Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
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Speaker 2: are a certain persuasion, you remember where you were when
Speaker 2: you close the book on the Winds of War by
Speaker 2: Herman wilt Bout, and you said, when's he gonna write
Speaker 2: the next one war?
Speaker 3: And remember and you waited two years.
Speaker 2: Young James Stravita's had this feeling as I did, like
Speaker 2: you waited. Except admiralstra Vetus, of course, lived the American military,
Speaker 2: the United States Navy of Pug Henry as well. The
Speaker 2: book is The Restless Wave. It is a novel, a
Speaker 2: novel idea, a novel from.
Speaker 4: Jem four Desk and I'm ready to go to chapter five, and.
Speaker 2: It's just wonderful about a young lad before nineteen forty one,
Speaker 2: across the arc of World War Two. What's the why, Admiralstravitas,
Speaker 2: Why did you need to write The Restless Wave?
Speaker 5: Tom? I'll give you three reasons, I'll do them fast.
Speaker 6: One is Winston Churchill said, the further you want to
Speaker 6: look into the future, the more you have to look
Speaker 6: into the past, meaning the lessons of World War Two
Speaker 6: are still with us, great power of war in the Pacific,
Speaker 6: the rise of technologies. And then third and five, and
Speaker 6: most importantly you mentioned it, Tom, character we think of
Speaker 6: Captain pug Henry from the Winds of War. Here we
Speaker 6: have a young naval officer. He's flawed, he makes mistakes,
Speaker 6: he's in a love triangle, there's betrayal, the early days
Speaker 6: of the Greatest Generation. So any reasons write a sweeping
Speaker 6: novel about the Second World War.
Speaker 2: I'm going to give this away Pulse four chapters into
Speaker 2: the book. Page three ten, the exo took a breath.
Speaker 2: Admiral Wright failed us, Sir. He was slow and hesitant.
Speaker 2: He doesn't understand the new technology. His battle plan looked
Speaker 2: like Dewey at Manila in the Spanish American War, admiralstavinus,
Speaker 2: are we living that today with new drone technology and
Speaker 2: all is A navy have to adapt and adjust.
Speaker 5: One hundred percent.
Speaker 6: Tom, And look at Ukraine where the Russian Black Sea
Speaker 6: Fleet has been sunk by the Ukrainians.
Speaker 5: Except the Ukrainians don't even have a navy.
Speaker 6: They're using drones, cruise missiles, exquisite intelligence, surface forces operating
Speaker 6: using artificial intelligence. Our navy better learn those lessons and
Speaker 6: get ready. And that's something that we experienced at the
Speaker 6: start of World War two as well.
Speaker 4: Admiral Tom and I have a million questions on many
Speaker 4: different hotspots around the world. Let's start with the Middle
Speaker 4: East here. Can you give us your latest thinking on
Speaker 4: how things are developing there and how you kind of
Speaker 4: foresee I guess the next several weeks and months.
Speaker 6: Clearly the next big muscle movement is going to be
Speaker 6: an attack bite Israel in retaliation appropriately for two hundred
Speaker 6: ballistic missiles that came raining down on Israel five six
Speaker 6: days ago. So what will that attack look like? I
Speaker 6: think that's the key question for investors. I think it's
Speaker 6: going to be big, but not shock and awe level
Speaker 6: kind of strikes. I'll probably go against the military industrial
Speaker 6: complex in Iran, probably not against the nuclear power complex,
Speaker 6: and probably not against energy. So that should be something
Speaker 6: that investors and tolerate as we look at rising risk
Speaker 6: in the region. Bottom line, I think there's about a
Speaker 6: one in four chance of a broader war in the
Speaker 6: Middle East that drags the US in. That's uncomfortably high,
Speaker 6: But I've still bet against a big, sweeping war in
Speaker 6: the Middle East.
Speaker 5: Let's hope not admiral to.
Speaker 4: What extent is the US policy being represented by the
Speaker 4: Israelis here? It seems like the relationship between Biden and
Speaker 4: Netanya who is not maybe as strong as we would
Speaker 4: have hoped here. And we have US assets, men and
Speaker 4: women in the region there So where are we in
Speaker 4: terms of dealing with the Israelis?
