1 00:00:00,760 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,560 Speaker 1: with essential market moving news on the Bloomberg Markets Podcast, 5 00:00:15,560 --> 00:00:18,400 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,640 Speaker 1: at Bloomberg dot com Slash podcast. Let's have Alison Williams 7 00:00:22,640 --> 00:00:25,759 Speaker 1: in every week. What do you say, Well, I will, 8 00:00:27,160 --> 00:00:28,960 Speaker 1: but we'll schedule out of you. One of the best 9 00:00:29,120 --> 00:00:32,680 Speaker 1: bank analysts, international bank outlet analysts in the world, and 10 00:00:33,240 --> 00:00:36,639 Speaker 1: she works for us, so that's a bonus. Plus, she 11 00:00:36,880 --> 00:00:39,520 Speaker 1: loves talking about credit sweets. There is no one who 12 00:00:39,560 --> 00:00:43,360 Speaker 1: prefers talking about credit sweets more than Alison Williams. All right, Alison, 13 00:00:43,680 --> 00:00:46,360 Speaker 1: we had a just more going on, A million ways 14 00:00:46,360 --> 00:00:47,800 Speaker 1: we can go. As Matt was say, let's start with 15 00:00:47,880 --> 00:00:52,800 Speaker 1: credit squeez. Is it going to survive the weekend? Well, 16 00:00:52,840 --> 00:00:57,000 Speaker 1: it's it's it's gonna be tough. We think that we 17 00:00:57,120 --> 00:01:00,360 Speaker 1: think that you know for sure, and regular just have 18 00:01:00,440 --> 00:01:03,720 Speaker 1: said that they're closely monitoring the situation. They have to 19 00:01:03,760 --> 00:01:06,759 Speaker 1: be in discussions with the bank. I think that the 20 00:01:06,800 --> 00:01:10,240 Speaker 1: moves that we saw this week were meant to study 21 00:01:10,760 --> 00:01:15,760 Speaker 1: sentiment and assure investors. Um, the stock is telling us 22 00:01:15,840 --> 00:01:20,759 Speaker 1: today that that hasn't necessarily helped. I think that there's 23 00:01:20,800 --> 00:01:25,160 Speaker 1: there's two things. One is the liquidity and soundness of 24 00:01:25,200 --> 00:01:27,880 Speaker 1: the bank. And I think that the SNB coming out 25 00:01:27,920 --> 00:01:30,600 Speaker 1: and sank Swiss National Bank we have to differentiate because 26 00:01:30,640 --> 00:01:35,160 Speaker 1: they also have the shareholder SNB. But um, you know 27 00:01:35,680 --> 00:01:40,920 Speaker 1: that's yes, so they borrow the fifty four billion, or 28 00:01:40,920 --> 00:01:42,440 Speaker 1: said they were going to borrow the fifty four billion. 29 00:01:42,440 --> 00:01:44,480 Speaker 1: Credit swis from the government. The government has said, or 30 00:01:44,560 --> 00:01:47,280 Speaker 1: the regulator has said, you know they are there. They're 31 00:01:47,319 --> 00:01:50,400 Speaker 1: there to backstop the liquidity. But you know, to us, 32 00:01:50,440 --> 00:01:53,160 Speaker 1: the issue with Credit Swiss is, you know, you have 33 00:01:53,280 --> 00:01:56,240 Speaker 1: to study the confidence, you have to study the flows. 34 00:01:56,440 --> 00:02:00,200 Speaker 1: You have to because that that really is their core business. 35 00:02:00,240 --> 00:02:04,840 Speaker 1: And the move was meant to study client sentiment. The 36 00:02:04,960 --> 00:02:10,480 Speaker 1: investor sentiment is telling you that they're not assured. I mean, 37 00:02:11,040 --> 00:02:13,480 Speaker 1: there's so many ways we could go with this. First 38 00:02:13,480 --> 00:02:16,679 Speaker 1: of all, when someone asks you if you're going to 39 00:02:16,760 --> 00:02:21,000 Speaker 1: increase your investment in a bank in which you already 40 00:02:21,000 --> 00:02:25,320 Speaker 1: owned ten percent, don't say absolutely not. Don't be vehement 41 00:02:25,360 --> 00:02:27,200 Speaker 1: about the fact that you're never going to give this 42 00:02:27,240 --> 00:02:29,920 Speaker 1: bank any more money again, because that's a bad idea. 43 00:02:30,040 --> 00:02:34,640 Speaker 