Speaker 1: This is Bloomberg business Week Inside from the reporters and
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Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: All Right, everybody, you know it already. You've been listening
Speaker 1: to Bloomberg. We just talked about it in our simulcast. Really,
Speaker 1: front and center, is that update that we got from
Speaker 1: some of the largest US banks earlier this morning? JP Morgan,
Speaker 1: Chase City, Wells Fargo. We also heard from PNC Financial,
Speaker 1: which fell to its lowest level intraday since November of
Speaker 1: twenty twenty. But JPM and City, they are your top
Speaker 1: performers in the S and P five hundred. All right,
Speaker 1: so let's get to it. Let's get some more deeper
Speaker 1: thought on the group and the reporting season so far.
Speaker 1: Bloomberg News Wall Street reporter Shanali Bassak here in our
Speaker 1: studio along with Josh Rosner, managing director at the independent
Speaker 1: research consultancy firm, Graham Fisher, co author of the New
Speaker 1: York Times bestseller Reckless Endangerment, How outsized ambition, greed and
Speaker 1: corruption led to economic armageddon, as you know, a trusted
Speaker 1: voice that we really leaned on during the Great Financial Crisis.
Speaker 1: Hey guys, but the great to have you here. We've
Speaker 1: got a couple of blocks to dig into it. So welcome, welcome,
Speaker 1: should onlie, I want to kick it off with you.
Speaker 1: So far, so good for the three banks, or walk
Speaker 1: us through some of the highlights and what you think
Speaker 1: our audience needs to know. Well, a few things. One,
Speaker 1: coming into this period, we had the investment banks doing
Speaker 1: better in terms of trading than you had the regional
Speaker 1: banking system and even the consumer banks, even the largest ones,
Speaker 1: if you could believe, a Bank of America this morning
Speaker 1: before the market open was trading at below book value.
Speaker 1: And so but with that said, you did see JP
Speaker 1: Morgan City Group beat on fixed income trading. There was
Speaker 1: worries here that the institutional businesses would be weaker, but
Speaker 1: guess what, they're common in hot still. And on top
Speaker 1: of that, you also have JP Morgan raising their net
Speaker 1: interest and come out. Look they're making money on the
Speaker 1: heels of higher interest rates. But listen, it's from the
Speaker 1: credit card business largely, and that's why there are some
Speaker 1: unique stories for these big rank gun up dramatically, especially
Speaker 1: if you're not paying on time, and their deposit rates
Speaker 1: are still very low, right, and feels like a recession
Speaker 1: story to me. Am I reading that correctly. So what's
Speaker 1: interesting is when you look at the provisions for low
Speaker 1: losses are certainly rising at the banks, but they're not
Speaker 1: at these massive danger levels. But with that said, you know,
Speaker 1: I think the biggest difference between now in two thousand
Speaker 1: and eight, and I'll let our guests also way in
Speaker 1: into this is it's not this big crash all at once,
Speaker 1: but this long, slow bleed of uncertainty that is killing
Speaker 1: everybody here and there. It's a bummer. It's a bummer.
Speaker 1: So Josh, come on in and how you see in
Speaker 1: terms of everything? No, I agree with all of that.
Speaker 1: I'd also say that you have to remember that so
Speaker 1: much of the financial intermediation that used to exist within
Speaker 1: the banks doesn't really in the banks anymore. I mean,
Speaker 1: to some degree, it exists at some of the smaller banks,
Speaker 1: some of the regional banks, but a lot of it
Speaker 1: has moved oft into the shadow banking. Whether that's a
Speaker 1: private area that's right, whether that's whether that's mortgage lending,
Speaker 1: whether that's other lending, whether that's even auto finance, right,
Speaker 1: So to some degree, the large banks have actually become
Speaker 1: much more dependent upon credit cards, other consumer and really
Speaker 1: playing the trading game, and they've done so quite successfully.
Speaker 1: I think that's going to insulate them, and it's part
Speaker 1: of the reason we're not seeing loan loss allowances rise
Speaker 1: like we have in prior cycles. But I think at
Speaker 1: some point the net interest margin is still the risk
Speaker 1: to the point where I kind of feel like this
Speaker 1: is almost the best of what we're going to see
Speaker 1: in this cycle. Profitability being coming a big issue, plus
Speaker 1: a UCP and C slowing buybacks and investors just don't
Speaker 1: have a story to hang onto. Well, let's kind of
Speaker 1: play on that a little bit and then we'll get
Speaker 1: into some of what we're going to get next week.
Speaker 1: P and C a regional player, yeah, And what's interesting
Speaker 1: about that is they are bigger than many of the
Speaker 1: regional players, so they're even among that group, they're safer
Speaker 1: than some of the other ones that we are even
Speaker 1: more worried about. So you can't even look at today
Speaker 1: and have said it wasn't all clear. The other banks
Speaker 1: have much bigger issues, arguably, but P and C even
Speaker 1: with the deposits coming in above expectations, you see the
Speaker 1: market changing their mind already. They started today higher and
Speaker 1: now they are lower on the day, and it's because
Speaker 1: of a lot of those profitability questions that we've been
Speaker 1: talking about. Well, how do you think about the group overall?
Speaker 1: I mean I was looking at the KBW extuming it
Speaker 1: was going to be off the charts this morning. Are
Speaker 1: off the charts at some point, but it wasn't because
Speaker 1: there's a lot of names still in the sector. You
Speaker 1: think still, Josh, a lot of questions out there. Well,
Speaker 1: I think there's a lot of questions out there because yes,
Speaker 1: we've seen the impact of rising rates on their ability
Speaker 1: to reprice cards as example, but we haven't actually seen
Speaker 1: an increase in demand for topod or it turns on deposits,
Speaker 1: so that any interest margin is one risk. And we're
Speaker 1: endering into the period and where the credit cycle ends
Speaker 1: up starting to play out because the FED rate hikes.
Speaker 1: I haven't really started hitting the books yet. Really, Yeah,
Speaker 1: we're not really. I guess we'll be a year, but
Speaker 1: I think we're what a year in on the streets. Yeah,
Speaker 1: but again we're seeing we haven't seen this pricing of
Speaker 1: any assets. Yes, they're the assets that we're probably on
Speaker 1: a regular basis credit cards, but for the most part,
Speaker 1: a lot of it's locked and so that's where the
Speaker 1: risk is, which is why we're worried about commercial realists. Absolutely.