Speaker 6: You are correct, we have fifty thousand troops in and
Speaker 6: around the Middle East, many of them at sea on
Speaker 6: navy worships, by the way, but many asure as well.
Speaker 6: So it's critical that we maintain the strongest relationship with Israel,
Speaker 6: which is our best partner in the region. Unfortunately, at
Speaker 6: a personal level, it's pretty clear that Prime Minister net
Speaker 6: Yahoo and President Biden have not good relations.
Speaker 5: And here's our hope.
Speaker 6: The next tier down, that's General Lloyd Austin working with
Speaker 6: his counterpart Israeli Minister of Defense Yuav Gallant. That's a
Speaker 6: pretty good relationship. But a storm cloud to watch, no
Speaker 6: pun intended, terrible hurricane coming, But a storm cloud to
Speaker 6: watch is that Yuav Gallant, Minister of Defense, just canceled
Speaker 6: the meeting in the Pentagon.
Speaker 5: So relations are not good at the moment.
Speaker 3: Is James Tvetus late in your book?
Speaker 2: Arley Burke shows up, No, folks, it's not the name
Speaker 2: of a boat, it's an actual person. And Arley Burke
Speaker 2: shows up to drive the story forward. And he says
Speaker 2: at one point, with some heat in his voice, the
Speaker 2: difference in an officer good or bad is about ten seconds.
Speaker 2: There's an officer from the streets of Boston named John Kelly,
Speaker 2: who is the longest chief of staff the Marines served
Speaker 2: Donald Trump. And he's come out. He's made real clear
Speaker 2: he's not a fan of the operations of the former president.
Speaker 2: If we have elected President Trump, I mean in twenty sixteen,
Speaker 2: this was all new, will he be able as commander
Speaker 2: in chief to form a military apparatus after what we
Speaker 2: hear from the likes of John Kelly.
Speaker 6: First of all, John Kelly is one of my closest friends,
Speaker 6: and I encourage everybody to listen, to read, to follow
Speaker 6: what John Kelly has said about attempting to take President
Speaker 6: Trump to a cemetery in the north of France, and
Speaker 6: according to John Kelly, President Trump described those buried there
Speaker 6: as suckers and losers. I think that is a disqualification
Speaker 6: to be a commander in chief in terms of can
Speaker 6: he put together coherent national security for the nation. It
Speaker 6: depends on who he selects to bring in office alongside him.
Speaker 6: The quality people. General Jim Mattis, General John Kelly, General
Speaker 6: h R. McMaster. They're not coming back. You don't have
Speaker 6: to get kicked by a mule a second time to
Speaker 6: understand whether that's a good thing to do or not.
Speaker 6: So if there is a second Trump presidency, we'll have
Speaker 6: to see who's willing to come in and who does
Speaker 6: come in.
Speaker 2: Paul and I went to the Lawrenceville in Fairport War
Speaker 2: College where we figured out that Germans had two fronts,
Speaker 2: the Eastern Front and the Western Front. Israel has two
Speaker 2: three four fronts. Right now extending over to the persia
Speaker 2: of your book. The leader's bookshelf isntnaho extended or because
Speaker 2: of his small geography, can he handle those many fronts?
Speaker 6: I think Israel is over extended. I'd say five fronts.
Speaker 6: It's Hamas in the south, has Beala on the north. Obviously,
Speaker 6: it is the Hoo theis to the far South. It's
Speaker 6: also the militias in Syria. And it's Iran itself. I
Speaker 6: can count that on the five fingers of my hand.
Speaker 6: That's too many. Israel is only a nation of ten million,
Speaker 6: seven million Jews. That's too few to ultimately fight wars
Speaker 6: with countries like Iran newsflash, which has a population of
Speaker 6: ninety million. That's Iran alone. So Israel needs friends. And
Speaker 6: let's go back to paragraph one. How important that relationship
Speaker 6: is for Israel, end for the United States, between the
Speaker 6: US and Israel, DROI.
Speaker 4: I don't want to lose a sight of Ukraine. Can
Speaker 4: you give us your latest thinking on what's happening in
Speaker 4: Ukraine and how it might play out?