1: I guess the most important questions, though, Allison, are why 44 00:02:34,680 --> 00:02:38,000 Speaker 1: would you work for this bank? I mean, clearly it's 45 00:02:38,040 --> 00:02:40,360 Speaker 1: because you can't get a job somewhere else. Why would 46 00:02:40,360 --> 00:02:42,920 Speaker 1: you have your money at this bank? Do you really 47 00:02:42,960 --> 00:02:45,320 Speaker 1: trust that it's going to continue? And then why would 48 00:02:45,360 --> 00:02:50,239 Speaker 1: you trade with this bank? There are already very important, 49 00:02:50,400 --> 00:02:54,320 Speaker 1: large national banks that are cutting that relationship off, so 50 00:02:56,880 --> 00:03:00,560 Speaker 1: I can't imagine how it goes on and in anything 51 00:03:00,600 --> 00:03:04,239 Speaker 1: like the same form. Well, let's start with your last 52 00:03:04,960 --> 00:03:09,120 Speaker 1: point with regard to trading and counterparty risk, because I 53 00:03:09,120 --> 00:03:12,040 Speaker 1: think that that's the issue that we've probably gotten the 54 00:03:12,080 --> 00:03:17,520 Speaker 1: most questions from investors about this week. And we certainly 55 00:03:17,560 --> 00:03:20,600 Speaker 1: saw to your point, when their largest investors so that 56 00:03:20,600 --> 00:03:25,080 Speaker 1: they weren't going to add additional investments that people you 57 00:03:25,080 --> 00:03:27,840 Speaker 1: started to see that in the stocks of some of 58 00:03:27,919 --> 00:03:30,919 Speaker 1: the biggest US banks. But when we look at that, 59 00:03:31,200 --> 00:03:32,960 Speaker 1: you know, the two things that we think about are one, 60 00:03:33,000 --> 00:03:36,680 Speaker 1: this isn't a new situation. It's been a couple of years, 61 00:03:36,760 --> 00:03:40,760 Speaker 1: and you know, we would expect that the counterparty risk 62 00:03:41,440 --> 00:03:44,280 Speaker 1: management departments of these banks have been managing down their 63 00:03:44,360 --> 00:03:47,960 Speaker 1: exposures accordingly. And then secondly, if we look at the 64 00:03:48,000 --> 00:03:52,880 Speaker 1: trading operations, which is something that we've discussed, I mean, 65 00:03:52,920 --> 00:03:57,000 Speaker 1: they're a shadow of their former self. And that also 66 00:03:57,080 --> 00:04:02,040 Speaker 1: tells you just that their activity with banks globally has 67 00:04:02,040 --> 00:04:06,360 Speaker 1: slowed a bit on that front. So certainly there are 68 00:04:06,400 --> 00:04:11,400 Speaker 1: still relationships out there we would expect, but that those 69 00:04:11,760 --> 00:04:14,640 Speaker 1: exposures have have been mounaged down in terms of a 70 00:04:14,920 --> 00:04:17,680 Speaker 1: counterparty if we and I guess I would like and 71 00:04:17,720 --> 00:04:19,640 Speaker 1: it's if we look back to what happened with bear 72 00:04:19,720 --> 00:04:23,119 Speaker 1: Stearns and Lehman, I think, you know, counterparties with Lehman 73 00:04:23,160 --> 00:04:28,200 Speaker 1: were sort of on high alert beginning with m bear Stearns, 74 00:04:29,200 --> 00:04:34,279 Speaker 1: which happened actually this month, several several years ago. But 75 00:04:34,400 --> 00:04:38,840 Speaker 1: by the time when you know, when Lehman eventually went under, 76 00:04:38,920 --> 00:04:42,279 Speaker 1: the issues really related to you know, money markets that 77 00:04:42,360 --> 00:04:44,960 Speaker 1: held investment in leaning. It was less about sort of 78 00:04:45,000 --> 00:04:49,000 Speaker 1: remaining counterparty risk. Yeah, that's kind of what we learned. Boy, 79 00:04:49,160 --> 00:04:51,240 Speaker 1: Just as even as a neophyte boy, if you have 80 00:04:51,360 --> 00:04:53,800 Speaker 1: if you lose confidence in the marketplace and counterparty risk 81 00:04:53,839 --> 00:04:56,880 Speaker 1: comes into play, it's almost a game over. Alison on 82 00:04:56,960 --> 00:05:00,840 Speaker 1: Credit Swiss. Is there anything more the government can do? Really? Um? 83 00:05:01,040 --> 00:05:04,120 Speaker 1: I mean, I'm not even sure how to map out 84 00:05:04,160 --> 00:05:07,400 Speaker 1: a scenario, you know where this scene kind of survives. 