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Speaker 2: We had some earnings, We had American Express and some
Speaker 2: numbers out there and bringing together the bringing to the
Speaker 2: forefront just this whole credit card business, which is such
Speaker 2: a competitive business in terms of fees and what service
Speaker 2: cards premium card space exactly and kind of what services
Speaker 2: they provide.
Speaker 3: You.
Speaker 2: I know, people are really aggressive in kind of managing
Speaker 2: the points and really trying to take advantage of that.
Speaker 2: Ben Elliott, Bloomberg Intelligence consumer finance analysts. Ben talk to
Speaker 2: us about American Express, the numbers that they reported today.
Speaker 2: What did you see and what are some of the takeaways?
Speaker 4: So I think what really jumped out to me today
Speaker 4: is their their new plot Them card product, which you know,
Speaker 4: made a bunch of headlines for raising the fee. It's
Speaker 4: like nine hundred bucks a year now it is getting
Speaker 4: great traction amongst millennials and gen z MX says that
Speaker 4: they're getting two times as many applications and new card
Speaker 4: accounts after the refresh. So how that translates to AMX's earnings.
Speaker 4: You know, you see their expenses go up right away
Speaker 4: because people get all these new benefits, all these new
Speaker 4: credits that they have access to with the new card.
Speaker 4: But the fee sort of advertises in over a year
Speaker 4: or two, but the growth engine is still there. People
Speaker 4: are still clamoring for this card and the business is
Speaker 4: really sustaining an incredible level of growth.
Speaker 5: Okay, so they raise a feed to eight hundred and
Speaker 5: ninety five dollars and even more people applied for this
Speaker 5: card because there's a bunch of these new perks. Do
Speaker 5: these perks actually cost American Express a lot of money?
Speaker 5: I mean, we're talking about four hundred dollars a year
Speaker 5: of dining credits. There's also like free credits at Lululemon
Speaker 5: and sacks and these are all things that people get
Speaker 5: really up sessed over on Reddit threads, reddit boards.
Speaker 4: Yeah they could. I mean, so the costs are real, right,
Speaker 4: they call them variable customer expenses. Typically they're brought about
Speaker 4: like forty percent of the revenue of the company, but
Speaker 4: that's the number is pretty flat actually, despite the introduction
Speaker 4: of some of the new benefits. But so you know,
Speaker 4: so their expenses are up about ten percent, which is
Speaker 4: sort of there in line with their long term revenue
Speaker 4: growth target. But over time you'll see that fee increase
Speaker 4: start to advertise into earnings and that should more than
Speaker 4: offset the increase in costs.
Speaker 5: And how does the pick up in new customers compare
Speaker 5: to its biggest competitor, which is a State Chase Sapphire
Speaker 5: card and as well City Group coming out with a
Speaker 5: new Strata card. It's its own elite card offering. How
Speaker 5: would you stack them up against one another?
Speaker 3: You know, it's interesting.
Speaker 4: MX is always going to have a little bit of
Speaker 4: an advantage here because they capture all of the economics
Speaker 4: of a premium credit card because they're also the network, right,
Speaker 4: so they're in addition to to earning the fee, they're
Speaker 4: also earning a swipe fee every time customers use that card.
Speaker 4: So the value proposition to AMEX is always inherently higher
Speaker 4: than it would be to Chase or to City to
Speaker 4: increase sort of the benefits they provide to the card
Speaker 4: and to drive more customers there. I think what's really
Speaker 4: interesting is that millennials and Gen z or are driving this.
Speaker 4: I think it's like sixty five sixty four to six
Speaker 4: five percent of the new customers or millennials and Gen zs.
Speaker 4: And it's interesting the CEO is saying to they learners
Speaker 4: call it. They're looking into how many of these people
Speaker 4: are coming from other premium cards or how many people
Speaker 4: are just coming to a premium card for the first time,
Speaker 4: because they're so attracted to this new offering that that
Speaker 4: Amex has out on the market. So it looks like
Speaker 4: there's appetite for this. It's probably driven by social media
Speaker 4: and sort of new new forces in our in our
Speaker 4: society that are driving interest in premium credit cards. And
Speaker 4: it looks like it has legs.
Speaker 3: It looks like it has legs. And people don't just.
Speaker 5: Get one Amex Platinum card the other thing, right, Ben,
Speaker 5: I mean, they often get the Amex Gold card and
Speaker 5: the Amex Screen card.
Speaker 3: I'm on these Reddit threads.
Speaker 5: I've been spending a lot of time on them because
Speaker 5: I'm trying to decide which card I should keep or use.
Speaker 5: And what struck me is how some people have like
Speaker 5: ten credit cards in their wallet.
Speaker 4: Yeah, they're very proud of how how the platinum and
Speaker 4: the and the goal and some of their other cards
Speaker 4: work together, and people love to be in the AMEX ecosystem.