Speaker 6: I can, and thank you for raising it, because they
Speaker 6: are losing oxygen to all that is happening in the
Speaker 6: Middle East. The situation there remains relatively static. The battle
Speaker 6: lines are in place. Russians are moving forward very slowly
Speaker 6: in the east. The Ukrainians have carved a small chunk
Speaker 6: out of Russia in the north. Ultimately, I think after
Speaker 6: the election we are probably headed for a negotiation because
Speaker 6: the burn rate, think private equity, the burn rate on
Speaker 6: both sides of that battle line is terrible. Pressure will
Speaker 6: be for a negotiation regardless of who is elected in Washington.
Speaker 3: One final question.
Speaker 2: In your book The Restless Wave, Kai is trouble? Did
Speaker 2: you know what Kai in Hawaii? Admiral asking for a
Speaker 2: few Kai is nothing but trouble In your book, Admiral, did.
Speaker 3: You know someone like Kai.
Speaker 6: KaiA is a beautiful Hawaiian woman who ends up in
Speaker 6: a love triangle? Thomas correct, between between a Navy officer
Speaker 6: and a Marine Corps officer. So in The Restless Wave, yes,
Speaker 6: Kai is trouble, and yes I have met a few
Speaker 6: beautiful women in Hawaii over the years.
Speaker 2: Bottle that James Tavinis, thank you so much, greatly appreciate it.
Speaker 2: The Restless Wave, folks, I can't It's not going to
Speaker 2: be my book of the year because Kai's in it.
Speaker 3: I can't help Kai and my book of.
Speaker 2: The year Admiral James Travine is The Wrestless Wave. If
Speaker 2: you love the winds of war, find it. It's hugely
Speaker 2: free book. Joining us now in for Global Wall Street,
Speaker 2: It's time to lean forward. He's with pine Bridge Investments,
Speaker 2: which is, you know, managing money and that huge heritage
Speaker 2: with aig. Stephen O joins this globalhead of fixed income
Speaker 2: except he writes, like PhD cell Side, his notes are
Speaker 2: absolutely exquisite And the key thing Stephen Oh in your
Speaker 2: note is it's not time to be defensive?
Speaker 3: How do you be offensive in fixed income?
Speaker 1: Well by writing that it was really looking forward to
Speaker 1: the fact that despite the type valuations, the economic environment
Speaker 1: as well as defed as a global central bank easing cycle,
Speaker 1: will be continued to be supportive of risk assets. So
Speaker 1: what does that imply for not being defensive? It means
Speaker 1: that the natural bias in that environment would be defensive.
Speaker 1: But at a minimum, you take your exposure up to
Speaker 1: a beta type risk exposure and take potshots at targeted opportunities.
Speaker 1: What you don't want to do is go hyper defensive
Speaker 1: in this type of environment where yield is likely to
Speaker 1: care today.
Speaker 2: So is that simply Paul Sweny buys a thirty year
Speaker 2: New Jersey hospital bond.
Speaker 3: Is that what it demolves down to?
Speaker 1: Well, I guess it depends on That's a lot of
Speaker 1: security selection risk there, so I can't opine on that.
Speaker 1: But I think broadly speaking terms of where is the
Speaker 1: risk component fixed income, right, it's going to be in
Speaker 1: the credit segments, and that's where you don't want to
Speaker 1: be hyper defensive.
Speaker 4: Something we don't talk about, but I think it kind
Speaker 4: of goes to where you're going, which is talk just
Speaker 4: about the leverage loan market. What is that and how
Speaker 4: do investors get exposure to that?
Speaker 1: Well, leverage loan in its simplest form is corporate debt
Speaker 1: that's syndicated and secured by assets of the business. In
Speaker 1: the simplest history, it was really loans that were issued
Speaker 1: by banks. But of course banks are not really in
Speaker 1: the origination of debt anymore. They're in the intermediary business,
Speaker 1: and the loans that they used to originate, which primarily
Speaker 1: back leverage buyouts, have now moved to an institutional market
Speaker 1: where trays very freely. Of course, whur it's the adjacent
Speaker 1: market that's talked about ad nauseum for the last you know,
Speaker 1: five six years is the private credit market as well.
Speaker 4: And are there opportunities there? Do you see? I mean,
Speaker 4: is that something that if you want to take up
Speaker 4: maybe even a little more risk than above and beyond
Speaker 4: high yield, that's the market you look at.