85 00:05:07,760 --> 00:05:09,760 Speaker 1: I don't know. Did they take control of the bank, 86 00:05:09,839 --> 00:05:13,880 Speaker 1: Can they force a sale to UBS? I buy the way. 87 00:05:13,920 --> 00:05:16,440 Speaker 1: We'll discourage the use of the word merger because there's 88 00:05:16,440 --> 00:05:18,520 Speaker 1: no way anybody's coming together with credit suite as an 89 00:05:18,600 --> 00:05:22,160 Speaker 1: un part. Yeah, that's true. So I think I think 90 00:05:22,160 --> 00:05:25,360 Speaker 1: that you know, when when we think about the government, 91 00:05:25,400 --> 00:05:28,279 Speaker 1: I mean, and it's been very interesting just seeing what's 92 00:05:28,279 --> 00:05:31,560 Speaker 1: happening both in the US and in Europe as as 93 00:05:31,560 --> 00:05:35,360 Speaker 1: the government is trying to assure investors and certainly that 94 00:05:35,680 --> 00:05:39,000 Speaker 1: the size and nature of credit suitezes is not comparable 95 00:05:39,120 --> 00:05:42,640 Speaker 1: to the banks that failed in the US or First Republic, 96 00:05:43,240 --> 00:05:46,279 Speaker 1: which investors are also worried about. But the connection is 97 00:05:46,400 --> 00:05:49,400 Speaker 1: market sentiment and you have, you know, regulators in both 98 00:05:49,400 --> 00:05:54,080 Speaker 1: of these countries trying trying to you know, stabley sentiment 99 00:05:54,160 --> 00:05:59,080 Speaker 1: at the specific bank, but then also more broadly, and 100 00:05:59,400 --> 00:06:02,719 Speaker 1: you know, as measures don't work, you have to try 101 00:06:03,320 --> 00:06:06,760 Speaker 1: different things. I think when we think about credit suis um. 102 00:06:07,000 --> 00:06:09,040 Speaker 1: You know, for for years people have talked about it 103 00:06:09,160 --> 00:06:12,800 Speaker 1: as you know, as you said, a merger partner. Now 104 00:06:12,839 --> 00:06:16,520 Speaker 1: it's you know, more of a takeout candidate. What exactly happens? 105 00:06:16,560 --> 00:06:19,800 Speaker 1: I think when we think about, you know, what what 106 00:06:19,839 --> 00:06:24,320 Speaker 1: the bank looked like today versus a couple of years ago. Um. Again, 107 00:06:24,360 --> 00:06:28,120 Speaker 1: there their trading operations are have a shadow of their 108 00:06:28,120 --> 00:06:33,320 Speaker 1: former self. Um. The Swiss bank unit is what the 109 00:06:33,400 --> 00:06:37,800 Speaker 1: Swiss government is going to want to protect. And then 110 00:06:37,839 --> 00:06:40,840 Speaker 1: we have the wealth business, which I think you know 111 00:06:40,880 --> 00:06:42,920 Speaker 1: a lot of people will think is a great fit 112 00:06:42,960 --> 00:06:47,320 Speaker 1: with UBS, But what we've seen with UBS is they're 113 00:06:47,400 --> 00:06:53,039 Speaker 1: taking a lot of those flows without the combination. So um, 114 00:06:53,440 --> 00:06:56,000 Speaker 1: and I think it circles back to your earlier point it, 115 00:06:56,200 --> 00:07:00,760 Speaker 1: you know, is what will regulators do in terms of 116 00:07:01,400 --> 00:07:05,680 Speaker 1: forcing the issue or trying to help you know, some 117 00:07:05,760 --> 00:07:10,800 Speaker 1: kind of combination that can protect the Swiss unit And 118 00:07:10,840 --> 00:07:15,200 Speaker 1: really that's the unit that's important to their economy and 119 00:07:15,320 --> 00:07:18,280 Speaker 1: the system that they oversee. All right, Allison, thank you 120 00:07:18,360 --> 00:07:21,679 Speaker 1: as always for helping out here. Alison Williams Senior Global 121 00:07:21,720 --> 00:07:25,320 Speaker 1: Banks