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Speaker 2: For more with us on how the US economy is doing,
Speaker 2: We've got Bloomberg Economics US and Canada economist Stort Paul.
Speaker 2: He joins us here in the Bloomberg Business Week Studio.
Speaker 2: So start, we are one week out from the last
Speaker 2: FMC decision by the FED this year. The data that
Speaker 2: we're getting now, the data that we get between now
Speaker 2: and then, will it do anything to change the thinking
Speaker 2: about an expected twenty five basis point great cut.
Speaker 3: I don't think that it'll do anything to change whether
Speaker 3: or not we will get a cut. I think that
Speaker 3: the only thing that it can change is what the
Speaker 3: coalition of voters looks like. Basically, all of the data
Speaker 3: that we got today was pretty bad. We had layoffs
Speaker 3: as reported by ADP in the month of November. We
Speaker 3: saw ism services yes, it's surprise to the upside, but
Speaker 3: it's surprised because of slowing supply chains, like a very
Speaker 3: peculiar reason for ISM to surprise to the upside. We
Speaker 3: saw new orders that were weakening, employment that continued to decline.
Speaker 3: In the ISM Services report, we saw import prices that
Speaker 3: were flat basically, so that gives a little bit of
Speaker 3: room for the FED to consider cut because tariff passed
Speaker 3: through is slow. And the final thing that we saw
Speaker 3: was September's industrial production numbers with manufacturing output basically flat,
Speaker 3: and so all of it just sort of points to
Speaker 3: this final FED decision for the year looking like it's
Speaker 3: going to be made by a pretty robust coalition. In
Speaker 3: my view, when we get the summary of Economic projections
Speaker 3: in December, that's where I expect to see a lot
Speaker 3: of dissent and a lot of division among the committee.
Speaker 4: You know, we've been talking to Matthew on Balance of
Speaker 4: Power about USMCA, the trade deal that replaced NAFTA. You
Speaker 4: obviously follow the Canadian economy. I mean, in the past
Speaker 4: this has been an important economy for the US, US
Speaker 4: has been important economy for the for Canada. Excuse me, so,
Speaker 4: how are you thinking also too about where trade is
Speaker 4: kind of settling between what has been really important trading
Speaker 4: partners for the United States.
Speaker 3: Well, I think that the thing that most important remember
Speaker 3: from the Canadians perspective in the context of USMCA, is
Speaker 3: that Canadian negotiators are basically going to be waiting for
Speaker 3: the US and Mexico to sort out trade and border disputes,
Speaker 3: trade and border deals. For example, how much security Mexico
Speaker 3: should be deploying to the US southern border before Canada
Speaker 3: actually gets to come to the table to discuss its
Speaker 3: own trade relationship. Right now, the average effective TARIF rate
Speaker 3: on Canadian exports to the US is in the low
Speaker 3: single digits, you know, three to four. Yeah, because of
Speaker 3: how many carve outs there are, and because of you know,
Speaker 3: the importance of the US as an energy export market
Speaker 3: for Canada. All the energy just flows through the United States.
Speaker 5: Canada is right.
Speaker 3: Now relatively content just to wait. The bigger issue for
Speaker 3: Canada right now is dealing with pretty lackluster domestic output
Speaker 3: and domestic demand. The labor market has softened materially over
Speaker 3: the summer. It looks like there's a little bit of
Speaker 3: a glimber of hope there right now, it seems as though,
Speaker 3: excuse me, trade is sort of normalizing. Of course, you know,
Speaker 3: the second quarter was really really rough. Yeah, and so
Speaker 3: we saw an outperformance in the third quarter. But trade
Speaker 3: balances are starting to normalize, and any sort of negotiation
Speaker 3: is just gonna be on hold until the US and
Speaker 3: Mexico can sort out their differences.
Speaker 2: Okay, So just a realistic timeline for what that could be.
Speaker 3: I think that in earnest we're going to start seeing
Speaker 3: some important talking points rolled out in the second quarter
Speaker 3: of twenty twenty six. Of course, there are if any
Speaker 3: sort of negotiation can be sped up by let's say,
Speaker 3: Carney Prime Minister Karney visiting the White House. He's already
Speaker 3: been to the US now I think twice so far
Speaker 3: since he took the leadership role. But right now I'm
Speaker 3: expecting to see some more definitive deal points getting rolled
Speaker 3: out in the second.
Speaker 2: Quarter next year.
Speaker 4: It's just kind of wild. I thought we were kind
Speaker 4: of we're not done with trade. I know we're not
Speaker 4: done with trade, but it just keeps creeping back. One
Speaker 4: of the other things that we've been talking a lot
Speaker 4: about are retail earnings this week and over the last
Speaker 4: couple of weeks. Nations retail companies continuing to report out
Speaker 4: earnings amid the holiday shopping season now under ray too.
Speaker 4: It's going to stay with us. Want to get to
Speaker 4: tim some of the earnings we got today.
Speaker 2: Yeah, let's bring in Emily Cone. She's Bloomberg News Consumer
Speaker 2: team leader. She joins us here in a studio. So
Speaker 2: I'm a little confused about what's going on with Macy's
Speaker 2: because shares initially fell after the company reported earnings forecasts
Speaker 2: that disappointed investors. But now we're seeing them up two percent.
Speaker 2: What's going on with Macy's. What do we learn?