Speaker 1: Well, well, first, I wouldn't say that it's higher risk
Speaker 1: than high yield. It's really adjacency risk because those are
Speaker 1: both blow investment. Great corporate credit. But what you are
Speaker 1: getting right now is the credit spread over base rates
Speaker 1: is elevated and it's one of the few places where
Speaker 1: you are getting excess yield long spreads right now. For
Speaker 1: the index is over four hundred basis points, which is,
Speaker 1: you know, over one hundred basis points over the high
Speaker 1: yield index. But you do have to adjust that for
Speaker 1: a like for like risk, because the way to look
Speaker 1: at it is oftentimes there's a tendency to look at
Speaker 1: acid class to asset class, and you have to look
Speaker 1: at ratings to ratings or like risk to like risk,
Speaker 1: and you're still getting a premium for that component.
Speaker 2: Talk to somebody not as sophisticated. They're in a money
Speaker 2: market fund. Go on, this is good to be true.
Speaker 3: Our money market fund yields now too good to be true.
Speaker 1: Well, money markets funds by nature are very short term,
Speaker 1: and it's been a great place to be, although one
Speaker 1: could make the case of perhaps there was opportunity cost
Speaker 1: of not being in equities where you look at the
Speaker 1: yield today and given the shape of the curve at
Speaker 1: the short end where FED funds and so far is,
Speaker 1: money market optically provides you a very high yield, but
Speaker 1: you have to look forward that yield is going to
Speaker 1: come down. And so I think it's just a matter
Speaker 1: of do you utilize money market as primarily a return
Speaker 1: seeking area or do you use it as a liquidity
Speaker 1: while you hide out in what is acceptable returns at
Speaker 1: this point in time?
Speaker 3: Could you use it as a liquidity? All right?
Speaker 4: Steven John Tucker and I we've been trying to get
Speaker 4: Tom out of his triple leverage all cash fun I've
Speaker 4: got the FED that's cutting rates and I'm not in
Speaker 4: a recession.
Speaker 5: Shouldn't Tom be taking.
Speaker 4: Some risk here?
Speaker 3: Well?
Speaker 1: I think anybody's risk appetite is a function of where
Speaker 1: there are. You know, for all I know, Tom may
Speaker 1: be so wealthy that he should be taking a lot
Speaker 1: more risks.
Speaker 2: You want to chime in, Oh yeah, what's that tuition bill?
Speaker 7: Now?
Speaker 3: Thank you exactly continue mister oh uh.
Speaker 1: And in terms of where do you want to be
Speaker 1: in terms of risk right now, I think a balanced
Speaker 1: approach is the best approach because in certain market environments,
Speaker 1: the time you want to take risk, and I think
Speaker 1: you know Warren Buffett said at best is when there's
Speaker 1: a lot of trauma out there, when there's fear in
Speaker 1: the marketplace. There is not much fear in the marketplace
Speaker 1: out there right now, so I don't think this is
Speaker 1: an environment where you want to start adding more risk
Speaker 1: to your portfolio. Is simply a type of market environment
Speaker 1: where you want to be balanced in your approach because
Speaker 1: nothing looks particularly cheap, but it's hard to see anything
Speaker 1: that's going to cause a meaningful sell off in the
Speaker 1: near term.
Speaker 4: September was I think a record month for investment grade issuance.
Speaker 4: So when Morgan, Stanley, Goldman, Sachs, all those folks were calling,
Speaker 4: bringing you guys, will you picking up the buying this
Speaker 4: new stuff?
Speaker 1: Well, we constantly look at not only what is the
Speaker 1: value coming to the marketplace, but what is the value
Speaker 1: in relation to what's trading in the secondary markets. Overall,
Speaker 1: and typically there are some new issue concessions, although at
Speaker 1: times that has been very anemic, and so we have
Speaker 1: been targeted in our approach to buying some of those
Speaker 1: new issues. There have been some.
Speaker 4: You don't buy everything that comes across the transom.
Speaker 1: We're not a ten trillion dollar asset manager that has
Speaker 1: to be beta. We pick and choose, and we manage
Speaker 1: a very targeted alpha approach portfolio.
