WEBVTT - BI Weekend: ASML Orders, US Bank Earnings 0:00:02.960 --> 0:00:12.600 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence 0:00:12.680 --> 0:00:14.400 with Alex Steel and Paul Sweeney. 0:00:14.520 --> 0:00:17.760 The real app performance has been the US corporate high yield. 0:00:17.920 --> 0:00:20.280 Are the companies lean enough? Have they trimmed all the fats? 0:00:20.320 --> 0:00:24.119 The semiconductor business is a really cyclical business. 0:00:23.640 --> 0:00:27.200 Breaking market headlines and corporate news from across the globe. 0:00:27.280 --> 0:00:29.880 Do investors like the M and A that we've seen? 0:00:30.120 --> 0:00:33.159 These are two big time blue chip companies. 0:00:33.320 --> 0:00:36.920 The window between the peak and cut changing super fast. 0:00:37.120 --> 0:00:42.040 Bloomberg Intelligence with Alex Steel and Paul Sweeneye on Bloomberg Radio. 0:00:43.600 --> 0:00:45.839 I'm Paul Sweeney and I'm Noram Melinda filling in for 0:00:45.960 --> 0:00:46.920 Alex Steele. 0:00:46.720 --> 0:00:49.520 On Today's Bloomberg Intelligence Show. We dig inside the big 0:00:49.560 --> 0:00:51.800 business stories Impactney Wall Street and the global markets. 0:00:51.920 --> 0:00:54.240 Each and every week we provide in depth research and 0:00:54.320 --> 0:00:56.880 data on some of the two thousand companies and one 0:00:57.000 --> 0:00:59.800 hundred and thirty industries are analysts cover worldwide. 0:01:00.000 --> 0:01:02.280 Today, we'll look at how the most volatile quarter since 0:01:02.320 --> 0:01:04.800 the heights of the pandemic has delivered a windfall to 0:01:04.840 --> 0:01:05.880 Wall Streets trading desk. 0:01:06.080 --> 0:01:09.800 Plus, we'll discuss how Volkswagon and Mercedes are being impacted 0:01:09.959 --> 0:01:11.720 by electric vehicles in China. 0:01:11.760 --> 0:01:14.440 But first we look at ASML, one of the world's 0:01:14.520 --> 0:01:18.160 leading suppliers for the semiconductor industry. ASML shares plunged the 0:01:18.160 --> 0:01:20.760 most in twenty six years after the company reported weak 0:01:20.880 --> 0:01:23.160 orders last quarter for its chip making machines. 0:01:23.360 --> 0:01:26.479 ASML also lowered its guidance for next year, and this 0:01:26.600 --> 0:01:29.360 is now forcing investors to reevaluate the health of the 0:01:29.360 --> 0:01:30.600 semiconductor industry. 0:01:30.800 --> 0:01:32.600 For more on this, co host Alex Steele and I 0:01:32.640 --> 0:01:36.240 were joined by Mandeep Sing, Bloomberg Intelligence senior tech industry analyst. 0:01:36.520 --> 0:01:38.920 We first asked man Deep if this is a negative 0:01:38.959 --> 0:01:40.600 sign for AI chip demand. 0:01:40.920 --> 0:01:45.240 I mean, look, when it comes to ASML, again, everything 0:01:45.319 --> 0:01:48.800 is driven by CAPEX, and when I say CAPEX, it's 0:01:48.920 --> 0:01:53.120 really coming from the foundry guys like TSMC, like Samsung. 0:01:53.640 --> 0:01:57.480 We know Samsung had layoffs recently, so clearly they are 0:01:57.520 --> 0:02:01.240 not doing value well. But TSMC is so the fact 0:02:01.320 --> 0:02:06.559 that their buyers are so concentrated and the geopolitical tensions continue, 0:02:06.760 --> 0:02:11.480 and you know the second half estimates the comps are tougher. 0:02:11.600 --> 0:02:16.239 To me, this is just a sign of expectations kind 0:02:16.280 --> 0:02:18.960 of going up to the point where you will not 0:02:19.040 --> 0:02:22.120 see any positive revisions from the print this quarter. And 0:02:22.160 --> 0:02:25.640 that's what happened with Expectations had gone up and they 0:02:25.680 --> 0:02:28.560 didn't surprise to the upside, so we could expect the 0:02:28.560 --> 0:02:29.440 same from others. 