and Asset Manager for Bloomberg Intelligence, and not only that, 122 00:07:25,400 --> 00:07:28,760 Speaker 1: she was recently promoted to be co director of Research 123 00:07:28,800 --> 00:07:31,760 Speaker 1: for the Americas for Bloomberg Intelligence. So she's got to 124 00:07:31,800 --> 00:07:34,520 Speaker 1: now manage, along with her partner, you know, more than 125 00:07:34,560 --> 00:07:37,400 Speaker 1: one hundred and fifty analysts, which is like hurting cats. 126 00:07:37,440 --> 00:07:39,000 Speaker 1: I mean, these people take a lot of work. It's 127 00:07:39,040 --> 00:07:40,280 Speaker 1: a lot of work, but she's up to it and 128 00:07:40,280 --> 00:07:42,080 Speaker 1: she does a great job. She's got great experience on 129 00:07:42,120 --> 00:07:44,800 Speaker 1: Wall Street, and she's been indispensable here as we try 130 00:07:44,840 --> 00:07:47,320 Speaker 1: to figure out what's going on in the banking space, 131 00:07:47,720 --> 00:07:50,760 Speaker 1: not just in the US, but overseas as well, focusing 132 00:07:50,800 --> 00:07:55,400 Speaker 1: really on credit Swiss. You're listening to the team. Ken's 133 00:07:55,400 --> 00:07:59,800 Speaker 1: her live program, Bloomberg Markets weekdays at ten am Eastern Bloomberg, 134 00:08:00,520 --> 00:08:03,080 Speaker 1: the r Heart Radio app, and the Bloomberg Business App. 135 00:08:03,200 --> 00:08:07,960 Speaker 1: We're listening on demand wherever you get your podcast. We 136 00:08:08,080 --> 00:08:10,280 Speaker 1: actually know a couple of people in the rates business. 137 00:08:10,400 --> 00:08:13,400 Speaker 1: Erica Aidelberg, she covers the mortgage back security business for 138 00:08:13,480 --> 00:08:16,520 Speaker 1: Bloomberg Intelligence. She joins us here on our Bloomberg Interactive 139 00:08:16,520 --> 00:08:19,040 Speaker 1: Broker studio, so a double gold star for being in 140 00:08:19,080 --> 00:08:22,200 Speaker 1: the studio on a Friday. And Ira Jersey, he's a 141 00:08:22,320 --> 00:08:24,679 Speaker 1: US interest rate strategist. I'm just gonna guess he's mailing 142 00:08:24,760 --> 00:08:27,960 Speaker 1: it in from home, but so Erica, since you're here, Um, 143 00:08:28,240 --> 00:08:30,080 Speaker 1: we're gonna go with you first. We may not even 144 00:08:30,120 --> 00:08:35,040 Speaker 1: talk to to you, know. Um. So in this bank quote, 145 00:08:35,040 --> 00:08:37,480 Speaker 1: I'm not gonna call it a crisis, although many people do. 146 00:08:37,720 --> 00:08:40,080 Speaker 1: John Authors has said, don't call it a crisis yet. 147 00:08:40,200 --> 00:08:43,400 Speaker 1: I'm I'm with John. I'm with John. But there's turmoil. 148 00:08:44,559 --> 00:08:47,560 Speaker 1: Does that mean banks pull back? Can I not get 149 00:08:47,600 --> 00:08:51,000 Speaker 1: my jumbo mortgage for this the Matt Miller estate up 150 00:08:51,040 --> 00:08:53,760 Speaker 1: in Westchester? I mean, what are we seeing in a 151 00:08:53,800 --> 00:08:58,960 Speaker 1: mortgage part market? Yeah, we are actually saying, according to 152 00:08:59,160 --> 00:09:01,960 Speaker 1: the data, that I've seen banks pulling back on credit, 153 00:09:02,000 --> 00:09:04,760 Speaker 1: and that was before this latest turmoil as we're calling 154 00:09:04,800 --> 00:09:09,560 Speaker 1: it now. The mortgage credit availability index that the NBA tracks, 155 00:09:09,600 --> 00:09:13,199 Speaker 1: which is depending on a mix of variables, is at 156 00:09:13,320 --> 00:09:16,360 Speaker 1: decade lows. So that could make it harder. The one 157 00:09:16,360 --> 00:09:18,760 Speaker 1: sector that's interesting, by the way, that's fascinating. So even 158 00:09:18,800 --> 00:09:21,400 Speaker 1: as I look at the bank rate thirty year mortgage 159 00:09:21,440 --> 00:09:24,680 Speaker 1: index just as my benchmark, and it has come down, 160 00:09:24,720 --> 00:09:26,320 Speaker 1: it bounced back up in the last couple of days. 161 00:09:26,320 --> 00:09:30,320 Speaker 1: But even if that rate is lower, mortgages still may 162 00:09:30,320 --> 00:09:34,079 Speaker 1: not be available. Banks may not be giving out loans 163 00:09:34,120 --> 00:09:36,920 Speaker 1: even if you could get them for cheaper, it definitely 164 00:09:36,960 --> 00:09:39,880 Speaker 1: could tighten credit. Yeah, and I think this latest turmoil 165 00:09:40,000 --> 00:09:42,400 Speaker 1: is going to make that even more of an issue. 