Speaker 2: Steve Think Stephen O with Pinebridge brilliant. Note again we
Speaker 2: protect the copyright of all of our guests. Look to
Speaker 2: pine Bridge Investments for Steven Oh's brilliant professors showing now
Speaker 2: from Brown University doing so much for the Taalban Center
Speaker 2: for their international relations. I guess it's a close selection, Wendy,
Speaker 2: and I guess there's a lot of tension. And I
Speaker 2: remember sitting there in shock after Bush Gore going.
Speaker 3: How close is close?
Speaker 2: Almost like I think it was Kennedy Humphrey in nineteen
Speaker 2: sixty I really can't remember.
Speaker 3: With Mayor Daily Clyde Haberman the New.
Speaker 2: York Times twenty four years ago, on this day, high
Speaker 2: falutin but hardly proud of it. He was talking about
Speaker 2: fancy Yale people that went to Brown or Yale or
Speaker 2: whatever fancy ivy league people dominant down to get elected.
Speaker 2: Is that what we're seeing right now is everybody going basic,
Speaker 2: you know, for a couple four weeks here because they
Speaker 2: have to.
Speaker 7: Well, I'm Tom I first I want to address this
Speaker 7: is exactly what I've been talking about Bush Gore, Bush Gore.
Speaker 8: You know, statistical polling within the margin of era.
Speaker 7: As you remember, they were absolutely statistically tied going into
Speaker 7: that election. You know, one day one be forty eight,
Speaker 7: Yether'll be forty five. So exactly what you're pointing out
Speaker 7: is that, oh, this is historic. We've never seen anything
Speaker 7: like it. Yes we have, if you're old enough. We
Speaker 7: saw it in two thousand and that aftermath of that
Speaker 7: election was a bit messy, we can say.
Speaker 8: So I think we have to brace ourselves for that.
Speaker 8: So I think I don't actually think that they're dumbing down.
Speaker 7: I think that the Trump campaign, I mean he can
Speaker 7: go off the ranch sometimes, has been disciplined in its
Speaker 7: messaging on border security and inflation. That's I mean basically
Speaker 7: pocketbook issues and security issues.
Speaker 8: And Kamala Harris tried to.
Speaker 7: Raise the conversation about her economic plan. It didn't take,
Speaker 7: so now she's simplifying it. I'm simply gonna make your
Speaker 7: life economically better. That's what she's doing and leaving off
Speaker 7: some of that.
Speaker 3: Okay, Paul wants to jump in here.
Speaker 2: Is that policy professor Schielder to say, I want you
Speaker 2: to feel good or whatever, whichever candidate you know. I
Speaker 2: don't want to pick sides, but is that what our
Speaker 2: policies devolved down to? His feel good statements?
Speaker 7: Well, I mean, the problem is, as we've discussed before,
Speaker 7: is that the federal government is so large now, and
Speaker 7: it is so enmeshed in every American's life, multiple dimensions
Speaker 7: that most people don't even grasp how involved it is.
Speaker 7: So discussing a simple policy change is not simple because
Speaker 7: any policy change will whipple through a total a set
Speaker 7: of federal programs and affect.
Speaker 8: Lots of different people in different ways. So it's not as.
Speaker 7: Easy as it used to be to say I'm going
Speaker 7: to do a and you're going to feel it in
Speaker 7: six months.
Speaker 8: It just doesn't happen in America anymore.
Speaker 4: Hey, Wendy, let's fast forward to maybe the evening of
Speaker 4: November fifth, maybe the early morning hours November six, maybe
Speaker 4: bleeding into the day of November six, Are we going
Speaker 4: to know anything? How is this going to plag out?
Speaker 4: Do you think?
Speaker 7: I think we face the situation in twenty twenty as well.
Speaker 7: I think there are going to be some states you
Speaker 7: can expect Georgia, you can expect Arizona in particular those states,
Speaker 7: and Pennsylvania, by the way, doesn't, to my knowledge, does
Speaker 7: not open mail in ballots till after they count the
Speaker 7: in person ballots.
Speaker 8: And if there are legal challenges for hand counting, not
Speaker 8: just in Georgia and Arizona, but other places, it will
Speaker 8: slow down considerably.
Speaker 7: Wisconsin also, So unless which we don't expect one candidate
Speaker 7: is just going to run the table, We're probably not
Speaker 7: going to know very much until the weekend, you know,
Speaker 7: at the soonest, and it will be up to Secretaries
Speaker 7: of state, attorney generals, governors to certify election results and
Speaker 7: make sure that county level election officials certify those results
Speaker 7: in a timely fashion.