Speaker 6: I mean, macy has basically had a good report, solid
Speaker 6: lead up to the holiday season. I think the shares
Speaker 6: are volatile. I think the thing that brought shares down
Speaker 6: initially this morning was a disappointing profit forecast, and I
Speaker 6: think that that speaks to we had the CEO tell
Speaker 6: us this morning a cautious consumer, so they're being, you know,
Speaker 6: a little bit conservative with their forecast. I think that
Speaker 6: initially disappointed investors, but all in all, it is a
Speaker 6: pretty good report for the company. I think they're also
Speaker 6: they're stocks up thirty four percent this year, so I
Speaker 6: think anything a little bit disappointing, might.
Speaker 4: Be two percent swaying from high to low. It's a lot,
Speaker 4: it's a lot.
Speaker 7: It's like a.
Speaker 4: Confusing investor or a confused investor.
Speaker 6: Right, yeah, a little bit, yeah, yeah, But I do
Speaker 6: think it comes on the backdrop of really strong performance
Speaker 6: this year.
Speaker 4: Just throw Dollartry. They reported better than expected profit. They
Speaker 4: also raised their full year earnings outlook, and we saw
Speaker 4: that stock ralling in today's session. So a good report.
Speaker 4: And what does it say about what type of consumer?
Speaker 5: Yeah?
Speaker 6: For sure, I mean this is the kind of store
Speaker 6: that does well in this kind of economy. Right. They
Speaker 6: said on their earnings call they're seeing middle to high
Speaker 6: income shoppers trading down to Dollar Tree. That's good news
Speaker 6: for a store like this, And it continues to paint
Speaker 6: this picture that we saw last week in the week before,
Speaker 6: which is this split screen picture of how the consumer
Speaker 6: is doing. Consumers are still spending, but they're looking for
Speaker 6: value and they're looking for places where the price is
Speaker 6: right and Dollar Tree definitely fits in that better category.
Speaker 2: So Stuart, come on back in here and just give
Speaker 2: us your take on how the US consumer is doing
Speaker 2: and the context of the retail earnings that we continue
Speaker 2: to hear about. To Emily's point, consumers trading down higher
Speaker 2: and consumers trading down, that's good news in an environment
Speaker 2: such as this for a company like dollar Tree. We
Speaker 2: had Dana Telsa in earlier this week and she basically said, listen,
Speaker 2: if you're offering something unique to the consumer, like if
Speaker 2: you're a Levi's for example, if you have a marketing
Speaker 2: campaign that is unique, you're still able to bring in consumers.
Speaker 2: How do you characterize the environment.
Speaker 3: It's interesting when I read so. Of course, I think
Speaker 3: about the economy mostly from the top down, and I
Speaker 3: enjoy when I get to participate in a round table
Speaker 3: with somebody like Emily who provides some insight about the
Speaker 3: broader economy from the bottom up. And what's interesting is
Speaker 3: when I see rotation to a lower end retailer like
Speaker 3: dollar Tree, it speaks of the price sensitivity of consumers.
Speaker 3: And then when we look at some of the more
Speaker 3: macroeconomic data, we see that firms are struggling to pass
Speaker 3: through some of the costs of tariffs. A lot of
Speaker 3: firms are reporting that they're getting squeezed in terms of profitability. Again,
Speaker 3: this is when I zoom out to the macroeconomic level,
Speaker 3: we're seeing squeezed profits in the aggregate data because a
Speaker 3: lot of the cost of tariffs are sitting with those producers.
Speaker 3: When you have consumers that are especially price sensitive, it's
Speaker 3: just sort of a tenuous balance that you're walking in
Speaker 3: the economy.
Speaker 5: Now. It's no wonder why.
Speaker 3: Policymakers are going to be pushing for a rate cut,
Speaker 3: because you're hoping that looser credit conditions will help to
Speaker 3: alleviate some of the pressure that consumers are feeling so
Speaker 3: that you can continue to have that expansion. But right now,
Speaker 3: it's just characteristic of a sort of tenuous balance in
Speaker 3: the broader macroeconomy.
Speaker 7: Yeah.
Speaker 4: I also feel like characteristic and Emily come on back
Speaker 4: in here, is that we are constantly hearing, even from
Speaker 4: retailers that do well, right, I think even Walmart, that
Speaker 4: there's like a cautious consumer out there, I mean cautious consumers.
Speaker 4: So they're spending, but they're being careful, they're being cautious,
Speaker 4: they're making choices, they're trading down. Is that a fair
Speaker 4: narrative takeaway?
Speaker 6: I think that's exactly right, and I think that's what
Speaker 6: we heard from Tony Spring this morning where you know,
Speaker 6: Macy's generally it's a middle to high income shopper, but
Speaker 6: around the holidays they have more aspirational shoppers come in.
Speaker 6: Those are the people who they're seeing pull back be
Speaker 6: extra cautious, and I think that's right.
Speaker 4: So, you know, before we wrap up, just kind of
Speaker 4: on the specifics, Emily, just real quickly, who else are
Speaker 4: we done from the retailers, And didn't we just have
Speaker 4: like a pretty impressive Black Friday and Cyber Monday?
Speaker 5: We did?
Speaker 6: We had, we had an interesting Black Friday Cyber Monday.
Speaker 6: We don't really know the full results yet, and I
Speaker 6: think we'll see that. We have some more retailers reporting
Speaker 6: the rest of the week. We have Kroger tomorrow. Five
Speaker 6: below are right too, I think exactly PVH. Yeah, so
Speaker 6: we're still the retail earning season really never steps.