0:02:29.600 --> 0:02:31.800 The magnitude of the miss on the orders versus the 0:02:31.919 --> 0:02:35.920 estimate seemed huge to me. Yes, that typical or not 0:02:36.040 --> 0:02:38.720 to play. When they missed, they really miss well. 0:02:38.800 --> 0:02:43.320 So's that comes down to how semis typically is when 0:02:43.360 --> 0:02:46.200 you go back to prior cycles. When these companies miss, 0:02:46.320 --> 0:02:48.640 they miss big. We have seen that with Micron, we 0:02:48.680 --> 0:02:51.080 have seen that with some of the other names. But 0:02:51.240 --> 0:02:55.000 in the case of a SML, the secular drivers are intact. 0:02:55.040 --> 0:02:58.040 When you think about, you know, every foundry looking to 0:02:58.200 --> 0:03:01.400 use their machines, looking to go to you know, smaller 0:03:01.480 --> 0:03:05.240 nodes TSMC so they are their largest customer. And when 0:03:05.280 --> 0:03:08.440 you think about, you know, how well TSMC has done 0:03:08.480 --> 0:03:11.400 in terms of their AI revenue. I don't think they 0:03:11.440 --> 0:03:15.320 are cutting back capex, but it's always about that incremental 0:03:15.360 --> 0:03:18.560 buyer when it comes to these semi companies, especially the 0:03:18.560 --> 0:03:21.360 ones that are reliant on CAPEX spend. And if you 0:03:21.440 --> 0:03:24.040 take China out of the equation or the fact that 0:03:24.080 --> 0:03:27.040 they are restricted in some way. Those are some of 0:03:27.080 --> 0:03:28.320 your incremental buyers. 0:03:28.360 --> 0:03:31.040 This is a really ignorant question. Where does in Nvidia 0:03:31.120 --> 0:03:33.239 sit in this story that we're talking about. 0:03:33.160 --> 0:03:36.880 Well, Nvidia is sort of the first derivative. So if 0:03:36.920 --> 0:03:41.000 TSMC is not buying machines from ASML, that means they 0:03:41.000 --> 0:03:44.840 are not expanding their supply for you know, the latest 0:03:44.840 --> 0:03:48.320 cost packaging and the foundry side in terms of manufacturing 0:03:48.480 --> 0:03:53.800 Nvidia's chips. So TSMC determines what kind of capacity expansion 0:03:53.840 --> 0:03:57.120 they're looking for for twenty twenty five and beyond, and 0:03:57.240 --> 0:03:59.880 based on that they are placing an order for a 0:04:00.080 --> 0:04:04.240 SML equipment. So it is a very big sign. And 0:04:04.280 --> 0:04:06.880 to your point about Intel being a buyer, well, Intel 0:04:06.920 --> 0:04:09.800 is under pressure to curtail their capex as well, so 0:04:10.040 --> 0:04:12.880 you're taking a lot of the incremental buyers out of 0:04:12.880 --> 0:04:16.240 the equation even though there is no substitute for ASML. 0:04:16.320 --> 0:04:18.680 So it's not as if ASML is losing market share 0:04:18.760 --> 0:04:22.479 to anyone. It's just the incremental buyers are fewer compared 0:04:22.480 --> 0:04:24.440 to where they were. You know, a couple of quarters back. 0:04:24.600 --> 0:04:27.080 Okay, what I know about AI you can put into 0:04:27.120 --> 0:04:30.120 a shot class. So answer this question like, I'm a 0:04:30.120 --> 0:04:33.560 five year old. Is this fundamentally change the AI story 0:04:33.920 --> 0:04:34.360 for tech? 0:04:35.200 --> 0:04:39.279 It doesn't. It's just that everyone is expecting some sort 0:04:39.279 --> 0:04:42.040 of digestion period when it comes to AI. We have 0:04:42.240 --> 0:04:45.640 had you know, a long up to the right sort 0:04:45.680 --> 0:04:49.000 of scenario so far. When it comes to generative AI, 0:04:49.400 --> 0:04:53.279 and everyone expects a pause at some point, their signs 0:04:53.320 --> 0:04:56.160 are you know, in Vidia chip demand remains in say 0:04:56.200 --> 0:05:00.880 siable despite the restrictions, but when it comes to you know, SEMIS, 0:05:00.920 --> 0:05:04.080 the way it works is first your foundry guys are 0:05:04.120 --> 0:05:07.600 gonna slow down their supply expansion. Then you know, and 0:05:07.760 --> 0:05:11.839 video will see fewer beat and raises, and so there 0:05:11.880 --> 0:05:14.400 is a derivative aspect to how it flows through. It 0:05:14.440 --> 0:05:17.120 doesn't all happen in the same quarter, and to me 0:05:17.520 --> 0:05:20.760 ESML missing is one of the first signs that you know, 0:05:21.400 --> 0:05:24.040 things may be cooling down a little bit. It may 0:05:24.040 --> 0:05:27.320 not get reflected in Video's quarter this time around, but 0:05:27.520 --> 0:05:30.479 two quarters down the line and Vidia could get effected. 