Speaker 1: I think about commercial real estate, even corporate debt, they
Speaker 1: have to refinance at some rate, and at that rate
Speaker 1: you don't know just how expensive it's going to get
Speaker 1: for a lot of the industry, and there's a lot
Speaker 1: of worries not just about commercial real estate, but all
Speaker 1: of these companies that borrowed money during the pandemic that
Speaker 1: will protect right exactly, and not just corporate but smaller
Speaker 1: and mid sized businesses well. And that's where to some degree,
Speaker 1: certainly the big banks don't really have the same worries.
Speaker 1: That is mostly community banks, local institutions, but we've also
Speaker 1: seen a lot of that migrate well outside to private equity.
Speaker 1: Again BDCs the shadows, and so that's that's the care
Speaker 1: they are in the coal mine. As far as I'm king, Well,
Speaker 1: that's what he's going to ask you, and so is
Speaker 1: that the problem that that's likely to be the problem,
Speaker 1: and in some large measure it's also going to be
Speaker 1: the problem in some of the commercial real estate portfolios.
Speaker 1: It's a strange one because on one hand, and I
Speaker 1: remember during twenty twenty in particular, I talked to a
Speaker 1: lot of the BBC's in private credit folks and they
Speaker 1: said to me at that time, yes, they stepped in
Speaker 1: a huge way where the bank stepped out, but they
Speaker 1: only stepped in so far. You know, they're they're risks,
Speaker 1: they're not willing to take. At the end of the day,
Speaker 1: they want to make money, and they make it at
Speaker 1: maybe standards too. They have to, not all of them,
Speaker 1: but on YouTube, Josh on radio job because because in
Speaker 1: some places, in some places when libor mattered during the
Speaker 1: during the pandemic, they were still charging discrete credits libor
Speaker 1: plus five six hundred basis points at essentially is zero
Speaker 1: rate environment. How many of the discrete corporate credits are
Speaker 1: going to be able to reprice up from nine percent
Speaker 1: plus to twelve percent and survive? And so I think
Speaker 1: you're going to end up with some real credit quality problems.
Speaker 1: Do you think it's fair to put a JP Morgan
Speaker 1: and a Jamie Diamond and maybe City because I think
Speaker 1: these were the top gainers in the S and P
Speaker 1: five hundred. Can we put them in a separate class?
Speaker 1: Think we have to, and and by the way, I
Speaker 1: think we have to as well, because although a Goldman
Speaker 1: and a Well's fire, let's just call it what it is.
Speaker 1: You and I were here during the debates as to
Speaker 1: whether we want to ever again be exposed to companies
Speaker 1: that are too big to fail. Well, that bird has flown.
Speaker 1: And what everybody, they're bigger and we've told everyone a
Speaker 1: that they're bigger would be if you're concerned about your
Speaker 1: small bank. These are systemic run to them. And unfortunately
Speaker 1: we've we've reinforced all of the concerns, making it more
Speaker 1: that they are government guaranteed. Yeah, utilities, we saw it
Speaker 1: right as kind of you know, the market doesn't love
Speaker 1: the concentration either. For example, you know, you think back
Speaker 1: to credit SPEECE and you know we're looking at these
Speaker 1: training numbers. Fine, they're blowout numbers, but at the same time,
Speaker 1: remember the banks even start to cap out at how
Speaker 1: much leverage they can extend to the buy side. Right,
Speaker 1: And so I think, you know, the rest of the
Speaker 1: year is a big question mark, even for the big
Speaker 1: institutional safe guys, not that they will run into any
Speaker 1: big existential issues. You think about it this way, the
Speaker 1: fdi FN fees have already risen for JP Morgan their profitability.
Speaker 1: You don't even these fees are nothing. They're not. I mean,
Speaker 1: it's the question becomes, do the community and regional banks
Speaker 1: have to compete for deposits? Yes? Where which we know
Speaker 1: the answer is yes, where the big bellies don't have
Speaker 1: to compete for deposits. But why wouldn't Washington hear these
Speaker 1: earnings from JP Morgan today and say, you guys can
Speaker 1: get in here and help us feed these regional banks
Speaker 1: and keep saving them. Well, I mean, I think we
Speaker 1: saw that to some degree a couple of weeks ago
Speaker 1: with them putting money in, you know. But all we're
Speaker 1: doing then is confirming that these companies are arms of
Speaker 1: the government. They're not really private companies, though they are
Speaker 1: shareholder own. It's kind of an interesting thing when we're
Speaker 1: so suspect about like if I think of China or
Speaker 1: that aren't right it is. It's a little comfortable and frankly,
Speaker 1: if that is the case, should we at some point
Speaker 1: admit it just to own it tie them to utility
Speaker 1: type rates of return to reduce the trading risk. Yeah,
Speaker 1: it's David Solomon calling. He's got well, you know, I
Speaker 1: mean that's why you hear Jamie Diaman on the call
Speaker 1: today talking about the need for more banks and not
Speaker 1: a full scales consolidation of the system. The more you
Speaker 1: have that happen, I'll use the words from Aaron Klein
Speaker 1: at the Brooklyn Institution, who says, you know, the more
Speaker 1: we get into trouble and the more that we have
Speaker 1: to kind of bail out the banking system and not
Speaker 1: have a healthy system above and beyond the top five,
Speaker 1: you go towards a slow movement towards the nationalization of
Speaker 1: a banking system. That's right. It's never good to have
Speaker 1: no competition for the consumer at least. Yeah, what do
Speaker 1: we look at to determine the health of the regional banks? Then? Today?
Speaker 1: What are you looking at? I mean, unfortunately, I think
Speaker 1: it really is not a health of the regional banks.
Speaker 1: I really think that it's geography by geography, and management
Speaker 1: by management. Unfortunately, even more micro, much more micro, and
Speaker 1: I think, when you know, I think actually you have
Speaker 1: to dig into the call reports pretty dramatically to really
Speaker 1: assess the business line mix, how they're managing their their
Speaker 1: low lost provisions and how they're managing as we saw
Speaker 1: a couple of weeks ago, their health to maturity and
Speaker 1: available for sale portfolios. It's so funny we were saying that,
Speaker 1: you know, normally in an earning season, we don't really
Speaker 1: care about the regional I'm dumping them all together. But
Speaker 1: all of a sudden, you're right, like, we have to
Speaker 1: go through those balance sheets. I think about the FA
Speaker 1: function on the Bloomberg. We have to be pouring over
Speaker 1: that to really understand, you know, the health or lack
Speaker 1: thereof of these individual names. All Right, so we've got
Speaker 1: through today markets digesting it. What do we need to
Speaker 1: think about or what do we need to think about? Right,
Speaker 1: We've got more big banks tomorrow next week, and we're
Speaker 1: obviously going to get into the smaller players. Yeah, you
Speaker 1: have MNT really starting the smaller players quote unquote starting Monday.
