:54.880 --> 0:18:58.920 the magazine. You're listening to Bloomberg Business Week with Carol 0:18:59.000 --> 0:19:03.440 Masser and bloom Burg Quick Takes Tim Stinovic on Bloomberg Radio. 0:19:04.040 --> 0:19:07.000 So chief financial officers, Yeah, they now play a critical 0:19:07.119 --> 0:19:10.240 role in shaping corporate strategy and really positioning organizations to 0:19:10.440 --> 0:19:13.919 meet future challenges. Bloomberg's new monthly Program's called Chief Future 0:19:13.960 --> 0:19:17.600 Officer on Bloomberg TV. It profiles these leaders and explores 0:19:17.640 --> 0:19:21.240 the impact they're making on their companies and industries. For 0:19:21.280 --> 0:19:24.080 this week's episode, I caught up at Chippotle CFO Jack 0:19:24.160 --> 0:19:26.960 hard Tongue. In this excerpt, he talks about higher costs 0:19:26.960 --> 0:19:29.640 and more. You'll also hear from Nicole Miller Regan. She's 0:19:29.640 --> 0:19:33.200 a Piper Standard analyst. She too weighs in on the company. 0:19:33.600 --> 0:19:35.399 And the other thing I think is to make sure 0:19:35.440 --> 0:19:37.800 you have a strong balance sheet to make sure you 0:19:37.800 --> 0:19:40.760 can weather the storm. And we've had a strong balance sheet. 0:19:40.800 --> 0:19:43.640 We've never had debt. We've a always had more cast 0:19:43.680 --> 0:19:45.520 in the balance sheet than we need for our normal 0:19:45.560 --> 0:19:48.200 ongoing business. And that has come in you know great, 0:19:48.240 --> 0:19:51.520 you know, really handy. Chipotle carries no long term debt 0:19:51.880 --> 0:19:56.679 and it's free cash flow almost tripled in When you 0:19:56.720 --> 0:19:58.879 think about the future, how do you take advantage of this? 0:19:58.960 --> 0:20:02.800 And it is the flexibility that that enables. What it 0:20:02.840 --> 0:20:04.800 really affords us is we're going to be able to 0:20:04.800 --> 0:20:07.600 invest in our future no matter what. Like we accelerated 0:20:08.000 --> 0:20:11.920 are Open, We accelerated our pursuit of new restaurant sites 0:20:12.240 --> 0:20:14.359 during the pandemic when some of the restaurant companies were 0:20:14.440 --> 0:20:18.160 laying off their development team. Chipotle not only expanded its 0:20:18.160 --> 0:20:21.840 footprint over the last two years, it reshaped its restaurants. 0:20:22.080 --> 0:20:24.800 A ventured to drive through dining that began several years 0:20:24.840 --> 0:20:28.719 ago became a thriving profit center when the pandemic struck. 0:20:29.840 --> 0:20:31.680 The thing that's changed the most is just most of 0:20:31.720 --> 0:20:33.880 our restaurants and now have a Chipotle lane. So three 0:20:33.960 --> 0:20:37.000 years ago we had maybe five or six Chipotle lanes, 0:20:37.320 --> 0:20:40.320 and now we have over three, and of our new 0:20:40.359 --> 0:20:43.159 openings have each pow lane. The sales and our chipot 0:20:43.240 --> 0:20:45.959 Land restaurants are higher, and our margins are higher too, 0:20:46.119 --> 0:20:49.959 because the digital orders are our highest margin transaction. And 0:20:49.960 --> 0:20:52.600 when you can serve the customer through the spot lane 0:20:52.600 --> 0:20:54.840 without the delivery fees that we pay in the customers pay, 0:20:55.320 --> 0:20:57.720 it's it's it's a great margin opportunity for us. The 0:20:57.800 --> 0:21:01.359 convenience of Chipotle lanes contributed to soaring digital sales in 0:21:02.600 --> 0:21:06.879 There was little erosion in even as in restaurant sales 0:21:06.920 --> 0:21:13.080 return to levels. Meanwhile, membership and loyalty programs has boomed, 0:21:13.320 --> 0:21:18.040 giving Chipotle valuable insight into its customers. Omni channel preferences. 0:21:18.560 --> 0:21:21.680 What we've seen is that our digital customers, they come 0:21:21.720 --> 0:21:23.400 the most often and they spend the most of its 0:21:23.440 --> 0:21:26.800 time they come. Customer loyalty could face a test if 0:21:26.840 --> 0:21:30.920 inflation continues to push higher. Chipotle hiked menu prices roughly 0:21:31.040 --> 0:21:36.160 nine Jack Hartung says, it's not just wages and food 0:21:36.160 --> 0:21:39.439 costs that are putting on the pressure. It's hitting everything. 0:21:39.680 --> 0:21:41.920 Sitting materials too for our restaurants or a new restaurants 0:21:41.920 --> 0:21:44.679 are costing more as well. You guys have had incredible 0:21:44.720 --> 0:21:48.040 pricing power. Is there kind of a tipping point where 0:21:48.080 --> 0:21:52.480 it's like enough? We haven't seen it. Um. Why is that? Jack? Well, 0:21:52.520 --> 0:21:55.919 part of it is um. We've over the year has 0:21:55.960 --> 0:22:00.280 been slow to raise prices. We've always tried not to 0:22:00.320 --> 0:22:02.520 go to the menu board to raise prices. Whenever we've 0:22:02.520 --> 0:22:04.880 had a challenge from a cost standpoint, we'll do other 0:22:04.920 --> 0:22:08.160 things to try to find efficiencies somewhere along the line. 0:22:08.760 --> 0:22:11.240 We raise prices. In the second quarter of last year, 0:22:11.640 --> 0:22:15.000 we did that just to cover the cost of raising wages. 0:22:15.080 --> 0:22:17.639 We raise wages up the fifteen dollars. It was an 0:22:17.640 --> 0:22:21.200 average of increase and we raise prices just to cover 0:22:21.240 --> 0:22:23.439 the dollar costs of that, so we didn't increase our margins. 0:22:23.440 --> 0:22:26.520 Our margins actually went down, but our profitability stayed the same. 0:22:26.840 --> 0:22:29.760 Our customers actually said, we really applaud what you're doing. 0:22:30.040 --> 0:22:31.879 We're fine with a four percent price increase, not a 0:22:31.960 --> 0:22:34.479