0:05:30.160 --> 0:05:32.880 Which then also reads the question like which customer is 0:05:32.880 --> 0:05:35.839 the problem for ASML, like what are their customer lists 0:05:35.880 --> 0:05:38.039 are calling them saying like, guys, look, we don't really 0:05:38.040 --> 0:05:40.960 need the equipment, like we know it may not be TSMCS, 0:05:41.000 --> 0:05:43.239 then is an Intel because that's more of an idiosyncratic 0:05:43.520 --> 0:05:47.320 Intel issue rather than like a broader AI chip story issue. 0:05:47.520 --> 0:05:51.200 Yeah, and Intel and Samsung, I mean, look, Samsung, we 0:05:51.360 --> 0:05:54.800 know isn't doing very well on the manufacturing side. When 0:05:55.120 --> 0:05:59.040 people talk about generative AI chips and GPUs, everyone is 0:05:59.080 --> 0:06:02.480 going to MC as if there's only game in town. 0:06:02.839 --> 0:06:06.159 Samsung isn't able to switch to that latest note for 0:06:06.320 --> 0:06:09.360 you know, generative AI chips, and that's where we heard 0:06:09.400 --> 0:06:13.760 Samsung doing a layoff. So clearly they are curtailing their costs. 0:06:14.040 --> 0:06:16.840 Intel is curtailing their costs. So you take out two 0:06:16.880 --> 0:06:20.599 of the top buyers of ASML gear and we know 0:06:20.880 --> 0:06:24.960 they sell you know, multimillion dollar machines, So these are 0:06:25.080 --> 0:06:29.760 expensive purchases. And it's not as if ASML is losing business, 0:06:29.839 --> 0:06:32.239 it's just it won't get reflected in the next quarter 0:06:32.440 --> 0:06:33.760 or you know, the couple of quarters. 0:06:33.880 --> 0:06:38.120 Our thanks, saman Deep saying Bloomberg Intelligence senior tech industry analysts. 0:06:38.320 --> 0:06:41.080 Each week we look at research from Bloomberg and EF 0:06:41.240 --> 0:06:43.200 previously known as New Energy Finance. 0:06:43.320 --> 0:06:45.760 They're the team at Bloomberg that tracks and analyzes the 0:06:45.920 --> 0:06:49.880 energy transition from commodities to power, transport, industries, buildings, and 0:06:49.920 --> 0:06:52.680 agriculture sectors. This week, we take a look at how 0:06:52.680 --> 0:06:55.920 corporations are on pace to purchase record clean energy in 0:06:55.960 --> 0:06:56.800 twenty twenty four. 0:06:57.080 --> 0:06:58.960 For more on this, co host Alex Steele and I 0:06:59.000 --> 0:07:03.080 were joined by Kyle prison bnef's head of sustainability research 0:07:03.440 --> 0:07:05.040 first to ask Kyle to take a look at the 0:07:05.120 --> 0:07:08.479 kind of corporations that are signing green power purchase agreements. 0:07:08.880 --> 0:07:12.920 So they're locking into long term contracts for typically solar windpower, 0:07:12.960 --> 0:07:15.200 but we're now seeing them expand into other forms of 0:07:15.280 --> 0:07:20.120 low carbon technology for example, like nuclear, like hydro and geothermal. 0:07:20.760 --> 0:07:23.400 Big technology companies have really led in this space. So 0:07:23.480 --> 0:07:28.480 it's the companies like Amazon, Meta, Google, Microsoft, they're signing 0:07:28.520 --> 0:07:30.640 the most deals at a large scale. But we're seeing 0:07:30.640 --> 0:07:33.320 a lot of heavy emitting, hard to abate sectors getting 0:07:33.320 --> 0:07:37.200 into this space now, so materials companies, industrials, oil and 0:07:37.240 --> 0:07:40.200 gas companies. They're starting to break into new markets where 0:07:40.200 --> 0:07:42.640 big tech maybe doesn't have as big of a footprint, 0:07:42.680 --> 0:07:45.360 and they're starting to sign these long term, large scale 0:07:45.400 --> 0:07:46.280 clean energy deals. 0:07:46.720 --> 0:07:49.800 Where are the clean energy deals happening is it here 0:07:49.840 --> 0:07:51.720 in the US, is it in Europe? Or where are 0:07:51.720 --> 0:07:52.800 these things mostly happening? 