Speaker 4: And they actually had a lot of strength in their
Speaker 4: high yield savings account growth this quarter as well, which
Speaker 4: kind of goes along with people sort of. The MX
Speaker 4: is able to meet all of their needs, right from
Speaker 4: travel down through dining down through sort of every day
Speaker 4: spend on groceries. And that's kind of the ultimate goal
Speaker 4: is to pull people fully into the ecosystem, capture one
Speaker 4: hundred percent of the economics of these super super prime,
Speaker 4: super high income customers.
Speaker 2: Ben, I'm holding in my hand my money clip cash.
Speaker 3: I mean, he pulls it out right pretty regularly.
Speaker 2: Yeah, I got the green card on old school.
Speaker 4: What's the fee on that cash exactly?
Speaker 2: Hey, Ben, talk to us about just the credit quality.
Speaker 2: What are the card companies you follow? What are they
Speaker 2: saying these days about their consumer and credit quality?
Speaker 4: So MX is incredible, right, they have almost no signs
Speaker 4: whatsoever of stress. There's a little bit of stress. Last quarter.
Speaker 4: Airline spending was down, that's sort of like the top top,
Speaker 4: top of the wallet, kind of front of cabin spend
Speaker 4: was down. But by and large, the companies I follow,
Speaker 4: even sort of the less prime companies, the Synchronies and
Speaker 4: Breads of the world that are doing things like point
Speaker 4: of sale retail credit cards, even they are continuing to
Speaker 4: see an improvement in credit And the interesting thing about
Speaker 4: credit card charge offs is you see people go delinquent first,
Speaker 4: and then you can kind of look six months into
Speaker 4: the future and when they'll charge off, and delinquencies are
Speaker 4: still improving. So as far as we can tell, six
Speaker 4: months in the future, credit card charge offs still look good.
Speaker 5: So what does this say for what Capital One is
Speaker 5: likely to report, which I believe is on the twenty
Speaker 5: first October.
Speaker 4: I would expect the REA cross to be positive for
Speaker 4: Capital One as well. You know, they're interested in this
Speaker 4: top of wallet competition with Chase and an Amex, but
Speaker 4: they're sort of the perennial third player, so it'll be
Speaker 4: interesting to see if they lean more into that, you know,
Speaker 4: through their marketing spend and some of the other expenses,
Speaker 4: but ultimately chases bread and butter.
Speaker 6: Sorry.
Speaker 4: Capital One's bread and butter is kind of the less
Speaker 4: prime borrower and that flows through in a much higher
Speaker 4: net interest margin versus Chase and Amex, which are more
Speaker 4: focused on fees and swipe revenue.
Speaker 3: Stay with us.
Speaker 2: More from Bloomberg Intelligence coming up after this.
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Speaker 5: The fundamentals underpinning this economy and the point financial mark
Speaker 5: is is this idea that the consumer is resilient. But
Speaker 5: a new study shows that all is not well in
Speaker 5: car loans. Keith Notton is Bloomberg News is auto reporter
Speaker 5: in Detroit. Anti joins us now and Keith auto loans
Speaker 5: is really a good leading indicator of the economy because
Speaker 5: people will continue to pay their car loans because they
Speaker 5: need their car to get to work. So when they're
Speaker 5: not paying their car loans, that's a sign that something's
Speaker 5: not going well. What are we learning about car loans
Speaker 5: right now?
Speaker 7: Yeah, you know, the authors of this study say that
Speaker 7: consumers are actually in their most precarious position since the
Speaker 7: last recession. You're absolutely right, Scarlett. Normally, the car loan
Speaker 7: and the mortgage payment are the priorities, particularly the car
Speaker 7: loan because you need to get your kids to school,
Speaker 7: get to work, all the things you need from a car.
Speaker 7: But what we're seeing is over the last fifteen years,
Speaker 7: delinquency so sixty days past due and more, have gone
Speaker 7: up by more than fifty percent. So that has made
Speaker 7: car loans actually the riskiest consumer credit product out there,
Speaker 7: more so than mortgages of cards and personal loans, so Keith.
Speaker 2: Another data point that jumped out of me is the
Speaker 2: average auto loan balance has grown fifty seven percent since
Speaker 2: twenty ten, outpacing all other credit products. I mean, it's
Speaker 2: getting crazy out there. The average cost for average new
Speaker 2: cars I think north of fifty thousand dollars now, I mean,
Speaker 2: what's the industry saying?