Speaker 4: Yeah, all right, and then we'll get into the holiday results. Emily,
Speaker 4: thank you so much, really appreciate it. Bloomberg News Consumer
Speaker 4: team leader Emily Cone with the latest don retailers. Stuart
Speaker 4: Paul still with us talking about economics. I mean, there's
Speaker 4: a lot going on, and I guess we are just
Speaker 4: so focused about the FED meeting next week. Is it
Speaker 4: all but done? Another quarter point cut? And is it
Speaker 4: all then about what kind of color we get on
Speaker 4: twenty twenty six? And does it really matter because Fetcher J. Powell,
Speaker 4: we assume will be on his way out.
Speaker 3: Yeah, I think that the twenty five basis point cut
Speaker 3: in December is a done deal. When I think back
Speaker 3: to October, we only had one descent in favor of
Speaker 3: hole rates steady and that was from Kansas City FED
Speaker 3: President Jeffrey Schmid. So when, of course the Beige book
Speaker 3: came out, I was particularly interested to know what's going
Speaker 3: on in Kansas City. Is it possible that he would
Speaker 3: join the coalition of voters come December who would favor
Speaker 3: a twenty five basis point cut? And Kansas City conditions
Speaker 3: looked quite a bit worse in the last Fed Beige Book,
Speaker 3: So I expect that there is this broader coalition forming
Speaker 3: for December cut. You know that Governor Myron is going
Speaker 3: to vote in favor of more than twenty five basis
Speaker 3: points in December. What's going to be a little bit peculiar,
Speaker 3: And we've seen this. We saw this last year. In particular,
Speaker 3: is that when the Summary of Economic projections comes out
Speaker 3: with the dot plot, I would not be surprised to
Speaker 3: see other FOMC participants keeping their dots a quarter point
Speaker 3: higher than where we end the year. That's to say,
Speaker 3: there are sort of shadowed descents among FOMC participants who
Speaker 3: are not voting, who would have preferred rates to not
Speaker 3: be a low in December, even though the actual voters
Speaker 3: decide to lower by twenty five. Explain why, because we
Speaker 3: have other FOMC participants who are not voters, and among
Speaker 3: those people are Cleveland FED President Beth Hammock, Dallas FED
Speaker 3: President Lori Logan, Folks like that who are going to
Speaker 3: be voters next year, who were more hawkish in all
Speaker 3: of their public comments. They don't get a vote this time,
Speaker 3: but we expect that they would try to send a
Speaker 3: signal to the rest of the world, Hey, we're not
Speaker 3: going to be moving at the same pace next year.
Speaker 3: And so when we see dots for twenty twenty six,
Speaker 3: I expect there is going to be a pretty wide distribution.
Speaker 3: I expect that the incoming cohort of FMC voters from
Speaker 3: the regional banks are actually going to be quite a
Speaker 3: bit more hawkish in twenty twenty six than they have
Speaker 3: been this year.
Speaker 4: Are we nuts to be thinking? Are for traders and
Speaker 4: investors to be assuming that Kevin Hassett is the next
Speaker 4: FED share because it does seem like all roads are leading,
Speaker 4: all FED roads are leading to him.
Speaker 3: At this point, it looks like that's going to be
Speaker 3: the case. It looks like it's going to be a
Speaker 3: Hasset nomination. President Trump was alluding to Kevin Hassett being
Speaker 3: the nominee when he had a press conference. I guess
Speaker 3: just yesterday, there was a story from the Financial Times
Speaker 3: today that apparently in one on one conversations between bond
Speaker 3: market investors and the White House, some folks expressed concern.
Speaker 3: But then you look at the price action when the
Speaker 3: trial balloon has floated last week with Kevin Hassetts name,
Speaker 3: and he passed the financial markets test with flying colors.
Speaker 3: And so I'm less concerned about what folks are saying
Speaker 3: to the White House than what the market is saying
Speaker 3: to the White House. And the market is giving a
Speaker 3: clear go ahead.
Speaker 2: I don't want to put the cart before the horse,
Speaker 2: but if you're saying the market is giving the clear
Speaker 2: go ahead, then what does the Senate confirmation process look like.
Speaker 3: I think that what's different between let's say the Senate
Speaker 3: confirmation process for Trump's nominees this time versus in his
Speaker 3: first term is that I guess you could say the
Speaker 3: MAGA movement has last. Then there is a broader coalition
Speaker 3: that is in support of President Trump's agenda, and so
Speaker 3: the division between the Senate Republicans, for example, and the
Speaker 3: White House is pretty narrow. There is not a lot
Speaker 3: of a descent among Centerate Republicans in the White House.
Speaker 3: Every now and then you see somebody pop up like
Speaker 3: Mitch McConnell who has their own voice. But I expect
Speaker 3: that somebody like Kevin Hassett should make it through the
Speaker 3: confirmation process and the Senate Banking Committee pretty easily, and
Speaker 3: then it'll be mostly a party lion's vote when it
Speaker 3: actually gets to the Senate itself, to the Senate floor.
Speaker 3: So I don't think that it's going to be an
Speaker 3: easy process. I think that it's going to be one
Speaker 3: where you're gonna have some pretty dramatic headlines when he
Speaker 3: gets questions from let's say Senator Warren from Massachusetts. It's
Speaker 3: going to be a pretty ugly back and forth. But
Speaker 3: when it comes time to actually counting the votes. I
Speaker 3: think you just get party lines votes and gets he
Speaker 3: gets his shot if that's what the White House ultimately
Speaker 3: decide to do.