0:07:53.040 --> 0:07:56.239 Historically was the US, So between twenty fifteen and twenty 0:07:56.240 --> 0:07:59.760 twenty two, around two thirds of all these corporate clean 0:07:59.840 --> 0:08:02.360 up energy power purchase agreements were signed in the United States. 0:08:02.960 --> 0:08:05.320 In twenty twenty three, that number drop to around forty 0:08:05.320 --> 0:08:09.119 five percent. So corporations are increasingly spreading out and signing 0:08:09.160 --> 0:08:12.960 deals in Europe, in Latin America and Southeast Asia, for example. 0:08:13.240 --> 0:08:15.520 In Asia in particular, you have a lot of demand 0:08:15.560 --> 0:08:18.320 for electricity from corporations and you have a huge supply 0:08:18.400 --> 0:08:21.280 chain footprint, and historically those companies haven't been able to 0:08:21.520 --> 0:08:24.320 buy clean energy. But through a lot of policy lobbying 0:08:24.360 --> 0:08:26.120 and a lot of work on the ground with regulators, 0:08:26.440 --> 0:08:29.360 you now have opportunities to buy clean energy. In Japan, 0:08:29.600 --> 0:08:32.320 South Korea, Vietnam's a new market, so there's a lot 0:08:32.360 --> 0:08:33.560 of new, exciting expansion. 0:08:34.280 --> 0:08:36.160 What's the price for these things and how do they 0:08:36.160 --> 0:08:37.600 compare it to traditional energy? 0:08:37.920 --> 0:08:39.720 So that's been one of the biggest drivers in the 0:08:39.760 --> 0:08:43.000 growth of this market right. So through September of this year, 0:08:43.080 --> 0:08:46.880 companies have announced over thirty one gigawatts of clean energy 0:08:46.880 --> 0:08:49.560 through corporate power purchase agreements. That's the size of a 0:08:49.559 --> 0:08:52.880 small country in a given year, and we're on record pace. 0:08:52.920 --> 0:08:54.960 And the biggest reason for that is that sol earned 0:08:55.000 --> 0:08:57.520 wind on a new build basis are now cheaper than 0:08:57.559 --> 0:09:00.240 colon gas in many markets around the world. So as 0:09:00.280 --> 0:09:03.040 a corporate buyer, I can undercut those prices for power 0:09:03.320 --> 0:09:05.400 that I might be paying, for example, from a utility 0:09:05.480 --> 0:09:07.840 or from the grid by locking into a long term, 0:09:07.840 --> 0:09:10.479 fixed contract for renewables and for renewables. 0:09:10.559 --> 0:09:13.160 Is this is the adoption of renewables or the growth 0:09:13.160 --> 0:09:16.720 of the renewables market. Is that driven by the market 0:09:16.920 --> 0:09:20.120 or by regulations governments saying you gotta do this? 0:09:20.960 --> 0:09:23.200 What do we learn I mean to the last question, 0:09:23.240 --> 0:09:26.800 it's really primarily driven by economics. But reliability is a 0:09:26.840 --> 0:09:30.520 huge factor here. So big technology companies they're now going out, 0:09:30.760 --> 0:09:33.360 they're building these data centers. You're seeing a big expansion 0:09:33.400 --> 0:09:36.640 in manufacturing capacity. All of this requires the lights to 0:09:36.679 --> 0:09:39.200 be on twenty four to seven, right, So you can't 0:09:39.240 --> 0:09:41.920 afford to have a power outage or a grid failure. 0:09:42.320 --> 0:09:44.960 So locking into one of these contracts for solar and wind, 0:09:45.240 --> 0:09:48.080 that gives you more reliability. And again that expansion into 0:09:48.160 --> 0:09:50.920 other forms of what we would call zero carbon base 0:09:51.040 --> 0:09:53.520 load power that could generate twenty four to seven, like 0:09:53.640 --> 0:09:57.200 nuclear and geothermal, that also kind of emphasizes that reliability. 0:09:57.480 --> 0:09:59.720 So it's a combo of that along with sustainability. 0:10:00.160 --> 0:10:02.640 And how do you think that this sort of partnership 0:10:02.679 --> 0:10:04.800 and evolution happens. It's still going to be these long 0:10:04.880 --> 0:10:06.840 term power purchase agreements or is it going to be 0:10:06.880 --> 0:10:09.600 like these hyper scalers And you know, maybe even like 0:10:09.600 --> 0:10:12.080 a sman industry or the hard to debate industry just 0:10:12.120 --> 0:10:15.800 sets up like their little small modular reactor right next 0:10:15.800 --> 0:10:18.760 to their facility, or a wind farm right next to 0:10:18.800 --> 0:10:21.480 their facility. I mean, I'm being hyperbole, but you get 0:10:21.480 --> 0:10:24.360 the idea versus plugging into the grid for example. 