166 00:09:42,640 --> 00:09:46,240 Speaker 1: That being said, the jumbo credit index actually is the 167 00:09:46,280 --> 00:09:49,200 Speaker 1: one sector that hasn't fallen quite as much as Fannie 168 00:09:49,200 --> 00:09:53,000 Speaker 1: Freddie Jenny, you know, standard conventional mortgages. And I think 169 00:09:53,080 --> 00:09:57,080 Speaker 1: that's partly because for better for worse, that is already 170 00:09:57,120 --> 00:10:00,679 Speaker 1: a very high credit product, and the larger loans are 171 00:10:00,679 --> 00:10:02,840 Speaker 1: more attractive for banks to originating than a lot of 172 00:10:02,840 --> 00:10:05,440 Speaker 1: types hold on their balance sheets. So and a lot 173 00:10:05,440 --> 00:10:07,680 Speaker 1: of those are actually in adjustable rate mortgages, which do 174 00:10:07,800 --> 00:10:11,000 Speaker 1: have a better asset liability mix with the bank's balances. 175 00:10:11,000 --> 00:10:17,280 Speaker 1: But bottom line financial conditions have tightened substantially since the 176 00:10:17,320 --> 00:10:20,880 Speaker 1: failure of SVB Ira Jersey. Is that going to make 177 00:10:20,920 --> 00:10:25,360 Speaker 1: a difference to our federal Reserve? It's ours yours again 178 00:10:25,440 --> 00:10:27,400 Speaker 1: and iras Paul Okay. Is that going to make a 179 00:10:27,400 --> 00:10:30,600 Speaker 1: difference to our Federal Reserve when they meet to decide 180 00:10:30,600 --> 00:10:33,720 Speaker 1: whether or not to raise rates. Yeah, it absolutely will, 181 00:10:34,320 --> 00:10:37,560 Speaker 1: I think in part because the Fed is worried about, 182 00:10:38,120 --> 00:10:40,320 Speaker 1: you know, the financial sector and some of the knock 183 00:10:40,400 --> 00:10:42,600 Speaker 1: on effects that you could have if you have additional 184 00:10:42,640 --> 00:10:46,040 Speaker 1: bank failures and credit tightening even more. That being said, 185 00:10:46,200 --> 00:10:48,920 Speaker 1: I still think that you know, with some of the 186 00:10:49,000 --> 00:10:52,240 Speaker 1: lending facilities that they've they've used, there's a big a 187 00:10:52,240 --> 00:10:54,800 Speaker 1: lot of people worrying about the fact that the discount 188 00:10:54,800 --> 00:10:57,280 Speaker 1: window is over one hundred and fifty billion dollars in usage. 189 00:10:57,320 --> 00:11:00,880 Speaker 1: It's probably just from a couple of institutions. They're worried 190 00:11:00,880 --> 00:11:03,520 Speaker 1: that that show is a signal that there might be 191 00:11:03,880 --> 00:11:06,240 Speaker 1: wider systemic risk. But I think that what the FED 192 00:11:06,240 --> 00:11:08,559 Speaker 1: will will do here is say, look, we're gonna we're 193 00:11:08,559 --> 00:11:10,720 Speaker 1: gonna hike twenty five baits points because inflation is still 194 00:11:10,760 --> 00:11:16,240 Speaker 1: a problem. But we're also going to continue to have 195 00:11:16,320 --> 00:11:20,400 Speaker 1: liquidity facilities as needed and encourage banks to use the 196 00:11:20,440 --> 00:11:23,840 Speaker 1: existing liquidity facilities in order to stop any runs on 197 00:11:23,880 --> 00:11:27,439 Speaker 1: additional banks that might have some liquidity issues. Well, they 198 00:11:27,440 --> 00:11:30,080 Speaker 1: sure are doing that. You don't need to encourage them, right, 199 00:11:30,120 --> 