Speaker 2: And speaking of Spoke, she wants lower rates.
Speaker 5: Yeah, that's right.
Speaker 2: This is what's tricky is.
Speaker 5: That sometimes sometimes.
Speaker 3: Political partisans find a way to make sort of funny bedfellows.
Speaker 3: And yes, she does want lower rates, but does it
Speaker 3: come at a cost of politicizing the FED as an institution.
Speaker 3: I think she's going to try to make it more
Speaker 3: difficult for him, even though they both might want the
Speaker 3: same thing.
Speaker 4: When it comes to policy, it's just the Fed, all
Speaker 4: of it around the FED. I mean, you had Treasury
Speaker 4: Secretary Scott best And today saying he's going to push
Speaker 4: for this new rule that regional FED presidents must have
Speaker 4: lived in that district for the last three years. For
Speaker 4: the last three years, I just feel like there's just
Speaker 4: so many things going on. You're going to come back.
Speaker 4: We will continue the Fed conversation, but keep in mind,
Speaker 4: one week from today we will have the last decision
Speaker 4: of twenty twenty five. Stuart Paul Bloomberg Economics, US and
Speaker 4: Canada economists.
Speaker 2: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 2: up after.
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Speaker 4: We promised you that we were going to continue on
Speaker 4: the US economy and really the US consumer, the online
Speaker 4: lending marketplace and platform for loans, credit cards, deposit accounts, insurance,
Speaker 4: and where we're talking about Lending Club. They announced one
Speaker 4: hundred million dollars share buy back just about one month ago.
Speaker 4: It was about fifty not fifty, nearly five percent of
Speaker 4: the company's market value on the day of the announcement.
Speaker 4: Now Atlas have been raising their price targets on the
Speaker 4: stock this year, most recently again raising them since the
Speaker 4: company reported earnings late October. The company posted third quarter
Speaker 4: results that be estimates. They provided a guidance range for
Speaker 4: new fourth quarter originations with a midpoint above estimates. And
Speaker 4: the stock it's actually up this year.
Speaker 2: Yeah, it is. Shares of the two point one billion
Speaker 2: dollar market cap company about fourteen percent of more than
Speaker 2: twelve percent since reporting those earnings back on October twenty second,
Speaker 2: delighted to have with us. Scott Sanborn, CEO of Lending Club,
Speaker 2: also CEO for close to a decade at Lending Club
Speaker 2: for fifteen years now, also with us here in the
Speaker 2: Bloomberg BusinessWeek studio Herman Chant Bloomberg Intelligence senior analysts for
Speaker 2: US regional banks. He helped bring all of this together. Scott,
Speaker 2: I want to start with you and just give us
Speaker 2: some size and scope of the business, the consumers that
Speaker 2: you're working with, who's interacting with the platform.
Speaker 8: Yeah, So we serve a customer base we call the
Speaker 8: middle majority. They are if you think about credit, which
Speaker 8: we are a credit centric bank. If you've got a
Speaker 8: lot of money, you don't need a lot of access
Speaker 8: to credit, You pay cash for car, you save up
Speaker 8: to send your kids to college. If you're on the
Speaker 8: other end of the spectrum, you can't really access credits.
Speaker 8: So there's this middle group that are high income, heavy
Speaker 8: users of credit.
Speaker 5: So they can afford a car, they can afford to
Speaker 5: send their kids to school, but they need to use
Speaker 5: credit to do it. That's who we serve.
Speaker 8: It's a really big customer base that represents about a
Speaker 8: third of the US population, but it's close.
Speaker 5: To half of the credit wallets.
Speaker 8: They are more likely than average to have every form
Speaker 8: of credit, and that credit is with the exception mortgages
Speaker 8: also larger than average.
Speaker 5: That's what we starve.
Speaker 4: How much do these people usually make our average?
Speaker 8: And you know, obviously misleading averages can be misleading, but
Speaker 8: average is about one hundred and twenty five thousand dollars.
Speaker 5: But you can think of it of ranging between call
Speaker 5: it eighty.
Speaker 8: Thousand dollars in individual income to about two hundred thousand
Speaker 8: is where we really over index.
Speaker 2: Great.
Speaker 7: One of the real highlights of your recent investor day
Speaker 7: last week last month was the panel discussion with Marketplace Investors,
Speaker 7: and we talked about this earlier before your appearance here
Speaker 7: on radio. One of the panelists talked about being aligning
Speaker 7: performance expectations partnering with better operators. Are you seeing that
Speaker 7: with the private private credit space, Yeah, we do so.
Speaker 8: You know, we were born as a marketplace. Initially, everything
Speaker 8: we originated we sold. When we acquired the bank in
Speaker 8: twenty one, we started to hold a portion of our
Speaker 8: loans on our balance sheet.
Speaker 5: That both gives us a stronger and more resilient earnings.
Speaker 8: Profile also allows us to do other things innovate using
Speaker 8: our balance sheet, and what we found is just by
Speaker 8: aligning our interest with our loan buyers, we're the largest
Speaker 8: eater of our own cooking. We're the largest holder of
Speaker 8: lending club loans. We care very deeply about the performance
Speaker 8: of the credit, and credit is always evolving. It's very dynamic.