Speaker 7: Yeah? So that's also news of this week is that
Speaker 7: the average price of a car, of a new car
Speaker 7: is topping fifty thousand dollars for the first time. This
Speaker 7: is all part of a shift that the industry has
Speaker 7: made to selling more high price, high profit vehicles, especially
Speaker 7: sport utility vehicles and pickup trucks. You know, the industry,
Speaker 7: particularly the Detroit automakers, have sort of moved away from
Speaker 7: the bare bones economy models you might remember coming straight
Speaker 7: out of college, and now it's all about these very
Speaker 7: well equipped, very well appointed cars. You can spend over
Speaker 7: one hundred thousand dollars for a Ford F series pickup truck.
Speaker 5: Keith, You've spent about forty years tracking the auto industry,
Speaker 5: covering it in great detail. When you get a report
Speaker 5: like this, how do the automakers respond, how do they
Speaker 5: capitalize on this or how do they modify their offerings
Speaker 5: in response to this?
Speaker 7: Yeah, you know, there is a lot of talk and
Speaker 7: some movement lately toward coming out with affordable models. Again,
Speaker 7: they really had kind of disappeared from the market cars
Speaker 7: under thirty thousand dollars. In fact, one of the Kelly
Speaker 7: Bluebook people recently said the twenty thousand dollars car has
Speaker 7: basically become extinct. So there is some focus on that,
Speaker 7: including in the electric vehicle space, but we've yet to
Speaker 7: see that materialize in a big way. Scarlett.
Speaker 2: Well, what Matt Miller tells me, Keith, is that they're
Speaker 2: going to continue to make these cars because people are
Speaker 2: these high price cars which are very high margin because
Speaker 2: people are buying them.
Speaker 7: Yes, they are. What it does, though, is it shrinks
Speaker 7: the new car market to just kind of the wealthiest households.
Speaker 7: It really excludes mainstream consumers if everything is priced above
Speaker 7: fifty thousand dollars, and you know, that can cause trouble
Speaker 7: down the road if your market keeps shrinking.
Speaker 5: So how do you think this plays out in the
Speaker 5: second secondary car market, the used car market.
Speaker 7: Then, used car prices are also high. You know, they're
Speaker 7: close to thirty thousand dollars on average. So a lot
Speaker 7: of those first time car buyers or budget minded car
Speaker 7: buyers are going to the used car market and they're finding,
Speaker 7: you know, the sort of three year old used car,
Speaker 7: the classic Goodbye, is more expensive than it used to be.
Speaker 2: And what's the and this is the stat that gets me,
Speaker 2: what's the average age of a car these days out
Speaker 2: there on the roads.
Speaker 7: It's over twelve years wow, which is such a change
Speaker 7: from the days of our youth when a car would
Speaker 7: never last past one hundred thousand miles. Now cars are
Speaker 7: built to really go the distance. And so that's another
Speaker 7: factor in this affordability crisis. A lot of people aren't
Speaker 7: even going after the used cars. They're just you know,
Speaker 7: sticking with the clunker that they have for as long
Speaker 7: as they can ride it.
Speaker 3: Stay with us.
Speaker 2: More from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 3: Let's talk a little bit about higher education.
Speaker 5: It has been in the spotlight, and not always in
Speaker 5: a good way, but for four historically black colleges this week,
Speaker 5: it's been a very good week because the family foundation
Speaker 5: of Arthur Blank, who owns the Atlanta Falcons and was
Speaker 5: the co founder of home Depot, gave a very generous
Speaker 5: gift to four of those schools. I want to bring
Speaker 5: in now, Rosbrewer. She is the interim president of Spelman
Speaker 5: College in Atlanta. And Janet Wore Bloomberg News is higher
Speaker 5: education finance reporter. Janet, why don't you just set the
Speaker 5: scene for us here?
Speaker 6: Thanks for having me so. Arthur Plank, as you mentioned,
Speaker 6: is the owner of the Atlanta Falcons, his adopted hometown,
Speaker 6: and he decided to give a fifty million dollar gift
Speaker 6: to four historically black colleges. And what I found pretty
Speaker 6: remarkable is that when all four colleges said what our
Speaker 6: needs are. It was exactly the same thing. It was
Speaker 6: grants to students to help them finish college, get over
Speaker 6: the line. And in some cases it's just a couple
Speaker 6: of one hundred dollars, it could be a couple of
Speaker 6: thousand dollars. But one of the most intractable problems in
Speaker 6: higher education is students completing college, and these types of
Speaker 6: grants literally help them get to the next semester and
Speaker 6: to finish and to realize the economic benefit of college
Speaker 6: rather than leaving and having loans, which is the worst outcome.
Speaker 5: All right, So, ros can you walk us through how
Speaker 5: the schools came up with this idea to give students
Speaker 5: small grants to finish their degrees. What the conversation was
Speaker 5: like with Arthur Blank.
Speaker 2: Absolutely.