Speaker 1: But you also have SCHWAB, which has been betting on
Speaker 1: the bank and got killed. Yeah, there are a lot
Speaker 1: of concerns, and you know, we had one large investor,
Speaker 1: GQG tele Financial Times that it's not that they have
Speaker 1: an existential crisis, but this is a profitability question for them,
Speaker 1: which is also assuring, right, because it's such a big
Speaker 1: firm that's outside of the regional banks being impacted by
Speaker 1: a lot of the same factors. Goldman Morgan Stanley, they're
Speaker 1: also interesting, not just because of the investment banking, but
Speaker 1: presumably Morgan Stanley would have taken a lot of the
Speaker 1: clientele as well from Silicon Valley Bank and potentially First Republic.
Speaker 1: So the way that Morgan Stanley may have benefited from
Speaker 1: some of this will be also interesting come Wednesday, and
Speaker 1: then we get back on the regional banks train right
Speaker 1: after that. All right, when you look at the you know,
Speaker 1: when we went through the crisis moment and we were
Speaker 1: looking at call reports for both the health maturity books
Speaker 1: that were underwater and the available for sale books that
Speaker 1: were underwater, Schwab has three banks. All of them were
Speaker 1: among the top five worst banks in terms of their
Speaker 1: exposure or negative exposure to treasuries. And that's really a
Speaker 1: big piece of what kicked off. That's really a big
Speaker 1: piece of a kick kicked off. The concern are you
Speaker 1: concerned about you? What? I'm not really? I mean, they're different,
Speaker 1: they're higher net worth customer. It's uh, it's a higher
Speaker 1: deposit it's a it's a lower uninsured deposit rate. So
Speaker 1: I'm not particularly concerned. I think there are questions as
Speaker 1: to why they did such a bad job of treasury management,
Speaker 1: but they also have to flow in and out of
Speaker 1: the securities firm as a separate and differentiating What about
Speaker 1: the other big banks that are reporting next week in
Speaker 1: the other names, No, I mean I think you right. Yeah,
Speaker 1: I mean I think that we're going to see a
Speaker 1: pretty clean moment from everyone. Again, I'm more concerned about
Speaker 1: when the when the when the mouse starts going through
Speaker 1: the through the snake in terms of credit quality. Yeah. Um,
Speaker 1: and that's still probably two quarters out before we start
Speaker 1: a minimum Yeah. Absolutely year guys. Yeah, I think you
Speaker 1: could last long if you think about it. I think
Speaker 1: commercial real estate is really where kind of you know,
Speaker 1: it's the Canarian the coal mine. Do you think it
Speaker 1: could be terrible? I'm expecting. I'm expecting we're going to
Speaker 1: start hearing calls for the FED to start buying CMBs anytime. So,
Speaker 1: like David Weston talked to Blackstone this week, right, Yeah,
Speaker 1: Kathy McCarthy over a Blackstone, And I feel like everybody's
Speaker 1: like it's kind of a Listen, they're not really exposed
Speaker 1: to office that much, and so you have resident Yeah,
Speaker 1: and they've also exposed themselves to residential in places where
Speaker 1: they think that they can get you know, really you know,
Speaker 1: a boost from the population Sun belts, right, they think
Speaker 1: that they can earn a lot from there. But they
Speaker 1: were buying the Florida properties right right off the crisis.
Speaker 1: Really yeah. And so the question is now there are
Speaker 1: a few things happening. I've been spending a lot of
Speaker 1: time in commercial real estate this week and anticipation of this,
Speaker 1: But what happened was, um, a lot of the private
Speaker 1: creditors are looking to the folks that are exposed to
Speaker 1: regional banks, or they're talking to the regional banks at
Speaker 1: this moment to see what they can do to help
Speaker 1: them with that part of the story. I don't know
Speaker 1: how much that helps things. I don't know how much
Speaker 1: it more expensive it makes things for borrowers. So if rates,
Speaker 1: if for some reason the markets are right well right
Speaker 1: now they're pricing in now two more increases. But if
Speaker 1: for some reason, to think it changes and we start
Speaker 1: to get rate cuts, possibly, I don't know. I feel
Speaker 1: like that's farfetched. Would it help out the commercial. Well,
Speaker 1: I think no, I think that's really farfetched. Yeah, okay, right,
Speaker 1: that we get cut there, we get cuts anytime soon. Okay, okay,
Speaker 1: Because does a pause help, I mean a pause doesn't.
Speaker 1: I don't think it actually helps. You're still gonna have
Speaker 1: the resets to the higher rate, So I don't think
Speaker 1: it really changes that anything. I just don't see the
Speaker 1: FED given the trajectory they were on and intend to be,
Speaker 1: and the fact that they need to take back, and
Speaker 1: you know, frankly, at some point, maybe we have to
Speaker 1: set a different expectation of inflation target rates. It's no
Speaker 1: longer two percent, maybe it's you know, three and a
Speaker 1: half for they seem very committed to two. That's right,
Speaker 1: but but but I don't think that's realistic point they're
Speaker 1: going to have to compit well. Also, I mean there's
Speaker 1: at least from what you're hearing from some of the banks,
Speaker 1: a city group of pushed them on this, whether they
Speaker 1: expect higher for longer. They kind of won't get there.
Speaker 1: But JB. Morgan's like, hey, we're preparing for six percent.
Speaker 1: We're not saying it will happen, but we're saying it
Speaker 1: could happen. And you should get on board because if
Speaker 1: the market is clearly not prepared for that kind of reality,
Speaker 1: are you thinking that we go six percent? I think
Speaker 1: it's I think it's more than more than not likely. Okay, yeah,
Speaker 1: And but the by side, by the way, there's a
Speaker 1: lot of like the large hedge funds and stuff, that's
Speaker 1: what they're prepared for higher for longer. I think it's
Speaker 1: a contrarian bet when you look at the market and
Speaker 1: it's a risk management exercise. Here, I do want to
Speaker 1: give you some love in terms of a new book
Speaker 1: that's coming in or what we're gonna do. Okay, you're
Speaker 1: coming out with a book with Gretchen Morganson, Pulter Prize
Speaker 1: winning journalists New York Times. She has always been a
Speaker 1: must read. The book is called These Are the Plunderers.
Speaker 1: How Private Equity Runs in Res America. My former co
Speaker 1: host Jason Kelly used to cover private equities, written many
Speaker 1: books about the impact it has had on the fitness
Speaker 1: wellness industry. Right, all of the investment private equity business
Speaker 1: becaus done cover stories on it like they are just
Speaker 1: in all walks of our life. Josh, tell us what
Speaker 1: you can literally, how you were thinking about fatal to grave. Right,
Speaker 1: pick an industry, pick a company. Usually the consumer is
Speaker 1: not aware that when they're shopping at a brand, they're
Speaker 1: actually shopping at a private equity owned brand. Funeral homes.