Speaker 8: Because we have a balance sheet, what we can do
Speaker 8: is when we want to test something new, we test
Speaker 8: it on our balance sheet. Let's try longer duration, let's
Speaker 8: try a larger loan size, let's try a new marketing channel.
Speaker 8: We hold that first, we see it, we own it,
Speaker 8: we make sure it performs the way we expect, and
Speaker 8: then we release that to the marketplace. If you don't
Speaker 8: have a balance sheet, you can't really do that. And
Speaker 8: so that's visible in our results across every aspect of underwriting.
Speaker 8: So lower delinquencies than the rest of the industry, thirty
Speaker 8: or forty percent below, lower roll rates, covery rates, lower prepayments,
Speaker 8: lower fraud, literally every aspect that you can measure of credit.
Speaker 5: We're out performing on.
Speaker 2: Has that remained consistent this year, in recent months, in
Speaker 2: recent weeks, like you have a great real time view
Speaker 2: of the consumer in the form of how well they
Speaker 2: are doing in terms of paying back their loans. That's right,
Speaker 2: still looking good.
Speaker 8: Yeah, so that's been consistent for you know, we release
Speaker 8: four years of data we put out there and so
Speaker 8: it's remained consistent. But you know it's not it's kind
Speaker 8: of like a duck on a pond. It's remained consistent
Speaker 8: because we're doing a lot of work underneath the cover.
Speaker 8: So you know, something that we shared an investor Day
Speaker 8: is at any given time we have more than two
Speaker 8: hundred tests in the market where we're evaluating price points,
Speaker 8: changes to the credit. So we're constantly adjusting to reflect
Speaker 8: what's happening with the consumer, and that's what's giving us
Speaker 8: the consistent results.
Speaker 4: Well, so that to me says you're very picky about
Speaker 4: who you lend to.
Speaker 5: That's true.
Speaker 4: We are so in terms of your test, So tell
Speaker 4: me what it is I mean, and how many of
Speaker 4: people who apply or want to access your platform. You're like,
Speaker 4: I'm out.
Speaker 8: Yeah, So we're pretty good at selecting who we want
Speaker 8: to have in our portfolio and reaching out to those people.
Speaker 5: And then both delivering the price.
Speaker 8: And product experience, but also let's call it the user
Speaker 8: experience that gets them all the way through. So we
Speaker 8: look for areas where, for example, we can control the
Speaker 8: use of the fund proceeds. If you come to me
Speaker 8: and say i want twenty thousand dollars because I'm going
Speaker 8: to do whatever my kid needs braces or I moving
Speaker 8: cross country, great, But unless I'm paying the orthodontists, I
Speaker 8: don't actually know that that's what you're using it for.
Speaker 5: Yeah, So we.
Speaker 8: Try to set ourselves up so that we are in
Speaker 8: some ways controlling the use of proceeds and then making
Speaker 8: the experience such that it makes it really easy. So
Speaker 8: our largest use cases for people who already have debt,
Speaker 8: credit card debt, notably, which at this point more than
Speaker 8: half of all Americans are carrying. They're carrying it at
Speaker 8: really high rates twenty three percent interest rate. It's highest
Speaker 8: they've ever been in history. And we say, great, you
Speaker 8: should do this instead. It takes less than five minutes.
Speaker 8: We're going to save you seven hundred basis points. And
Speaker 8: by the way, check all the credit cards that you
Speaker 8: have that you want us to pay off, like we
Speaker 8: see you have Chase or a cap One. Great, check
Speaker 8: those and we're going to pay them directly, so we
Speaker 8: know you are paying off your credit card debt. You're
Speaker 8: not just saying you're going to pay off your credit
Speaker 8: card debt and.
Speaker 5: Taking out more money. We are paying it off for you.
Speaker 8: Benefit for you is you know you've consolidated everything into
Speaker 8: one bill. Other benefit is your FYCO score usually goes
Speaker 8: up by thirty thirty five points, right because you've lowered,
Speaker 8: you know, your utilization.
Speaker 4: How much can you lower? Like I going to tell you,
Speaker 4: credit card rates just blow my mind about how high
Speaker 4: they are. And I'm just curious, why are they so high?
Speaker 4: Are people so bad? Is it to cover? No, I'm curious.
Speaker 5: Yeah, No, it's a great question.
Speaker 4: It just seems like it's out of control, and I
Speaker 4: think it prevents people from becoming financially solvent or creating,
Speaker 4: you know, kind of getting ahead of the game if
Speaker 4: you will.
Speaker 5: Yeah, there's a lot to unpack in that it is.
Speaker 8: No, No, it's a great question, and you know there's
Speaker 8: a number of questions underneath.
Speaker 5: But I'd say the biggest thing is.
Speaker 8: If you think about how people choose credit cards, it
Speaker 8: is not based on the interest rate. Yeah right, it's
Speaker 8: my Skymiles card or whatever, my retail store card.
Speaker 5: I'm going to get rewards for this.
Speaker 8: They don't even know what the interest rate is, or
Speaker 8: it's a promotional rate that resets, So that's one they
Speaker 8: don't choose based on that. Half of the people don't
Speaker 8: revolve on the card. They're collecting these rewards. Yeah, but
Speaker 8: they're not carrying a balance. Well, guess who's paying for that.
Speaker 8: All the people that are carrying a balance, those people
Speaker 8: don't know.
Speaker 5: What their rates are.