0:10:24.679 --> 0:10:27.599 You definitely need collaboration on the grid side, right, and 0:10:27.880 --> 0:10:30.600 the utility scale side of this market. Of course, there 0:10:30.640 --> 0:10:34.120 are opportunities to build a solar project or a wind 0:10:34.160 --> 0:10:37.320 farm on site and leverage energy storage to get that 0:10:37.360 --> 0:10:40.680 power directly, but we need utilities, right, and we need 0:10:40.720 --> 0:10:43.920 grid planners to start collaborating with these corporate buyers to 0:10:44.040 --> 0:10:46.560 ensure that this grid scale up is done sustainably. If 0:10:46.640 --> 0:10:49.319 we start to build all these hyperscaler data centers in 0:10:49.679 --> 0:10:52.439 for example, the Data Center Corridor in the eastern US 0:10:52.520 --> 0:10:55.240 or in Texas. You need to ensure that there's enough 0:10:55.400 --> 0:10:58.560 transmission capacity to ensure that that power gets moved from 0:10:58.600 --> 0:11:01.240 A to B. Right, So that's to involve regulators, that 0:11:01.320 --> 0:11:03.960 starts to involve utilities. So it really is kind of 0:11:03.960 --> 0:11:06.200 an approach that everyone needs to be involved in for 0:11:06.240 --> 0:11:07.280 this to be successful. 0:11:07.440 --> 0:11:10.520 You know where they do wind farms in a big way, Ireland, 0:11:11.120 --> 0:11:12.800 driving around tons of that. 0:11:13.200 --> 0:11:15.000 A lot of data centers in Ireland as well, so 0:11:15.160 --> 0:11:16.280 it's extra important there. 0:11:16.400 --> 0:11:19.199 Yeah, so they were ever there, just big ones as well, 0:11:19.200 --> 0:11:21.440 and it's windy there, so it works being an island 0:11:21.440 --> 0:11:23.840 and all talk to just about you mentioned nuclear energy. 0:11:24.760 --> 0:11:27.120 What's the future of nuclear here in this country? Can 0:11:27.200 --> 0:11:29.560 we build these little nuclear plants that can do things 0:11:29.600 --> 0:11:30.680 and not pose a big risk. 0:11:31.120 --> 0:11:34.079 So I, unfortunately I can't comment too much on nuclear 0:11:34.280 --> 0:11:36.400 We have an guy, we do have a nuclear guy. 0:11:37.480 --> 0:11:40.040 I'll leave it to him, but what I would say 0:11:40.120 --> 0:11:42.440 is right, there was a lot of noise around this 0:11:42.559 --> 0:11:46.000 announcement from Microsoft around through my island. Through my island 0:11:46.040 --> 0:11:48.400 is a name, right, that's a project that obviously evokes 0:11:48.400 --> 0:11:50.480 a lot of emotion, but we're going to see a 0:11:50.480 --> 0:11:53.440 lot of corporations continue to look for those deals with 0:11:53.559 --> 0:11:56.400 that zero carbon based load power. So we wrote about 0:11:56.440 --> 0:11:58.640 this the other week. This won't be the last nuclear 0:11:58.679 --> 0:12:01.360 deal from big tech, right You'll see more geothermal deals. 0:12:01.720 --> 0:12:04.079 So it's going to play a really important role here 0:12:04.120 --> 0:12:07.200 as a reliable source of power that's also low carbon. 0:12:07.480 --> 0:12:11.000 What region is signing the most of these clean PPAs 0:12:11.400 --> 0:12:11.760 right now? 0:12:11.760 --> 0:12:14.800 It's Texas and it's based purely on economics. So in 0:12:15.200 --> 0:12:18.480 for example, northern and western Texas, the price of power 0:12:18.520 --> 0:12:22.199 for wind is incredibly cheap and you have fantastic wind resources, 0:12:22.480 --> 0:12:23.960 so you have a lot of companies going out and 0:12:24.000 --> 0:12:27.839 signing deals there. But increasingly companies want to emphasize where 0:12:27.880 --> 0:12:30.640 can they make the biggest impact by adding clean power. 