Speaker 1: And yeah, when you go to the doctor, more likely
Speaker 1: than not, somehow the practice is owned by private equity. Certainly,
Speaker 1: when you go to the hospital, more likely than not
Speaker 1: it's owned by private equity. And really it does affect
Speaker 1: every aspect of life. And you're seeing not only the
Speaker 1: impact in terms of cost, you're seeing the impact in
Speaker 1: terms of employment. You're seeing the impact in terms of
Speaker 1: you know, entire towns, cities wiped out because of the
Speaker 1: excessive debt that they put upon a company when they
Speaker 1: take it over, they get they extract the equity really
Speaker 1: quickly to pay themselves back, and then to some degree
Speaker 1: it doesn't really matter what happens to the carcass. To
Speaker 1: be fair, is it really all bad? I would love
Speaker 1: to see an analysis of it across the board, because
Speaker 1: you're just talking about the companies they buy, But Josh,
Speaker 1: what about the what about you know, for example, the
Speaker 1: real estate they own is a real estate landlord, a
Speaker 1: private equity real estate landlord charging you more than your
Speaker 1: older landlord would have. Right, Well, no, I don't really so.
Speaker 1: I remember they were also separating the real estate assets
Speaker 1: into a different fund for the most part of the company.
Speaker 1: But now their real estate hours they are so they've
Speaker 1: gone from private equit when you look at the bankruptcy events,
Speaker 1: ten times more likely to go bankrupt than other companies private.
Speaker 1: The model was always leverage, right, the model was always leveraged.
Speaker 1: But on top of that, you also have to start saying,
Speaker 1: who is it that's feeding these funds to them, and
Speaker 1: it's it's your pension funds nationally, right, And so when
Speaker 1: you start actually dissecting and looking at the returns over
Speaker 1: the past five ten years, what you start realizing is
Speaker 1: their performance is fully in line with index funds, and
Speaker 1: yet you're paying large multiples of what you would be
Speaker 1: paying for an index fund. So the benefit really has
Speaker 1: to be weighed as well, and they're still charging way
Speaker 1: more than it would can we all right, let's drama.
Speaker 1: There's a bad ending. I think that to some would
Speaker 1: say it's created, you know, more liquidity of the market, right,
Speaker 1: provided a whole otherness of the banking system that the
Speaker 1: other big well so sound as to the banking system,
Speaker 1: although we were just saying, you're seeing so many of
Speaker 1: the activities move outside of the banking system, which is
Speaker 1: where some of the clinari in this coal mine comes.
Speaker 1: But on top of that, there are also more and
Speaker 1: more of the leveraged buyout firms are buying insurance companies,
Speaker 1: and they're converting traditional defined benefit and retirement plans into
Speaker 1: annuity plans, and they're investing higher risking assets on behalf
Speaker 1: of those retirees, which ultimately creates a greater risk. We've
Speaker 1: got final thoughts here. The weirdness of it is this
Speaker 1: is kind of the end of a more than decade
Speaker 1: long search for yield, and so do some of those
Speaker 1: models work in this next environment or do they start
Speaker 1: to go bustin I think that's part of the problem
Speaker 1: is look the fact that over the past ten years
Speaker 1: we've seen these firms more aggressively target industries like healthcare, education,
Speaker 1: industries that we always saw as as TBD. There's a
Speaker 1: taste of the book. Josh is going to come back
Speaker 1: at you guys so incredible what we were hoping to
Speaker 1: do on this Friday. Josh Rosner of Grant Fisher and
Speaker 1: of course our own Shinnali bask Wall Street Reporter. You're
Speaker 1: listening to the Bloomberg Business Week podcast. Catch us live
Speaker 1: week afternoons from three to six Eastern Listen on Bloomberg
Speaker 1: dot Com, the iHeartRadio app and the Bloomberg Business App,
Speaker 1: or watch us live on YouTube today. All right, so
Speaker 1: lot going on as you and we did talk about
Speaker 1: this a little bit in our simulcast with remaining Katie
Speaker 1: Carol Master here with Madison Mills and Bloomberg Quicktake live
Speaker 1: in our Bloomberg Interactor Brokers Studio on YouTube and of
Speaker 1: course on Bloomberg Originals. We have to talk about retail sales, Mattie,
Speaker 1: because down for a second month in March, indicating household
Speaker 1: spending is cooling, with Americans challenged by high inflation and
Speaker 1: rising borrowing costs, and our Bloomberg Economics team specifically noting
Speaker 1: that this second straight month of lackluster retail sales reflect
Speaker 1: consumers expectation that the economy will worsen. And then we
Speaker 1: had spending on food services it's the primary proxy for
Speaker 1: services in the retail report nearly flat and March hinting
Speaker 1: at weakness in the consumer demand for discretionary services. So
Speaker 1: bottom line, it was a little bit of a mixed report,
Speaker 1: A little bit of a mixed report, especially when you
Speaker 1: look at the oil picture as well, which is another
Speaker 1: thing consistently changing. We've seen gas prices up for seventeen
Speaker 1: days in a row here, so a lot to look
Speaker 1: at when it comes to the consumer and retail space.
Speaker 1: So we've got a great guest on this. This is
Speaker 1: Mary lou Garner, Associate partner for Consumer package Goods, Retail
Speaker 1: and Logistics at Infosis Consulting. She joins us on Zoom
Speaker 1: from Naples, Florida. Mary, thank you so much for making
Speaker 1: time to chat with us today. Let's start on this
Speaker 1: retail sales data. How does what you're seeing in your
Speaker 1: role support or refute the numbers that came out today. Well,
Speaker 1: I think it actually supports the numbers that we saw today.
Speaker 1: We're not all that surprised given the fact that you know,
Speaker 1: we're in that balance of while inflation is slowing ever
Speaker 1: so slightly, and there's still the loom of the recession,
Speaker 1: and when in retail it's such a sensitive subject for consumers.
Speaker 1: And then we have the fact that a year ago
Speaker 1: people had a lot more money in their savings accounts,
Speaker 1: and they've been spending some of that. Now they're taking
Speaker 1: a step back and saying, oh, no, what do I
Speaker 1: have in fun in front of me? Our costs going
Speaker 1: to go down? Or are they going to go up?