Speaker 8: The research we've done is half of all customers don't
Speaker 8: say they don't know the interest rate on their credit cards,
Speaker 8: and half that say they do. More than half of
Speaker 8: them are wrong, right. They think they know their rate,
Speaker 8: but they don't, right. And so cards have been able
Speaker 8: and one of the big resets with the cards was
Speaker 8: was driven by the Card Act, which limited how much
Speaker 8: cards could increase rates, so they factored in higher rates.
Speaker 2: I just want to jump in real quick. We are
Speaker 2: speaking with Scott Sanborn, CEO of a lending club. He's
Speaker 2: been CEO for close to a decade. We're also just
Speaker 2: getting some breaking news too on Apple. Apple's design executive
Speaker 2: Alan Dye poached by Meta in at Major coup This
Speaker 2: is the most prominent design executives executive at Apple. This
Speaker 2: underscore is a push by the social networking giant into
Speaker 2: AI equipped consumer devices. We also have here with us
Speaker 2: Herman Chan. He's Bloomberg Intelligence Senior analyst for US regional banks.
Speaker 4: Thanks.
Speaker 7: I wanted to follow up with you, Scott on some
Speaker 7: of the medium term expectations you laid out an investor Day.
Speaker 7: You talked about doubling loan originations. We're talking about eighteen
Speaker 7: to twenty billion dollars a year. What are some of
Speaker 7: the levers to get you to that level? You mentioned
Speaker 7: use cases. Maybe talk about home improvement as a use case,
Speaker 7: and how do you maintain solid credit quality as you
Speaker 7: ramp up that?
Speaker 4: And home improvement is something you're getting into, right.
Speaker 5: That's right, yep.
Speaker 8: So first and foremost is as I mentioned, you know,
Speaker 8: credit card refining people out of their credit card debt
Speaker 8: into a fixed rate.
Speaker 5: Lower rate loan is number one use case.
Speaker 8: It's it's about eighty percent of what we do. That
Speaker 8: market is the largest it's ever been. There's one point three.
Speaker 4: Trillion eighty percent of what you do.
Speaker 1: Is that? Wow?
Speaker 4: Go ahead?
Speaker 2: Sorry?
Speaker 8: So that is you know one point three trillion in
Speaker 8: balance is priced at really really high rates. We you know,
Speaker 8: when the rate environment shifted and the inflationary pressure shifted,
Speaker 8: we pulled back on a lot of our marketing. So
Speaker 8: we're currently running today at sort of below our historical volumes.
Speaker 8: So we're just going back into that market, turning back
Speaker 8: on marketing channels that we had turned off, and then
Speaker 8: the other areas. You know, personals can be used literally
Speaker 8: for anything, right and before credit cards came around and
Speaker 8: came to be, we're the dominant way consumers accessed you know,
Speaker 8: credit for everyday need. So we have a major purchase
Speaker 8: finance business that's growing today, call it fifty plus percent
Speaker 8: year on year. That's allowing things like elective medical procedures,
Speaker 8: you know, lay six races for your kid, you know,
Speaker 8: all kinds of procedure of fertility treatments, teeth implants, so
Speaker 8: things that insurance doesn't pay for but you want to.
Speaker 5: Do and you want to do right away.
Speaker 8: Private school education it's another one. So home improvement is
Speaker 8: sort of an next adjacency. People right now are staying
Speaker 8: in their homes longer. You know, seventy five percent of
Speaker 8: Americans their mortgage rate is under five percent. They're not
Speaker 8: going anywhere, and the homes are getting older, so the
Speaker 8: homes need to be invested in they need to be improved,
Speaker 8: so effectively enabling home improvement through an unsecured loan, where
Speaker 8: again we are controlling the use of proceeds. We can
Speaker 8: pay the supplier, we can pay the con tractor. We've
Speaker 8: got the capability through an acquisition we announced to you know,
Speaker 8: disperse this in phases to multiple parties.
Speaker 5: So we're really excited to kick that off.
Speaker 4: We've only got like thirty seconds left here. Consumer doing okay.
Speaker 8: I'd say the consumer we serve is demonstrating themselves to
Speaker 8: be remarkably resilient.
Speaker 1: That a lot.
Speaker 8: It's a drinking game, but we'll acknowledge the sentiment isn't great.
Speaker 4: Yeah, come back soon. I have to tell you that
Speaker 4: I think we're all like I want to go.
Speaker 2: I want to go.
Speaker 4: Please come back late, because I think you have a
Speaker 4: great advantage and view into what's going on in the economy.
Speaker 4: We'd love to Okay, we would too. Scott Sandborn, chief
Speaker 4: executive Officer of Lending Club. Are amazing. Herman Chin, Bloomberg Intelligence,
Speaker 4: Senior analyst for US regional Banks.
Speaker 2: Stay with us. More from Bloomberg Business with Daily coming
Speaker 2: up after this.
Speaker 1: You're listening to the Bloomberg Business Week Daily Podcast. Catch
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Speaker 2: If you've been listening or watching us the past couple
Speaker 2: of days, you know we've spent a couple of days
Speaker 2: talking about residential real estate. We did that with Ron Eliosov,
Speaker 2: founder and managing director over at north Wind Group, and
Speaker 2: then yesterday with Louise Phillips Forbes of Brown Harris Stevens
Speaker 2: are focused with them, really what's been happening in New
Speaker 2: York City and what will happen in New York City.