0:12:30.880 --> 0:12:33.520 If you already have all of this low carbon wind 0:12:33.559 --> 0:12:36.320 and solar generating in Texas, are you really making that 0:12:36.400 --> 0:12:39.160 much of a difference by adding another project there, for example, 0:12:39.200 --> 0:12:42.200 compared to the eastern US where you have more coal power, 0:12:42.400 --> 0:12:44.720 right where you can have a bigger impact on decarbonizing 0:12:44.720 --> 0:12:47.040 the grid. So what we're going to slowly start to 0:12:47.080 --> 0:12:50.160 see is more corporations expand that footprint, both to other 0:12:50.200 --> 0:12:52.960 parts of the United States outside of Texas, but other 0:12:53.040 --> 0:12:54.400 new regions in the world. 0:12:54.240 --> 0:12:57.400 Are thanks to Kyle Howrison, bnef's head of sustainability research. 0:12:57.640 --> 0:12:59.800 Coming up, we'll get how a slump in demand from 0:13:00.360 --> 0:13:03.480 is impacting the luxury goods maker LVMH. 0:13:03.559 --> 0:13:06.360 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:13:06.360 --> 0:13:08.520 depth research and data on two thousand companies and one 0:13:08.640 --> 0:13:11.600 hundred and thirty industries. You can access Bloomberg Intelligence via 0:13:11.679 --> 0:13:12.920 Bigo on the terminal. 0:13:12.960 --> 0:13:15.920 I'm Paul Sweeney and I'm normal Linda. This is Bloomberg. 0:13:20.240 --> 0:13:24.120 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:13:24.200 --> 0:13:27.280 weekdays at ten am Eastern on Affo card playing nbroud 0:13:27.320 --> 0:13:30.360 Auto with the Bloomberg Business app. Listen on demand wherever 0:13:30.440 --> 0:13:33.600 you get your podcasts, or watch us live on YouTube. 0:13:35.559 --> 0:13:38.440 I'm Paul Swing and I'm Normalanda, filling in for Alex Steel. 0:13:38.720 --> 0:13:40.640 We move now to US bank earnings. 0:13:40.760 --> 0:13:42.719 The most fallat a quarter since the heights of the 0:13:42.800 --> 0:13:45.960 pandemic has delivered a windfall to wall streets trading desks 0:13:46.160 --> 0:13:46.600 last quarter. 0:13:46.679 --> 0:13:49.480 Goldman Sachs Bank of America City Group and JP Morgan 0:13:49.559 --> 0:13:52.640 Chase posted equities and fixed income trading halls that surpassed 0:13:52.640 --> 0:13:53.520 analyst estimates. 0:13:53.720 --> 0:13:56.520 This week, Morgan Stanley joined the party and reported better 0:13:56.559 --> 0:13:59.800 than expected trading revenue, fueling a thirty two percent profits 0:14:00.240 --> 0:14:03.240 last quarter. As a result, Morgan Stanley shares surged the 0:14:03.360 --> 0:14:04.360 most in four years. 0:14:04.679 --> 0:14:07.240 For More, we were joined by Alison Williams, Bloomberg Intelligence, 0:14:07.280 --> 0:14:10.160 senior analysts for Global Banks. We first asked Allison to 0:14:10.280 --> 0:14:12.360 break down Morgan Stanley's quarterly results. 0:14:12.760 --> 0:14:15.640 I think the real number that's giving investors confidence in 0:14:15.679 --> 0:14:17.760 our opinion, you know, is the wealth flows. 0:14:18.559 --> 0:14:21.560 So we've had some uneven flows. 0:14:21.800 --> 0:14:24.760 Last quarter was was relatively weak, and I think o 0:14:24.880 --> 0:14:28.080 the rebound this quarter maybe instilling a little bit of confidence. 0:14:28.720 --> 0:14:33.640 As you know, they are strong institutionally, but they have 0:14:33.880 --> 0:14:37.640 shifted their business over time to this, uh more towards 0:14:37.680 --> 0:14:40.640 the wealth business. Gorman had sort of put some aggressive 0:14:40.680 --> 0:14:43.040 targets out there before handing over the rains its head 0:14:43.120 --> 0:14:47.720 pick and so and so to be clear, they really, 0:14:48.480 --> 0:14:51.040 you know, beat the numbers across the board. It was 0:14:51.160 --> 0:14:54.160 led by the institutional business, the equities trading business, in 0:14:54.200 --> 0:14:59.240 which they're relatively more skewed did very well, partly because 0:14:59.280 --> 0:15:02.080 they are skewed that business, and they did outperform. They 0:15:02.160 --> 0:15:06.120 had the best growth in trading and fees across the 0:15:06.200 --> 0:15:10.239 big six US bank so upset across the board, benefiting 0:15:10.280 --> 0:15:13.480 from their mix, benefiting from their performance. But the wealth 0:15:13.520 --> 0:15:16.640 flows are really what the focus is for investors also 0:15:16.800 --> 0:15:22.160 because stocks are aiding their asset values, aiding fees and 0:15:22.400 --> 0:15:26.040 so that pre tax margin in the business. The other 0:15:26.160 --> 0:15:27.560 key metrics also doing better. 