Speaker 1: The gas prices are going up, and you know, the
Speaker 1: industries that are slowing down are the ones that you
Speaker 1: would expect to be kind of the leading indicators of
Speaker 1: UM what would slow down when we're heading into a
Speaker 1: place where consumers are pulling back under spending, like what
Speaker 1: specifically so specifically, I mean the slowest was just kind
Speaker 1: of the overall general merchandise retailers along with electronics, which
Speaker 1: have continually been, you know, UM consistently over the last
Speaker 1: six months to a year been you know, slowing down
Speaker 1: along with things like building supplies, where building supplies we're
Speaker 1: actually on fire a year ago, and you know, they're
Speaker 1: really starting to see people pulling back and saying it's
Speaker 1: that's more discretionary than it is for to say, I've
Speaker 1: got to buy my groceries. You know, I still need
Speaker 1: to put gas in my car. So there there's just
Speaker 1: the pullback, and some of the industries that respond the
Speaker 1: most the most when people are pulling back. This morning,
Speaker 1: off of the retail sales data put at a pole
Speaker 1: excuse me on Twitter, and I said, are you pulling
Speaker 1: back on spending? And just a little sampling, but sixty
Speaker 1: percent said yes, forty percent said no. So it does
Speaker 1: feel like there's a little bit of a tone change.
Speaker 1: Is it, though, Mary, that people have less money to spend,
Speaker 1: or is it that they're just a little bit nervous
Speaker 1: about what's to come and so they're starting to kind
Speaker 1: of like a squirrel, kind of squirrel away just in
Speaker 1: case what I Okay, It is definitely a combination of both.
Speaker 1: I mean, we saw travel spending go through the roof
Speaker 1: over the past year. You know, there were people would
Speaker 1: just kind of let loose a little bit after some
Speaker 1: of the COVID restrictions and they had extra money to
Speaker 1: do so. So there's the people that the credit card
Speaker 1: debt's gone up a little bit, they're starting to get conservative.
Speaker 1: But then there is the you know, probably year forty
Speaker 1: percent could have been more your higher income demographics that
Speaker 1: are more recession proof or more inflation proof are still
Speaker 1: willing to spend in the market. So I think there's
Speaker 1: a combination of several different factors that are that are contributing.
Speaker 1: Can we talk high income for a second, because you
Speaker 1: mentioned that the play is to focus on high income
Speaker 1: shoppers in the retail space more broadly, how high income
Speaker 1: exactly are we talking middle class, upper middle class, upper
Speaker 1: middle class because you know so, I'll use just use.
Speaker 1: Walmart is an example where in a subset of their
Speaker 1: stores where the demographs surrounding demographics support it, they're bringing
Speaker 1: in higher end products, which they've always been very conservative
Speaker 1: about doing that. One they didn't want it on their
Speaker 1: shelves and a lot of their places where they could
Speaker 1: lose it to shrink and theft. But they're trying to
Speaker 1: when there's a difference between a premium product in a
Speaker 1: mass retailer and a premium product in a luxury retailer.
Speaker 1: So they're trying to attract a consumer that has a
Speaker 1: little more disposable income. But it's not that target high
Speaker 1: high income because they're still shopping in the premium lanes.
Speaker 1: And you know that's why that section sector can tend
Speaker 1: to be even way more recession proof. That interests me
Speaker 1: because I would have thought that Walmart would double down
Speaker 1: on what it's best at in this time, which is
Speaker 1: providing I don't want to use the word budget, but
Speaker 1: like more bane for your buck items for folks who
Speaker 1: may be struggling in this economic environment. Do you think
Speaker 1: it's a good move for them to double down on
Speaker 1: offering some of those slightly pricier items. Well, take that
Speaker 1: with the grain of salt of that. They're only going
Speaker 1: to do it in the markets where that they can
Speaker 1: actually afford to do it and people will buy those products.
Speaker 1: But you know, Walmart is is always going to be
Speaker 1: one of the value players. But you know, they've had
Speaker 1: their margins contract, they had inventory problems, they've had supply
Speaker 1: chain issues. You know, they have had to struggle and
Speaker 1: still be able to you know, see if they're seeing
Speaker 1: their consumers they're lower in consumers spending less and their
Speaker 1: baskets going down. They're still trying to figure out how
Speaker 1: to balance it right. They don't want to lose that consumer,
Speaker 1: and they won't because a consumer doesn't have too many
Speaker 1: other choices, Mary lou And help me out, And maybe
Speaker 1: you know, I'm kind of scratching my head over what
Speaker 1: you're saying. I do find it interesting too that you
Speaker 1: know that they're going to maybe higher end stuff at Walmart,
Speaker 1: and I guess they're trying to go after a better margin,
Speaker 1: which we know in these stores the margins are really
Speaker 1: really slim. Having said that, what's the read on the
Speaker 1: demographics of who are going to Walmart? Has something changed dramatically? Well,
Speaker 1: it hasn't, because so it's it's interesting there is still
Speaker 1: the higher income families that shop at Walmart because they're
Speaker 1: also tend to be fairly conservative and want to keep
Speaker 1: that money in the bank. So there is still some
Speaker 1: of that in When you're talking like your your upper
Speaker 1: middle class, I would say so there. I think they're
Speaker 1: just trying to balance that and make sure that they've
Speaker 1: got a solution that is going to meet all of
Speaker 1: their customer needs. But you know, that whole strategy is
Speaker 1: not at all at what their core consumer and so
Speaker 1: they're still going to have to have the offerings and
Speaker 1: have the value play. But that's what compresses some of
Speaker 1: their margins. You know, if you look across their beauty offerings,
Speaker 1: their OTC offerings, they cut their prices to make sure
Speaker 1: people are buying their products. Hey, we just have about
Speaker 1: a minute and a half here left or minute, So
Speaker 1: you do look at logistics distribution fulfillment, which is such
Speaker 1: an important part of you know, the consumers story. The
Speaker 1: retail store is also a real estate story. So Jess
Speaker 1: got about a minute, what would you say about that space.
Speaker 1: Our companies, whether it's an Amazon, whether it's a Walmart,
Speaker 1: cutting back in a big way on that distribution and
Speaker 1: logistics part of their business. So they're trying to make
Speaker 1: that much more efficient and productive for them. Does that
Speaker 1: mean by being by being fulfillers to other you know,
Speaker 1: so Walmart has offered some of their services out when
Speaker 1: their trucks aren't full, they're moving other people's goods. So
Speaker 1: in that logistics space and then in the whole logistics, warehousing,
Speaker 1: supply chain space, it's all about automation, about leveraging AI
Speaker 1: and robotics to create a much more efficient and lower
Speaker 1: costs to serve because you know, you still you know,
Speaker 1: you've got the trucks on the road, you've got the
Speaker 1: fuel costs. You've got to figure out a way to
Speaker 1: make that more efficient. So the launching of micro fulfillment centers,
Speaker 1: so launching of you know, commingling product has been right,
Speaker 1: it's a big trend right now. It's like a plane, right,
Speaker 1: you want to have all the seats full, you don't
Speaker 1: want to fly across country and you do what you
Speaker 1: can to feel it. And I'm assuming those distributions centers
Speaker 1: they want to make sure that they're, you know, move
Speaker 1: it along at full capacity or at least close to it. Mary,
Speaker 1: Thank you so much. Mary lou Gardner, our associate partner
Speaker 1: for consumer package goods, retail and Logistics at Inmphasis Consulting.