00:11:35,000 Speaker 1: They've already used the discount window like more than they 200 00:11:35,040 --> 00:11:38,760 Speaker 1: did at the height of the Great Financial Crisis. Yeah, 201 00:11:38,800 --> 00:11:40,960 Speaker 1: And I think that one of the issues that the 202 00:11:41,040 --> 00:11:43,280 Speaker 1: FED had at the height of the financial crisis, or 203 00:11:43,320 --> 00:11:46,640 Speaker 1: even at the very beginning, was trying to convince institutions 204 00:11:46,679 --> 00:11:49,520 Speaker 1: to use some of the existing facilities. So they created 205 00:11:49,920 --> 00:11:52,800 Speaker 1: all of these other you know, alphabet soup of facilities 206 00:11:52,800 --> 00:11:55,160 Speaker 1: like the TOFF and the TAFF and all of these 207 00:11:55,160 --> 00:11:59,240 Speaker 1: other facilities that ultimately where the discount window brought to you, right, 208 00:11:59,320 --> 00:12:02,079 Speaker 1: instead of people actually using it. So so we actually 209 00:12:02,120 --> 00:12:04,080 Speaker 1: just put out a note just about an hour ago 210 00:12:04,200 --> 00:12:06,760 Speaker 1: talking about the fact that that the usage of the 211 00:12:06,800 --> 00:12:09,880 Speaker 1: discount window might show that there's a little less stigma 212 00:12:09,920 --> 00:12:12,320 Speaker 1: today than there was in say two thousand and seven, 213 00:12:12,360 --> 00:12:14,960 Speaker 1: when it probably should have been used the first time. UM. 214 00:12:15,000 --> 00:12:17,559 Speaker 1: And because of that, you know, there is this backstop 215 00:12:17,679 --> 00:12:21,280 Speaker 1: for uh, for bank liquidity that that hopefully will be 216 00:12:21,400 --> 00:12:24,760 Speaker 1: used in times of need, not in times of you know, 217 00:12:24,800 --> 00:12:28,040 Speaker 1: to try to avoid that that crisis level UM that 218 00:12:28,080 --> 00:12:30,320 Speaker 1: could potentially rear up and and and there is risk 219 00:12:30,360 --> 00:12:33,160 Speaker 1: here for for sure. And that's one reason why I 220 00:12:33,160 --> 00:12:36,560 Speaker 1: think people are still skittish about about markets and why 221 00:12:36,600 --> 00:12:39,400 Speaker 1: the Federal Reserve had to step in create another new facility. 222 00:12:39,640 --> 00:12:43,120 Speaker 1: What's the new acronym BTFP or whatever. Yeah, yeah, So 223 00:12:43,160 --> 00:12:47,160 Speaker 1: it's the it's the the Bank Term Financing Program. And 224 00:12:47,520 --> 00:12:51,160 Speaker 1: so so what that allows is for banks that own 225 00:12:51,240 --> 00:12:54,600 Speaker 1: treasury and agency securities UM to basically fund them for 226 00:12:54,640 --> 00:12:58,160 Speaker 1: a year UM and not have to worry about UM, 227 00:12:58,200 --> 00:12:59,679 Speaker 1: you know, whether or not they have to go into 228 00:12:59,679 --> 00:13:01,800 Speaker 1: the open market. Well, the best part about that is 229 00:13:01,840 --> 00:13:03,480 Speaker 1: they can do it at par even if they're trading 230 00:13:03,480 --> 00:13:05,920 Speaker 1: at seventy or eighty cents, right, you get one hundred? Yeah, 231 00:13:06,120 --> 00:13:08,200 Speaker 1: I mean that's that's like a consent. That's like a 232 00:13:08,320 --> 00:13:13,040 Speaker 1: great free lunch, isn't it, Erica? These are mortgage backed securities, right, 233 00:13:13,080 --> 00:13:14,960 Speaker 1: So what are they trading at right now? If you 234 00:13:15,000 --> 00:13:16,640 Speaker 1: go out, are some of them trading at a lot 235 00:13:16,720 --> 00:13:19,520 Speaker 1: less than par? Yeah? A lot of them are trading 236 00:13:19,520 --> 00:13:21,600 Speaker 1: in the load of mid part. So of course you 237 00:13:21,640 --> 00:13:25,560 Speaker 1: know they're money good. So ultimately they're worth par if 238 00:13:25,559 --> 00:13:27,640 Speaker 1: you want to call it that, UM. But right now, 239 