0:15:28.160 --> 0:15:31.360 Alison, how much can we expect the wealth assets to 0:15:31.640 --> 0:15:32.160 keep growing? 0:15:32.640 --> 0:15:36.720 So, you know, that is the multiple trillion dollar question. 0:15:36.920 --> 0:15:40.520 That is one of the aggressive targets that was put 0:15:40.560 --> 0:15:43.720 out there was to you know, sort of aggressively grow 0:15:43.800 --> 0:15:46.120 this assets, and it did seem like there were some 0:15:46.240 --> 0:15:50.000 pretty healthy market gains priced in. So the markets are 0:15:50.120 --> 0:15:55.840 delivering on those gains certainly this year, and the flows 0:15:55.920 --> 0:15:58.960 are also helping. But you know, we would want to 0:15:59.000 --> 0:16:03.520 see a couple more quarters of evidence that you know, 0:16:03.600 --> 0:16:07.120 they've really built the momentum there. We would expect Morgan's 0:16:07.160 --> 0:16:11.840 family to have a strong quarter in wealth this quarter, 0:16:12.120 --> 0:16:16.080 just where stocks are. I mean, the global market cap 0:16:17.160 --> 0:16:19.960 reached a record high, according to Bloomberg data at the 0:16:20.080 --> 0:16:22.800 end of the third quarter, and I would keep in 0:16:22.920 --> 0:16:27.800 mind that the pricing of those wealth fees really relates 0:16:27.880 --> 0:16:29.760 to the beginning of quarter value. 0:16:29.840 --> 0:16:32.720 So that's helpful for the bank for the fourth quarter 0:16:32.840 --> 0:16:33.360 as well. 0:16:33.520 --> 0:16:36.000 But you know, to your question, outs, when we're thinking 0:16:36.000 --> 0:16:38.680 about the overall franchise and we're thinking about the growth, 0:16:39.240 --> 0:16:41.960 we should keep in mind that there is a big 0:16:42.080 --> 0:16:45.080 talent to the business this year from markets, and to 0:16:45.200 --> 0:16:49.600 some extent, the future growth is sowhat dependent on that. 0:16:50.240 --> 0:16:52.840 It just seems Allison, as I kind of read your 0:16:52.920 --> 0:16:55.720 research and yeah, I know you guys have break data 0:16:55.760 --> 0:16:58.160 on market share across all business lines, it just seems 0:16:58.200 --> 0:17:01.360 like we're going to Stanley, Golden, Sachs, Morgan, they're just 0:17:01.440 --> 0:17:04.240 kind of running away from everybody else on the planet. 0:17:04.320 --> 0:17:06.640 I mean, is that in fact the case. 0:17:06.800 --> 0:17:07.960 They have been? 0:17:08.280 --> 0:17:11.320 And you know, whenever we expect you know that like, okay, 0:17:11.840 --> 0:17:15.560 who's gonna who's left that can you know, blow up 0:17:15.600 --> 0:17:19.040 that's a technical term, if you will, and see some 0:17:19.119 --> 0:17:21.320 more share to these banks who are kind of running 0:17:21.359 --> 0:17:24.760 out of names. But if you think about, for example, 0:17:24.920 --> 0:17:29.480 what's happening in prime brokerage, right, so a lot of 0:17:29.840 --> 0:17:36.120 these larger institutional hedge funds that have you know, sort 0:17:36.160 --> 0:17:38.800 of these multipod shops, et cetera. To the extent that 0:17:38.920 --> 0:17:43.200 those bigger firms are gaining assets and doing better, that's 0:17:43.320 --> 0:17:48.280 benefiting you know, the leaders Morgan, Stanley Goldman and JP Morgan, 0:17:48.359 --> 0:17:51.120 and so as as the bigger clients get bigger, that's 0:17:51.400 --> 0:17:55.480 helping those firms as well. Within the trading business. The 0:17:55.600 --> 0:17:57.560 other thing I would point to is, you know, the 0:17:57.640 --> 0:18:01.800 investments in technology. These companies made the investments in technology, 0:18:02.480 --> 0:18:04.960 and that's also helping them to win share in the 0:18:05.040 --> 0:18:05.920 trading businesses. 