Speaker 1: Joining us via zoom from Naples, Florida, you're listening to
Speaker 1: the Bloomberg Business Week podcast. Catch us live weekday afternoons
Speaker 1: from three to six Eastern on Bloomberg Radio, the Bloomberg
Speaker 1: Business app, and YouTube. You can also listen live on
Speaker 1: Amazon Alexa from our flagship New York station Just say
Speaker 1: Alexa playing Bloomberg eleven thirty. Would you want to talk
Speaker 1: a little bit more? Learn more about the crypto space
Speaker 1: because investors no doubt about it, Mattie. This week heading
Speaker 1: into the crypto related area stock specifically, and again today
Speaker 1: we saw that move this as Bitcoin hold Or was
Speaker 1: holding about thirty thousand dollars after going above it earlier
Speaker 1: this week for the first time since June. So we
Speaker 1: had a lot going on, So let's get to it.
Speaker 1: Our weekly check on the world of cryptocurrencies and back
Speaker 1: with us is Frascu, managing partner at Cosmo Ventures, joining
Speaker 1: us via zoom in Boston. Rob, Nice to have you
Speaker 1: here with us. Feel like the whims and fancy of
Speaker 1: crypto depending on the week, depending on the day in
Speaker 1: the news. Um, I have to ask you. You were
Speaker 1: a Navy fighter pilot during Operation Desert Storm and after
Speaker 1: the Gulf War ended. A little cheeky here, what's chick
Speaker 1: trickier being up a fighter pilot or navigating through the
Speaker 1: crypto space? It's probably about the same difference. Is The
Speaker 1: difference is is you know you can't get killed in
Speaker 1: the crypto space? Right? Some id like to differ. I
Speaker 1: don't know, can right? You can? What's what's the case?
Speaker 1: We're investing in it right now? And maybe I'm being
Speaker 1: a little um, I don't know, devil a lot of
Speaker 1: fud carol, you know, like, why would you kind of
Speaker 1: invest in this space right now? And we're still really
Speaker 1: trying to figure it out. Well, look, I'm you know,
Speaker 1: believe it or not, I'm an early dot com guy.
Speaker 1: So I started the very first financial service on the
Speaker 1: internet back in ninety three. I was twenty nine years
Speaker 1: old and into it. Wanted to buy in the company,
Speaker 1: and we had the first stock quote server, first mutual
Speaker 1: fund site. I put over one hundred financial institutions on
Speaker 1: the internet. I did another company in the AI space.
Speaker 1: I've done a lot of companies, a lot of tech companies,
Speaker 1: and I see what's happening in blockchain and crypto almost
Speaker 1: an exact same light. You're absolutely right. It's early, just
Speaker 1: like the early days of the dot com right. You
Speaker 1: kind of get you get the speculative phase, there's a bubble,
Speaker 1: everything gets excited, we get out over ahead of our skis,
Speaker 1: the bubble kind of pops, and then all of a sudden,
Speaker 1: people realize, Wow, this technology is actually really profound, and
Speaker 1: then the big boys kind of come in, the real players,
Speaker 1: the real institutions come in, and we kind of move
Speaker 1: right from this kind of early adopter phase to kind
Speaker 1: of the early majority phase. And when that happens, hang
Speaker 1: onto your seats. That's where the alpha is. Now. There's
Speaker 1: alpha early, right, but it's just not at scale. When
Speaker 1: you go to that mainstream majority, that's when you get
Speaker 1: the alpha at scale. So as venture capitalists today, we're
Speaker 1: all in on blockchain, We're all in and crypto is
Speaker 1: blockchain in a lot of ways. And so for us,
Speaker 1: yes and no, yes and no, I actually think, I
Speaker 1: actually think that it's the it's bigger than the Internet itself. No,
Speaker 1: but no, no, no, but crypto being blockchain, blockchaine crypto
Speaker 1: like and no, right, they're not apples to apples. I
Speaker 1: mean they're not. They're not, they're not. But you know
Speaker 1: what happens is is most blockchain technology are networks, and
Speaker 1: so the value exchange in building a network is the
Speaker 1: token of that network, which is crypto. So and so
Speaker 1: from a from an investor kind of value capture perspective,
Speaker 1: you got to pay attention to both. As venture capitalists,
Speaker 1: we invest in equity and we invest in tokens as well.
Speaker 1: So what I look for is this kind of magic
Speaker 1: moment where you go from that speculation to realization. And
Speaker 1: it generally is signaled by what the institutions are doing.
Speaker 1: Right are they you know? Do they are they even in?
Speaker 1: Are they expect you know what institutions? Um And when
Speaker 1: I say institutions, they're traditional guys, right, So, like I
Speaker 1: don't know if you guys saw you know, Avalanche just
Speaker 1: did this deal with with a subnet okay called Spruce
Speaker 1: Like that's an indicator. Right, you got Wisdom Tree on board,
Speaker 1: you got t row Price, Cumberland. Um, are they really
Speaker 1: on board or they just be No, they're playing, they're
Speaker 1: not on board, they're not using it, but they're but
Speaker 1: they've got teams of people looking at it, right, And
Speaker 1: and that's how it starts, is you you know I
Speaker 1: would I would go to investor conferences, you know, five
Speaker 1: five years ago, and there was nobody there from these
Speaker 1: bigger institutions. Now they have a team. Okay, Right, I
Speaker 1: have to say when all this first started coming out
Speaker 1: and I was trying to get my head around it, blockchain,
Speaker 1: I understood in that how you could use that to transact,
Speaker 1: right and potentially make it more secure. I'm still not
Speaker 1: quite sure about crypto. So can you have you know,
Speaker 1: the blockchain kind of take off without really having the
Speaker 1: crypto component to it, or does there have you know
Speaker 1: what I'm saying, like, help me help me here, because
Speaker 1: you're right, your tro price is you know you said
Speaker 1: test driving a new version of the Avalanche blockchain. They're
Speaker 1: trying to figure out how to use it to make
Speaker 1: financial transactions more efficient. So yeah, I get it, like
Speaker 1: I can I get it with like ownership of cars
Speaker 1: and homes and stuff and art and like all of
Speaker 1: this stuff at IP intellectual property, I get that. Sure. Yeah, Well, ultimately,
Speaker 1: if you think about it, right, the old business model is,
Speaker 1: if I don't know you and you don't know me,
Speaker 1: and we want to have a transaction, what do we do.