Speaker 8: I think if you know Arthur Blank and his family foundation,
Speaker 8: they are deeply committed to the Atlanta community. But he
Speaker 8: also has a great commitment to accessible education and he's
Speaker 8: made that very clear to us over the years. This
Speaker 8: is actually the second grant that we've received as Spelman
Speaker 8: College from the Arthur Blank family Foundation. The first one
Speaker 8: was a ten million dollar grant towards our Center for
Speaker 8: the Innovation in the Arts He named the Innovation Lab
Speaker 8: after his family and himself. But this was really a
Speaker 8: combination of discussions around how we both believe the game
Speaker 8: changer of education through accessibility and affordability, and he stepped
Speaker 8: right in. This wasn't an easy grant, let me just say,
Speaker 8: because we wanted to make sure that this was mutual
Speaker 8: and that we would meet his expectations.
Speaker 2: Talk to us about, you know, the typical student at Spelman.
Speaker 2: What's the financial burden on them? These days we hear
Speaker 2: in read and we all experience the spiring cost of
Speaker 2: higher education. Talk to us about maybe a typical student
Speaker 2: at Spelman.
Speaker 8: Yes, a typical student at Spelman actually is what we
Speaker 8: call a pal eligible student, usually coming from a family
Speaker 8: of you know, roughly about one hundred and fifty thousand
Speaker 8: dollars or less of income and has more than one
Speaker 8: child in the family. And so when you think about
Speaker 8: the cost of higher ed tuition, room and board at
Speaker 8: an institution like Spelman College is roughly fifty six thousand dollars,
Speaker 8: and a young woman from Spelman could graduate with as
Speaker 8: much as thirty two thousand to forty thousand dollars worth
Speaker 8: of student loans alone. And so when you think about that,
Speaker 8: that's sometimes a non starter, especially if they're thinking of
Speaker 8: going on to graduate school.
Speaker 5: Jennet just put this into context for us because President
Speaker 5: Trump in his second term has boosted funding for historically
Speaker 5: black colleges and universities while taking aim.
Speaker 3: At Higher ED. Has he followed through on that funding The.
Speaker 6: Details of that, I don't know, but typically historically black
Speaker 6: colleges do not have as high graduation rates as other colleges.
Speaker 6: And part of the reason our large populations of eligible students'
Speaker 6: lower income students where potentially just a couple of one
Speaker 6: hundred dollars, a couple of thousand dollars can get them
Speaker 6: again to that next semester to graduate.
Speaker 2: Ros's just kind of follow up a little bit on that.
Speaker 2: President Trump and this administration have taken aim at some
Speaker 2: very high profile, large research universities, including Harvard and Columbia.
Speaker 2: As an educator yourself, how are you viewing this environment?
Speaker 8: Well, you know, it is a tough environment in higher
Speaker 8: ED right now because you know, on their early on
Speaker 8: of this administration, we saw deep cuts in research funding.
Speaker 8: And the one thing that I know for sure, you know,
Speaker 8: having a corporate background now combined with higher ED is
Speaker 8: that research funds a lot of innovation and technology that
Speaker 8: happens at the corporate level which becomes commercial opportunities. So
Speaker 8: I think, you know, more understanding of cutting off the
Speaker 8: lifeline of innovation in this country is something that should
Speaker 8: be explored. I will, you know, agree with Samantha that
Speaker 8: you know, we don't know what these new funds are
Speaker 8: that are directed towards HBCUs and we're interested to learn more.
Speaker 5: And of course, Ros with your background leading Walgreens, leading
Speaker 5: Starbucks as COO and of course CEO of Sam's Club,
Speaker 5: what kind of best practices can you take from the
Speaker 5: corporate boardroom to the academic institutions that you're now running
Speaker 5: to dispel them In college, for instance, that would kind
Speaker 5: of dispel some of those concerns that people have about
Speaker 5: higher ED not knowing how to run their institutions efficiently.
Speaker 8: Yes, you know, one of the things I've committed to
Speaker 8: this board of trustees at Filman College is that I
Speaker 8: will try to bring as much business to this institution
Speaker 8: as I possibly can, and that would be through a
Speaker 8: new financial or business model. You know, we live off
Speaker 8: of very few sources of revenue, but if we looked
Speaker 8: at our institutions through the lens of what we could
Speaker 8: monetize things like our online learning programs that right now
Speaker 8: through the number of you know, high school students that
Speaker 8: need certifications, could we provide those. So there's some avenues
Speaker 8: that we're researching right now in terms of how we
Speaker 8: look at monetizing the things we do on our campus.
Speaker 8: I would also say strong fiduciary responsibility. You know, we're
Speaker 8: proud of ourselves at Spelman that we actually balance our
Speaker 8: budget really for the last twenty to twenty five years.
Speaker 8: But that takes discipline and also to looking at unique partnerships.
Speaker 8: You know, I reflect on my corporate career and said,
Speaker 8: you know, when we wanted to venture into a new category,
Speaker 8: please oftentimes select the partner to go with.
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