Speaker 2: We want to take a different look, another look at
Speaker 2: a different type of real estate and kind of go
Speaker 2: further Afield. Back with us is Amy Rubinstein. She's CEO
Speaker 2: of Clear Investment Group. It's a Chicago based firm that
Speaker 2: specializes in opportunistic real estate investments, specifically in the distressed
Speaker 2: mid size multi family sector in mostly secondary and tertiary
Speaker 2: markets around the US. She joins us once again here
Speaker 2: in our Bloomberg Interactive Brokers Studio. Welcome back, Thank you
Speaker 2: so much so it has been a little over months
Speaker 2: since you were last with us. It was actually during
Speaker 2: the government shutdown. Yes, a lot has happened since then.
Speaker 2: We've gotten some day, we've gotten some delayed data. An
Speaker 2: update on just how things are looking in your world,
Speaker 2: and remind everybody what markets you focus on.
Speaker 9: Yeah, we're seeing definitely two ends of the spectrum right now.
Speaker 9: So we are seeing some struggles that operators are having.
Speaker 9: I guess what we're really looking at more than two
Speaker 9: months ago, well, not so much more so than.
Speaker 4: Two months ago, but we're really feeling that.
Speaker 9: Key shaped economy that everybody's talking about where some of
Speaker 9: these lower income tenents are struggling a little bit on expenses.
Speaker 9: We are still feeling inflationary pricing, and we're feeling a
Speaker 9: little bit of a lack of labor. And I think
Speaker 9: that that is something that is starting to grow. Is
Speaker 9: really looking more towards where does this construction labor come from?
Speaker 9: And I think that's a product of deportations and a
Speaker 9: product of not having a great immigration policies right now,
Speaker 9: are you think you.
Speaker 2: Yeah, I was trying to remember who I was talking
Speaker 2: to about this just in the last couple of days,
Speaker 2: talking about how they are having a hard time finding
Speaker 2: people to do the work right now.
Speaker 4: Yeah, construction is a little bit tough.
Speaker 2: So what type of construction specifically, Just talk about any kind.
Speaker 9: Of of rehab, any sort of It could be anywhere
Speaker 9: from ground up construction where developer as struggling a little
Speaker 9: bit on prices, both from inflation and also from lack
Speaker 9: of labor, and then also just on the rehab in general.
Speaker 4: Just like Flamer is really because of immigration, no doubt
Speaker 4: about it. That's what we're seeing. Yeah, we're seeing it.
Speaker 9: A lot of people don't show up to work, even
Speaker 9: if they do have a legal status. People are a
Speaker 9: little bit scared. On the flip side, you are seeing
Speaker 9: incredible opportunities right now for investments because there is a
Speaker 9: lot of distress.
Speaker 4: We happen to be buying a lot right now.
Speaker 9: We're in the middle of a fundraise on a fund
Speaker 9: because there is so much to buy.
Speaker 4: There's opportunity, much great.
Speaker 9: Opportunity out there, and not a ton of competition because
Speaker 9: right now lenders and investors are really not pricing in performa.
Speaker 9: They want in place cash flow, in place NI. And
Speaker 9: if you can find stuff where the fundamentals are strong,
Speaker 9: but and the NI is fixable but not quite there.
Speaker 9: Then you really have a great opportunity for buy.
Speaker 2: Mikayla and our control room one of our producers reminding
Speaker 2: us that just a couple of weeks ago we spoke
Speaker 2: to Christina Stambul of farm Girl Flowers and they bought
Speaker 2: a farm to grow flowers on a small portion of
Speaker 2: their flowers. She said they were having She was hearing
Speaker 2: about a hard time.
Speaker 4: With labor, right, and we know that right. The farm
Speaker 4: industry is another one you mentioned ni net operating income.
Speaker 4: Help me understand something though, when you are finding lots
Speaker 4: of opportunities because there's distress out there, it's when things
Speaker 4: aren't going so well that's actually a good environment for
Speaker 4: you guys. I will say, is there a little bit
Speaker 4: of a balance. There's different kinds of distress.
Speaker 9: You feel some people that are really being strained by
Speaker 9: higher interest rates, by higher expenses, by higher delinquencies, and
Speaker 9: so you feel some strain and what that could cause
Speaker 9: is definitely some pricing adjustments as people are trying to sell.
Speaker 9: I do think, as you were talking about before, interest
Speaker 9: rates are going to start to give a little bit
Speaker 9: of wind to cap rate compression, and so you'll start
Speaker 9: to get buyers and sellers coming together more. But that's
Speaker 9: not the type of distress that I'm talking about. I'm
Speaker 9: talking about distress that's even deeper than that, where operators
Speaker 9: maybe didn't have a lot of experience and overextended themselves.
Speaker 4: And so there's.
Speaker 9: More to it than just that there's layers of distress
Speaker 9: there our tenants doing so I think that, you know,
Speaker 9: I think we see a little bit of both ends, right,
Speaker 9: We're back to that cay shape where you see the
Speaker 9: higher end tenants doing very very well and you see
Speaker 9: some of your lower income tenants that are struggling a
Speaker 9: bit more.
Speaker 2: Is it manifesting in the operators needing to offer concessions?
Speaker 2: Are you seeing delays in rent? What are you saying?
Speaker 9: So we've tried to start getting creative on different ways
Speaker 9: to help tenants keep up with their rent and help
Speaker 9: them with budgeting, teaching budgeting classes, trying to pull out
Speaker 9: their rent in different stages during the month as their
Speaker 9: paychecks come in.