Speaker 1: We put somebody we trust in the middle of us,
Speaker 1: a bank, and what's the business model? It's pretty simple, right,
Speaker 1: the bank gets paid, they get they get they get
Speaker 1: they get a fee to clear the trade. Okay, or
Speaker 1: whatever it is we're doing, that's the business right. Well,
Speaker 1: what happens if we replace that bank now with a
Speaker 1: network and instead of one person clearing the trade, the
Speaker 1: entire network has to clear the trade. So if the
Speaker 1: entire network of all these millions of people have to
Speaker 1: clear the trade through consensus through the tech, right, how
Speaker 1: do we pay people? Well, that's where crypto comes in.
Speaker 1: So the network ethereum right, is clearing these transactions, that's
Speaker 1: performing all these operations. And how do people get paid
Speaker 1: with the ethereum token? So isn't it just another are
Speaker 1: we then creating another middle layer? It's just well you
Speaker 1: always need a middle layer, right, you need to have
Speaker 1: a layer that clears the trade. The issue is do
Speaker 1: you want a single point of failure? Right? So a
Speaker 1: bank is a single point of failure. A blockchain is
Speaker 1: a big network of people. So by definition, it's it's
Speaker 1: it's not it's resilient unless it's run by Sam Bankman freed.
Speaker 1: That's a single point of failure. That's not a network, right,
Speaker 1: That wasn't blockchain. That was the old that was the
Speaker 1: old way of doing things. Right. So uh and in fact,
Speaker 1: I actually it kind of it's it's not funny all right,
Speaker 1: in any way what happened, but it's got to make
Speaker 1: you got to look at it and go, wait a minute.
Speaker 1: We've got this entire industry built on the concept of
Speaker 1: decentralization and networks, and what's the first thing we do.
Speaker 1: We create centralized exchanges to trade. Right. Is silly? Right,
Speaker 1: it is silly. It's like the antithesis of what it
Speaker 1: was supposed to be all about, exactly exactly, Okay, okay,
Speaker 1: So we have about a minute and a half left.
Speaker 1: So what's the investment play for you right now? As
Speaker 1: a venture capitalist? So I look, I'm looking at a
Speaker 1: couple of things. I think there's a there's an interesting
Speaker 1: word you got to get familiar with. It's called on
Speaker 1: chain finance or on five. What on chain finances or
Speaker 1: on five is basically traditional markets, traditional industries and players
Speaker 1: using blockchain to solve their problem, make them more resilient,
Speaker 1: make them more transparent, make them more efficient. Is this
Speaker 1: like what tros trying to do with avalanche is exactly?
Speaker 1: It's like our tracks is doing. Uh, you know, Securitize
Speaker 1: did a deal with tokenizing KKR. In fact, our venture
Speaker 1: fund is tokenized, so you can invest in our venture
Speaker 1: fun by buying a token. Now it's a security token.
Speaker 1: You know, you got to do the kyc AML. You know,
Speaker 1: it's a full blown security rights. It's an offering, a
Speaker 1: security is offering. So I think as an investment, that's
Speaker 1: important to look at, and we look at that. Another
Speaker 1: big area we're looking at is web three, particularly around
Speaker 1: royalty management, those kinds of things. Can I ask you
Speaker 1: just real quickly, are we going to need a consistent
Speaker 1: token if we're going to start play like this? Does
Speaker 1: it make sense to have multiple tokens? Again? Yes? Well,
Speaker 1: does it make sense to have multiple networks and then
Speaker 1: each work has a token, right, so so you may
Speaker 1: you may have a network that let's say it's Facebook,
Speaker 1: like it's a social media network. You don't want a
Speaker 1: social media network operating a mutual fund network, right, So
Speaker 1: you're gonna have two different networks. So we could have
Speaker 1: a network you're saying for mutual funds. We could have
Speaker 1: a network for real estate transaction, right, is that what
Speaker 1: you're saying. Oh, that's exactly that's exactly it. And you
Speaker 1: might have closed networks that only have specific trading partners
Speaker 1: and that's it, and and so and and by the way,
Speaker 1: different different use cases have different needs. Right. Some networks
Speaker 1: need to be high velocity, high trans transaction through put
Speaker 1: right right the finality, whereas other networks, you know, there's
Speaker 1: only a couple of transactions going through it every every
Speaker 1: now and then. It doesn't need to be that high speed. Okay,
Speaker 1: you know, so so what we do we really look
Speaker 1: at that that landscape, Rob, we gotta run. Hey, thank
Speaker 1: you so much for Praska, managing partner at Cosimo Ventures
Speaker 1: on Zoom from Boston. I'm Roca a journal Yeah, but
Speaker 1: you let me drive? No, no, no, no, honey, please,
Speaker 1: I'll do the riding gravels. I want to drive. It's
Speaker 1: good question, which is the drive to the globe? timUL
Speaker 1: Thing Well, Brian Dawn on Bloomberg Radio. I just got
Speaker 1: under eighteen minutes left in today's trading session. Carol Master,
Speaker 1: along with Madison Mills live in our Bloomberg Interactive Broker studio.
Speaker 1: We are down across the board on stocks, but off
Speaker 1: our worst levels of the session. But it's an interesting
Speaker 1: trade here. Once again, man if I had a buck
Speaker 1: for every time I said interesting trade here in twenty
Speaker 1: twenty three. And low volume, I feel like those are
Speaker 1: and tech rally, like so many things, it's like it's
Speaker 1: just unbelievable, all right, So let's get to it with
Speaker 1: Cheryl Pape. She see your portfolio man Jared Angel Oak Capital.
Speaker 1: She's a portfolio manager for the Financial's Income Impact Fund
Speaker 1: tickers an Fix. It's an aggregate bond fund roughly one
Speaker 1: hundred and nine million in assets under management at the
Speaker 1: end of last year, fun down nearly seven percent this year.
Speaker 1: She's also portfolio manager of the Financial Strategy's Income Term Trust.