0:18:06.800 --> 0:18:09.439 I'm gonna steal Paul's comment slash question saying what does 0:18:09.520 --> 0:18:12.040 this all mean about the European banks And are the 0:18:12.160 --> 0:18:14.199 US banks eating their lunch or is the lunch being 0:18:14.240 --> 0:18:14.800 spread around? 0:18:15.240 --> 0:18:19.879 So I think for this quarter, the pie is getting bigger. 0:18:20.080 --> 0:18:23.760 So you know, in terms of whether eating lunch or pie, 0:18:24.800 --> 0:18:27.520 you know, the US banks have been gaining share against 0:18:27.560 --> 0:18:31.399 the Europeans for many many years. We think that does continue, 0:18:32.000 --> 0:18:34.680 but we think the pie is also bigger this quarter. 0:18:35.240 --> 0:18:38.760 And what we heard specifically was, you know, for example, 0:18:38.880 --> 0:18:42.480 JP Morgan strength across regions, and what we heard from 0:18:42.480 --> 0:18:46.520 these banks was strength across derivatives, prime and cash equity, 0:18:46.640 --> 0:18:49.520 so it is really broad based. The other thing that 0:18:49.600 --> 0:18:53.119 we think is notable for UBS in particular is the 0:18:53.200 --> 0:18:57.399 strength in Asia. So not surprisingly we saw a pickup 0:18:57.440 --> 0:19:01.760 in activity in Asia that really benefited the banks, specifically 0:19:01.840 --> 0:19:03.800 called out by JP Morgan and Morgan Stanley. 0:19:03.880 --> 0:19:05.440 We think that that is really going to be a 0:19:05.520 --> 0:19:06.520 help to UBS. 0:19:07.280 --> 0:19:10.480 So how about on the cost side, Alison, was there 0:19:10.480 --> 0:19:12.840 any discussion about compensation? I feel like that's been less 0:19:12.960 --> 0:19:15.680 of a discussion point is. I guess Wall Street compensation 0:19:15.720 --> 0:19:17.520 has become a little skewed, a little bit more towards 0:19:17.560 --> 0:19:19.520 the fixed and a little bit less on the variable. 0:19:19.760 --> 0:19:21.639 Yeah, so there's that element of it. 0:19:21.760 --> 0:19:22.040 Paul. 0:19:22.640 --> 0:19:24.200 You know, the two things I would point to is 0:19:24.280 --> 0:19:25.720 keep in mind compensation. 0:19:25.440 --> 0:19:28.560 Is a cruel din a cruel through the first three quarters, 0:19:28.640 --> 0:19:32.280 so to some extent it represents the business trends, and 0:19:32.400 --> 0:19:34.680 to some extent it represents how they think the full 0:19:34.800 --> 0:19:40.000 year we'll shake out. Secondly, you know, compensation for the 0:19:40.119 --> 0:19:44.600 investment banking fee side of things sort of was stickier 0:19:44.720 --> 0:19:46.920 than we would have expected on the downside, and I 0:19:46.960 --> 0:19:49.040 think that's because there was such a scramble to Higher 0:19:49.119 --> 0:19:53.680 Town in twenty twenty one. So and investment banks have 0:19:53.760 --> 0:19:57.000 been talking about a recovery in that fee business for 0:19:57.359 --> 0:20:00.920 several quarters now, and so I think they that COMP 0:20:01.000 --> 0:20:03.040 didn't come down as much, So there might not be 0:20:03.200 --> 0:20:06.439 as much of a search to the upside. But if 0:20:06.520 --> 0:20:09.639 we looked at costs, if we looked at COMP, you know, 0:20:09.800 --> 0:20:12.719 in general the profitability was good just because the upside 0:20:12.720 --> 0:20:15.680 to revenue was so much. Now, is that because the 0:20:15.760 --> 0:20:18.600 investors banks are keeping conservative and going to see how 0:20:18.640 --> 0:20:22.040 the fourth quarter shakes out in terms of the accrual basis? 0:20:23.119 --> 0:20:26.000 Is part of it because of the stickiness as I mentioned, 0:20:26.920 --> 0:20:30.880 But you did see COMP coming in sort of above estimates, 0:20:31.240 --> 0:20:33.360 just not as much as the revenue upside. 0:20:33.680 --> 0:20:36.960 Our thanks to Allison Williams, Bloomberg Intelligence, Senior Analyst, Global 0:20:37.000 --> 0:20:38.240