Speaker 8: That's going to get messy pretty quickly.
Speaker 4: Turnout. What do we expect for turnout, Wendy? Do we
Speaker 4: expect this to be a high turnout election a low
Speaker 4: turnout election? And does it favor one or the other?
Speaker 6: Well?
Speaker 7: I'm going to crip for one of my colleagues here
Speaker 7: at Brown who said that she expects that it will
Speaker 7: be lower than even twenty twenty because of mail and
Speaker 7: valliding being so predominant in twenty twenty, but that the
Speaker 7: general level of enthusiasm is still.
Speaker 8: High on Trump core, and you know, is pretty high.
Speaker 7: Among Democrats, if you can call it enthusiasm or fear
Speaker 7: one or the other. But it's not quite the same
Speaker 7: as it was in twenty eighteen twenty twenty when we
Speaker 7: saw historic mid two and presidential election turnouts. There's still
Speaker 7: a little bit of ambivalents and voters don't like to
Speaker 7: regret their choice.
Speaker 8: They don't want to regret their vote.
Speaker 7: So if they're still on certain election day, they made
Speaker 7: our role to stay home.
Speaker 3: I want to show.
Speaker 2: I mean, I know, with the electoral quality of Rhode Island,
Speaker 2: the Vice President Harris should have been sipping in there
Speaker 2: against Lager Beer the other night, but instead she went
Speaker 2: with the champagne of Wisconsin Beer's Miller High Life.
Speaker 3: Okay, what is the symbolism of sipping a beer on TV?
Speaker 3: What does that get you politically?
Speaker 7: Well, Bill Clinton, Win's McDonald's you know, Barack Obama had
Speaker 7: to find some food that was bad for him. They
Speaker 7: was willing to eat on camera because we knew he
Speaker 7: didn't do it otherwise. You know, this is part of
Speaker 7: I can identify with you.
Speaker 8: I'll drink a beer too. I think it's a stretch.
Speaker 7: I don't think that's the image necessarily that's going to
Speaker 7: be a Kamala Harris elected. But I think each candidate
Speaker 7: and each campaign right now is really like, what do
Speaker 7: we do to get this momentum?
Speaker 2: Okay, addressing your advice in the time we've got left,
Speaker 2: you get thirty seconds. Trump, what's the Shiller to do
Speaker 2: for Trump? What's the Shiller to do for Harris?
Speaker 8: Trump? I'll make the United States safer. I'll make you safer.
Speaker 8: I'll make the world safer.
Speaker 7: Calmin Harris, I'm gonna make your economic life better and
Speaker 7: to protect your working rights, your minimum wage, your health care,
Speaker 7: the fundamental things you need to live a good life.
Speaker 7: The Democrats always protect, the Republicans always try to destroy.
Speaker 2: Can you imagine in her class, I'm pulling a C
Speaker 2: minus and she's looking at me with eight in her eyes.
Speaker 3: Professor Schiller thinking so much from Brown University. There that's
Speaker 3: what I love. Just short speaking, it is a pedigree
Speaker 3: of extinction.
Speaker 2: He was at Oxford and Nuncia, and I did some
Speaker 2: amazing work at Morgan Stanley. I'll get to in a
Speaker 2: moment readable essays on the chaos of continental banking, and
Speaker 2: then went on to work with the British government and
Speaker 2: of course service to the Bank of England as well
Speaker 2: with Oliver Wyman in her studios. This morning, their vice
Speaker 2: chair Hugh von Steinis joins us. Hugh Paul's going to
Speaker 2: get to the private credit essay.
Speaker 3: Where we are.
Speaker 2: We had Jim Zelter in from a Polo Global Management
Speaker 2: to other day. I got to go back to your
Speaker 2: wheelhouse where it was like we'd read these fifteen page
Speaker 2: reports and god damn, I got to read this whole thing.
Speaker 2: Is it finally with Unit Credit in her Maadi and
Speaker 2: Commerce Bank that were finally well you were writing about
Speaker 2: twenty years ago.
Speaker 9: Well thanks for having me on. Look my goodness. I
Speaker 9: wish Andrea the best of luck on this because I
Speaker 9: think it. I think we need cris culture.