Speaker 1: That's a closed end fund with a banking sector debt
Speaker 1: centric strategy. But keep in mind Agel Oak in total
Speaker 1: has more than seventeen billion in assets. Center Management Cheryl
Speaker 1: with us on the phone in Atlanta. Hey, Cheryl, nice
Speaker 1: to have you here with Maddie and myself. I am
Speaker 1: curious in terms of the funds that you manage that
Speaker 1: among the earnings results in the news and the color
Speaker 1: we got, is there anything noteworthy in your view, especially
Speaker 1: when it comes to your strategy of the funds and
Speaker 1: where you might want to invest. Yeah, good afternoon, and
Speaker 1: thank you for having me. Look. I think, you know,
Speaker 1: obviously we kick off with the big banks first and
Speaker 1: our funds tend to be a little bit more community
Speaker 1: bank debt centric. But you know, key things that we've
Speaker 1: been looking for, um, you know, number one, deposits. I
Speaker 1: think we've seen some stability starting to come out in
Speaker 1: the in the data. Clearly the big banks had been
Speaker 1: beneficias of some of the flight out of the regional banks.
Speaker 1: But deposit data is held in I think better than expected,
Speaker 1: and that's a positive that we take away from from
Speaker 1: what we've seen today. The other things that we're clearly
Speaker 1: watching pretty closely are on the credit side. Consumer credit
Speaker 1: consumers still in pretty good shape. Here. We are, you know,
Speaker 1: clearly seeing some reserves being added to. I think the
Speaker 1: economic backdrop has become a little bit more challenging than
Speaker 1: it was at the end of the year, and we're
Speaker 1: seeing some additions to reserves as a result. But outside
Speaker 1: of you know, the lower income, lower PHYCO score type
Speaker 1: consumer where we have you know, most concern at the margin,
Speaker 1: your core prime consumer is still holding up pretty well.
Speaker 1: And then the third thing that we've been focused on
Speaker 1: is really commercial real estate M an office in particular,
Speaker 1: and I think, you know, we are expecting that that
Speaker 1: will be a little bit later in the cycle here,
Speaker 1: but I thought we got some good disclosure today at
Speaker 1: on sort of office as a percent of total How
Speaker 1: we're thinking about de risking portfolios and all that, you know,
Speaker 1: plays into our view of the sector overall as we're
Speaker 1: thinking about credit and deposits. Cheryl, what are you going
Speaker 1: to look at to suss out just how bad the
Speaker 1: commercial real estate question could get by the end of
Speaker 1: this year. Yeah, I think, you know, it's interesting when
Speaker 1: we think about commercial real estate, it is a slower
Speaker 1: cycle than what we see in consumer credit. And we
Speaker 1: look back to the financial crisis where consumer charge offs
Speaker 1: scenarios like card and auto where we're in the double digits,
Speaker 1: whereas commercial real estate hume loss is over you know,
Speaker 1: a multi year period where load of mid single digits,
Speaker 1: so it is a longer cycle to play out. It
Speaker 1: is important. I think the type of commercial real estate
Speaker 1: isn't more tilted towards multi family or strip center type,
Speaker 1: service oriented type lending. We feel a little bit better
Speaker 1: about those pockets office in major urban areas, We feel
Speaker 1: a little bit more concerned about that exposure tends to
Speaker 1: not be as much in the community banks that we
Speaker 1: focus on. They tend to be a little bit smaller ticket,
Speaker 1: more rural, suburban type footprints. But but those are kind
Speaker 1: of the things that we're looking at. The type of
Speaker 1: real estate matters, the type of LTVs. The type of
Speaker 1: cap rates, and any additional color is something we're watching
Speaker 1: pretty closely as we go through. And forgive me you
Speaker 1: did you say you do focus on the more regional players.
Speaker 1: We focus more on the community banks, so I would
Speaker 1: say the next step down from the regionals. So they
Speaker 1: tend to have a little bit different profile than the regionals. Yeah,
Speaker 1: what are you worried about them? In their existence and
Speaker 1: their ability to get through this especially you know, we
Speaker 1: just had a big bank conversation and just the bigger
Speaker 1: players just get bigger and bigger, and it makes it
Speaker 1: kind of tougher on some of the community players. How
Speaker 1: do you see it? Yeah, I think you know, we've
Speaker 1: been more recommending a Barbell type approach here, and you know,
Speaker 1: there's clearly been a flight to safety in the in
Speaker 1: the large money center banks UM the community banks, and
Speaker 1: we sort of define that as the fifty billion in
Speaker 1: below type universe. UM has held in pretty well conversations
Speaker 1: that we've had with with bank management teams over the
Speaker 1: last month or so. M I think, you know, a
Speaker 1: little bit different position than some of the regional banks. UM.
Speaker 1: There clearly is UM a lot of a relationship aspect
Speaker 1: to the type of lending UM that we're seeing out
Speaker 1: of you know, the core community bank space. It is
Speaker 1: typically tied to deposit relationships. They tend to have lower
Speaker 1: unensured deposits to total deposits, which is clearly something we've
Speaker 1: been watching pretty closely. UM. And the type of lending
Speaker 1: they do, I think differs a little bit. It is
Speaker 1: smaller ticket, it's it's the small business sort of Heart
Speaker 1: of America type UM lending and when we think about
Speaker 1: the banking system was still you know, five thousand banks.
Speaker 1: I think it becomes the most difficult in the forward
Speaker 1: look for the regional space. I think that's where we're
Speaker 1: going to see a lot more regulation come to play
Speaker 1: and get pushed down. Um. But I think you know
Speaker 1: that that's you know, where we're most um, you know
Speaker 1: concerned at the margin is how do the regional banks
Speaker 1: manage through? And do we see more consolidation there? And
Speaker 1: that's something that that we think will accelerate, Cheryl really quickly. Here,
Speaker 1: give me one, uh sector that you think we're going
Speaker 1: to see the biggest credit crunch in autos? Commercial real estate?
Speaker 1: What is the play there? I'm probably most concerned on
Speaker 1: the consumer side on auto finance. I think, um, you know,
Speaker 1: we clearly had such a run up in prices the
Speaker 1: LTVs that you know, we're we're being underwritten against. Um
Speaker 1: and as we see used cars pricing come back down
Speaker 1: to more you know, typical levels, that's you know, I
Speaker 1: think where you see probably most consumers could get a
Speaker 1: little underwater on those types of loans that were done
Speaker 1: a little last couple of years. All Right, we're gonna
Speaker 1: leave it on that note, Cherry'll have a great week
Speaker 1: in Cheryl paid at angel Oak Capital. This is the
Speaker 1: Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere
Speaker 1: else you get your podcast. Listen live week afternoons from
Speaker 1: three to six Easterning on Bloomberg dot com, the iHeartRadio app,
Speaker 1: tune In, and the Bloomberg Business App. You can also
Speaker 1: watch us live every weekday on YouTube and always on
Speaker 1: the Bloomberg German level