Speaker 4: So just try to help keep people on track a
Speaker 4: little bit.
Speaker 5: It's fascinating.
Speaker 4: We just had a long, deep conversation with the CEO
Speaker 4: of lending Tree, and the same thing I see here. Yeah,
Speaker 4: lending club, Oh, lending club, sorrylending club, forgive me lending club.
Speaker 4: But the same thing in terms of when they are
Speaker 4: giving loans, like they want to know where it's going,
Speaker 4: and if it's to pay off credit card debt, they
Speaker 4: will make those payments directly and really kind of teaching
Speaker 4: some financial responsibility and how big a part of that
Speaker 4: is what you guys do.
Speaker 8: Know.
Speaker 9: It's really interesting because this is a new trend for us.
Speaker 9: This wasn't something that we were doing five years ago
Speaker 9: helping tenants learn about budgeting and finances, and it's something
Speaker 9: that now we're starting to really look into.
Speaker 4: How can we be partners with these tenants.
Speaker 9: As opposed to the people that are forcing them to
Speaker 9: pay their rent?
Speaker 4: Why are you doing it? Is it just business sense?
Speaker 4: It's a win win for everybody.
Speaker 9: Okay, If people can prioritize their finances and get their
Speaker 9: rent paid and stay in their houses, it's better for us,
Speaker 9: we don't lose the income, we don't have to go
Speaker 9: through evictions. It's better for them they don't have to
Speaker 9: be relocated. So it's a win win for everybody. It's
Speaker 9: a matter of can can that have an effect? Can
Speaker 9: we be effective enough to help shape that.
Speaker 2: Do you do the tenants feel like they're they're being
Speaker 2: partnered with? I mean, there's this idea of an adversarial
Speaker 2: relationship when it comes to landlord and tenant.
Speaker 9: Sure, I think there can be, and I think you
Speaker 9: get a little bit more of that in places.
Speaker 4: I would say a place like New York, where you've.
Speaker 9: Got rent control and the landlord and the tenant are
Speaker 9: not really aligned because they're not both choosing that rental rate.
Speaker 5: I think of.
Speaker 2: Some landlords I've had in my day where I was
Speaker 2: not completely aligned with Carrol.
Speaker 5: Anybody who's lived in New York. You know what's interesting.
Speaker 2: Of all the places that we rented that I rented
Speaker 2: in New York, one landlord who was good. Really yeah, no.
Speaker 4: One ever talks about their good landlord. Four out of.
Speaker 2: Four Yeah, well yeah, that was pretty good. Twenty five percent.
Speaker 2: That's not bad.
Speaker 4: She was unique. Okay, yeah, what's you again? Unique?
Speaker 5: Unique?
Speaker 4: Your properties remind me because I think initially you guys
Speaker 4: were in Chicago.
Speaker 9: We're based out of Chicago, but right now we have
Speaker 9: properties and Louisianaia not anymore.
Speaker 4: Not anymore. There just is not cash flow in California.
Speaker 9: It's a little more like New York City where everything's
Speaker 9: just based on appreciation.
Speaker 2: Do you will if California builds more, would you go back?
Speaker 9: You know, we look for stabilized cash flow, not for
Speaker 9: incoming cash flow. We actually don't care about the n
Speaker 9: OI in place when we purchase things. We actually look
Speaker 9: for negative NI because we want to be able to
Speaker 9: fix that NI and that's how we.
Speaker 4: Add better opportunity.
Speaker 9: Right, but we want to eventually get to strong, strong
Speaker 9: cash flow.
Speaker 4: Best places in terms of geography right now, for you guys.
Speaker 9: I think there's tons of opportunity in Atlanta, Atlanta, we
Speaker 9: keep looking over there.
Speaker 4: Lots in the Midwest, we love it.
Speaker 9: We love Ohio and Indiana. Right now we're buying in Alabama.
Speaker 9: We have a deal under contract in Illinois. We're in Ohio,
Speaker 9: we're in Columbus. We really like Cleveland as well, So
Speaker 9: there there are you know, people are looking a lot
Speaker 9: in Cincinnati.
Speaker 4: There's lots of lots of places to go there. I
Speaker 4: know we talked we go kind of all over with you.
Speaker 4: But when we talk about afforda housing, what is the answer,
Speaker 4: which is something that we have talked about for decades, right,
Speaker 4: what do you think is the answer. And forgive me,
Speaker 4: I'm only giving you about forty seconds solve a problem
Speaker 4: that is. I think different.
Speaker 9: Markets are going to have different answers. I think generally speaking,
Speaker 9: it's easier for us. We see a better opportunity in
Speaker 9: rehabbing and rehabilitating as opposed to ground up construction where
Speaker 9: you need a lot of government subsidies or some sort
Speaker 9: of incentives to be able to get it done. Us
Speaker 9: we see the opportunity in existing assets that just need
Speaker 9: to lift back up. But then again, you've got to
Speaker 9: be willing to buy something that's negative CASHLNG in the beginning.
Speaker 4: And most of those assets are going to be outside
Speaker 4: the major cities or in the major city, not necessarily.
Speaker 4: You know, we own in DC, so it can be
Speaker 4: all over the place. Great stuff. Thank you for coming
Speaker 4: by again. Thank you for having right the real estate.
Speaker 2: Amy Rubinstein, the CEO of a Clear Investment Group.
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