Speaker 3: Still, but culture still matters.
Speaker 9: Culture still matters. But let's be clear. Luftians took over
Speaker 9: the Italian Airline, Why can't it happen in reverse. And
Speaker 9: also UniCredit owns a German bank already, so actually it's
Speaker 9: it really is an in market German deal. There's two
Speaker 9: German banks going to merge, we potentially merged with each other,
Speaker 9: so I think it. Look I was an investor conference
Speaker 9: two weeks ago. I'd say my read is the the
Speaker 9: market thinks there's like a seventy to ninety percent chance
Speaker 9: it will happen, but they might need to get one
Speaker 9: or two.
Speaker 3: What's the government thing?
Speaker 2: David Harrow of Chicago went down in flames, and this
Speaker 2: finally they're going to get their act together and the
Speaker 2: continental Europe is going to act more like American and
Speaker 2: Anglo Saxon.
Speaker 3: Banking and Bologne. Do you see a change in the
Speaker 3: German government or in the Italian government?
Speaker 9: It's it's slow. Look so look we are seeing so actually,
Speaker 9: but below the radar, we are actually seeing some bank
Speaker 9: m and a. There's actually three live bank deals in
Speaker 9: the UK at the moment, so you know they're small,
Speaker 9: but they're happening. Spain's got one on the boil to
Speaker 9: as well, so there's bits and pieces happening. But let's
Speaker 9: be honest, it's not us style, and we haven't like
Speaker 9: as Jim's Elton would say, we don't have the capital
Speaker 9: markets either with the breadth and depth that we need.
Speaker 4: But you certainly, but you certainly can have that. I mean,
Speaker 4: I mean right before the Great Financial Crisis time, the
Speaker 4: argument was is London more important than New York? And
Speaker 4: that was a valid argument to behave totally, and then
Speaker 4: Bruxit happen.
Speaker 3: You get strewed. But is the horse.
Speaker 4: Out of the barn for European banking. They will never
Speaker 4: catch up the Bank of America at the JP Morgan.
Speaker 9: So it's interesting at the moment if you look at
Speaker 9: the top twenty market caps of banks globally, there's only
Speaker 9: two Europeans. Yeah, on HSBC, HSBC which is effectively Asian,
Speaker 9: so it's not even European. So it's only one and
Speaker 9: that's UBS and that's number twenty and so absolutely, and
Speaker 9: so I think UBS, I think, with my old boss
Speaker 9: column and Sergio, actually do have a chance to be
Speaker 9: in the Global super League. Everyone else is in a
Speaker 9: kind of a European League or even a division below.
Speaker 9: And I think that's the challenge.
Speaker 4: And I think the European Union and the UK, don't
Speaker 4: they recognize that as a structural flaw that's going to
Speaker 4: hinder that part of the world for generations.
Speaker 9: Well, absolutely so. You know someone you know, well, Mario
Speaker 9: Dragy just put out a report. Now it was probably
Speaker 9: a little bit to more than fifteen pages, Tom, I
Speaker 9: mean he had one hundred and fifty rex. I mean
Speaker 9: even one too, but you rolled it for no, no, no,
Speaker 9: not this time. But actually his finance piece rade a
Speaker 9: lot of sense, which is, we need securitization markets to open,
Speaker 9: we need deeper capital markets, and we need some of
Speaker 9: the larger banks to merge because scale matters in banking.
Speaker 9: You see that here you're talking about JP Morgan on
Speaker 9: Friday with Jeremy's earnings. You know, scale really matters, and
Speaker 9: we have too few banks with that scale.
Speaker 4: All right, Your latest work is a topic that Tom
Speaker 4: and I talk about a lot, is we're fascinated by
Speaker 4: the growth of this private credit. Early in my career
Speaker 4: I was the Chasement Hannen Bank. We were making leverage
Speaker 4: loans like crazy, making money hand over fist. I would
Speaker 4: never give up that business to private credit. But that's
Speaker 4: what happened, hasn't it.
Speaker 9: No, Look, it's really fascinating how much banking has changed,
Speaker 9: and I think it's because you know, the rules, whether
Speaker 9: they're federals or basil rules are encouraging banks to limit
Speaker 9: the amount of risky loans they can take. Either they're
Speaker 9: hard capped or soft capped, or it's just the amount
Speaker 9: of capital. So the way I think we talked about
Speaker 9: this last time, the way I think about it is
Speaker 9: that banking is being retranched. The riskiest pieces are being
Speaker 9: laid off to private credit or to others, and the
Speaker 9: banks are left with slightly the lower risk pieces. Now,
Speaker 9: from point of view of banking stability, that's not the
Speaker 9: end of the world. It means they're less profitable. They
Speaker 9: need more scale. And actually, one interesting thing which I
Speaker 9: don't think has come out clear is you know there
Speaker 9: are banks who play to win and the banks who
Speaker 9: play not to lose. The largest five or six banks say, actually,
Speaker 9: if I've got private credit, I can write even more
Speaker 9: loans and lay more off. But that's not how most
Speaker 9: people think.
Speaker 4: So we are seeing deals with banks and private credit
Speaker 4: top what is going on there.
Speaker 9: Explain that how those yes look Just to let's be clear,
Speaker 9: this is a real thing, and we see the City
Speaker 9: Group was the most of the biggest city. But we've
Speaker 9: seen fourteen tie ups in the last twelve months versus
Speaker 9: only two in the year before, so it is a
Speaker 9: real thing. Barclays a Blackstone is another big one. Now
Speaker 9: what's happening is, you know, the big private credit firms
Speaker 9: need to originate assets because they know what They're hungry
Speaker 9: for more assets and they can't originate them all themselves,
Speaker 9: so they're working with the banks any more deals. There's
Speaker 9: there's plenty more in the book in the works.
Speaker 2: Okay, but the simplistic thing from me mortals listening and
Speaker 2: good morning worldwide, particularly in you'ven't seen as United Kingdom.
Speaker 2: The heart of the matter is good people like Jim Zeltner,
Speaker 2: Mark Rowan and others are trotting out this is painless
Speaker 2: even though we have ill liquidity.
Speaker 3: There's no big deal. You know the drill.
Speaker 2: Do you buy it or do you have a skepticism
Speaker 2: that we see out there from others.
Speaker 9: So look, I know, I think for the leading firms
Speaker 9: who so let's be clearing credit and Paul knows not this.
Speaker 9: You can make a good deal or a bad deal, and
Speaker 9: you can lose all your money or take a big
Speaker 9: haircut so you need to be very thoughtful when you're
Speaker 9: letting out your sheet. There are smart people and Tom,
Speaker 9: as we both know, there's some less smart people. So
Speaker 9: within the private credit, of course there'll be some deals
Speaker 9: which go bad. But in this kind of thing, insurance companies,
Speaker 9: which are about half the assets funding private credit, need yield.
Speaker 9: And so I think the really interesting sub theme here
Speaker 9: is that as private credit gets more insurance assets, they
Speaker 9: lower their cost of capital and they become more relevant
Speaker 9: for investment grade assets in the in the marketplace. And
Speaker 9: I think that's the trend, which you know Paulo does brilliantly.
Speaker 9: Blackstone's doing very well, and I think that is a thing.
Speaker 9: And obviously if it's an investment grade, well that is
Speaker 9: less risky, isn't it, Tom. So you know, don't get
Speaker 9: me wrong, I'm sure there'll be there'll be a fringe
Speaker 9: of bad practices, but I think on the whole, actually
Speaker 9: this is more investment grade than not.
Speaker 2: Have you ever worked with pure pot Later and into
Speaker 2: the TV show industry, I.
Speaker 3: Mean here sounds right out of industry. Now are you
Speaker 3: watching industry? How real is it?
Speaker 9: I'm not I should I'm a failure on that. I haven't.
Speaker 9: You're not watching billions I love, but I haven't watch
Speaker 9: the industry.
Speaker 2: The industry is like I'm looking at it with missus Kin, going,
Speaker 2: my god, that guy talks just like you. Actually pretty good,
Speaker 2: Thank you so much.
Speaker 3: Too rare to see him.
Speaker 2: He's in studio today, of course, from the United Kingdom,
Speaker 2: working with Dantean Obamad Oliver Wyman. His own important comments there,
Speaker 2: I'm private credible.
Speaker 3: This is a.
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