00:13:27,640 --> 00:13:29,440 Speaker 1: if you had to trade him on a market market basis, 240 00:13:29,480 --> 00:13:31,839 Speaker 1: because they were low coupon securities that were issued when 241 00:13:31,880 --> 00:13:34,760 Speaker 1: rates were lower in twenty twenty one, in twenty twenty, 242 00:13:35,200 --> 00:13:37,400 Speaker 1: they are trading in a much lower dollar price because 243 00:13:37,480 --> 00:13:39,440 Speaker 1: it's a lot of lower coupon than you'd get for 244 00:13:39,480 --> 00:13:41,920 Speaker 1: a current coupon today. So Eric, I know you got 245 00:13:41,920 --> 00:13:43,960 Speaker 1: a no doubt, you know, calling out that the bank's 246 00:13:44,040 --> 00:13:48,000 Speaker 1: mortgage backed security demand falling. Ira, No, I'm also talking 247 00:13:48,000 --> 00:13:51,480 Speaker 1: to Erica. Oh Erica, okay, okay, sorry, sorry, So Erica 248 00:13:51,520 --> 00:13:53,800 Speaker 1: talks to us about the banks MBS demand here, what's 249 00:13:53,840 --> 00:13:57,960 Speaker 1: going on there in the marketplace? Well, even prior to 250 00:13:58,000 --> 00:14:00,600 Speaker 1: this current um what do we call it? At it tomorrow? 251 00:14:01,640 --> 00:14:05,320 Speaker 1: In this current turmoil, bank demand had been falling all year. 252 00:14:05,920 --> 00:14:08,440 Speaker 1: Part of the reason that it's been following is because 253 00:14:08,480 --> 00:14:11,240 Speaker 1: their deposits have been falling. I think there's also, um, 254 00:14:11,440 --> 00:14:14,600 Speaker 1: you know, lower reserves they need to invest want to invest, 255 00:14:14,640 --> 00:14:17,480 Speaker 1: but mostly it's the deposit base had been falling all 256 00:14:17,520 --> 00:14:20,560 Speaker 1: a year. It had risen sharply at the beginning of 257 00:14:20,600 --> 00:14:23,800 Speaker 1: the pandemic, as savings that had risen, and you know, 258 00:14:24,000 --> 00:14:28,800 Speaker 1: people had pandemic cash to spend, and then their securities 259 00:14:29,080 --> 00:14:31,760 Speaker 1: holdings had gone up abruptly. Both of those have been 260 00:14:31,760 --> 00:14:35,480 Speaker 1: declining as cash reserves and cash balances have been fallowing. 261 00:14:35,560 --> 00:14:37,520 Speaker 1: Cash deposits. By the way, I thought you were I 262 00:14:37,520 --> 00:14:39,920 Speaker 1: didn't know you're going to Aidelberg. I thought you were 263 00:14:40,120 --> 00:14:44,360 Speaker 1: confusing Jersey with Kazatski. You know, because a lot of 264 00:14:44,400 --> 00:14:46,920 Speaker 1: times Eric Kazatski joins us here on Newnies and it's 265 00:14:46,960 --> 00:14:49,880 Speaker 1: kind of the same universe. But um, Jersey, let me 266 00:14:49,920 --> 00:14:53,240 Speaker 1: ask you about what the FED does in relation to 267 00:14:53,240 --> 00:14:56,280 Speaker 1: what the ECB did. I was on the IDEs of March, 268 00:14:56,360 --> 00:14:59,080 Speaker 1: sitting at home and the throes of COVID hallucinations, reading 269 00:14:59,080 --> 00:15:01,120 Speaker 1: Ben Emmon's note about the two thousand and seven two 270 00:15:01,160 --> 00:15:03,760 Speaker 1: thousand and eight parallels, and I was like literally terrified 271 00:15:04,080 --> 00:15:06,880 Speaker 1: about what was happening. And then we got the news 272 00:15:07,000 --> 00:15:13,320 Speaker 1: that the ECB raised rates fifty basis points, and I 273 00:15:13,400 --> 00:15:17,640 Speaker 1: felt a real sigh of relief because to me, it's like, 274 00:15:17,960 --> 00:15:20,520 Speaker 1: if they can raise rates in this environment, it must 275 00:15:20,560 --> 00:15:23,040 Speaker 1: not be that bad. Is the FED going to want 276 00:15:23,040 --> 00:15:26,480 Speaker 1: to send some kind of similar message. Well, I think 277 00:15:26,480 --> 00:15:29,280 Speaker 1: they do, and that is that they're still an inflation 278 00:15:29,440 --> 00:15:32,160 Speaker 1: fighting mode, right, And even if they do pause, I 279 00:15:32,200 --> 00:15:34,800 Speaker 1: think what one of the things that they'll say is 280 00:15:34,920 --> 00:15:37,520 Speaker 1: that they're not going to be cutting interest rates early, right, 281 00:15:37,560 --> 00:15:40,040 Speaker 1: And I think that that's you know, we went from 282 00:15:40,040 --> 00:15:43,160 Speaker 1: pricing pricing cuts this year to pricing no cuts, and 283 00:15:43,160 --> 00:15:45,640 Speaker 1: now we're back to pricing a significant amount of cuts 284 00:15:45,640 --> 00:15:48,720 Speaker 1: before year end. And I think if the Federal Reserve says, 285 00:15:49,400 --> 00:15:51,160 Speaker 1: and I think this is something quite frankly, the FED 286 00:15:51,240 --> 00:15:53,920 Speaker 1: probably needed to do over the last two meetings and 287 00:15:54,040 --> 00:15:57,040 Speaker 1: say these are the circumstances. These are the necessary but 288 00:15:57,080 --> 00:15:59,800 Speaker 1: not sufficient conditions for what would make us cut interest rates. 289 00:16:00,080 --> 00:16:02,640 Speaker 1: Number one is inflation is at you know this level. 290 00:16:03,000 --> 00:16:05,920 Speaker 1: Number two is that um, you know, the unemployment rate 291 00:16:05,960 --> 00:16:09,240 Speaker 1: starts to go up, right, and those are that's their mandates, right, 292 00:16:09,280 --> 00:16:12,960 Speaker 1: and so you would need to have, um, you know, 293 00:16:13,040 --> 00:16:15,400 Speaker 1: those necessary conditions in order for them to cut Now 294 00:16:15,400 --> 00:16:17,880 Speaker 1: we kind of know that, but the set hasn't explicitly 295 00:16:17,920 --> 00:16:20,520 Speaker 1: set it. So until they do, they won't um going 296 00:16:20,560 --> 00:16:22,240 Speaker 1: back to the funding programs. And I think this is 297 00:16:22,240 --> 00:16:24,600 Speaker 1: the important thing, right, the central banks with the lender 298 00:16:24,640 --> 00:16:29,440 Speaker 1: of last resort, not necessarily um you know, the the 299 00:16:29,560 --> 00:16:32,880 Speaker 1: arbiters of which institutions are supposed to survive. Right. So 300 00:16:32,960 --> 00:16:35,360 Speaker 1: the so the thing is when when you have an 301 00:16:35,440 --> 00:16:37,920 Speaker 1: issue where there's a bank with good assets, right, and 302 00:16:37,960 --> 00:16:39,680 Speaker 1: this is this is the point here. If you have 303 00:16:39,720 --> 00:16:42,840 Speaker 1: a bank with good assets, we're just going to leave 304 00:16:42,840 --> 00:16:44,640 Speaker 1: it there because we have to. But I get what 305 00:16:44,680 --> 00:16:47,840 Speaker 1: you were saying to Yeah, you're listening to the Take 306 00:16:48,080 --> 00:16:51,480 Speaker 1: Cancer our Live program Bloomberg Markets weekdays at ten am 307 00:16:51,480 --> 00:16:55,280 Speaker 1: Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, 308 00:16:55,320 --> 00:16:58,040 Speaker 1: and the Bloomberg Business app. You can also listen live 309 00:16:58,160 --> 00:17:01,200 Speaker 1: on Amazon Alexa from our pledge New York station. Just 310 00:17:01,360 --> 00:17:05,960 Speaker 1: say Alexa play Bloomberg eleven thirty. I want to get 311 00:17:06,000 --> 00:17:09,159 Speaker 1: right to our next guest, David Dindy, CEO and co 312 00:17:09,359 --> 00:17:13,399 Speaker 1: founder of Atomic Invest. Right, here's the dude. He gets 313 00:17:13,400 --> 00:17:16,159 Speaker 1: his bachelor's and chemical engineering from Stanford, all right, so 314 00:17:16,200 --> 00:17:18,639 Speaker 1: that he's a geek in my mind immediately. Then he 315 00:17:18,680 --> 00:17:21,720 Speaker 1: gets a masters in chemical in computational and engineering. So 316 00:17:21,760 --> 00:17:24,440 Speaker 1: this is a smart fella here. David, thanks so much 317 00:17:24,480 --> 00:17:26,800 Speaker 1: for joining us. Can you first, David? Paul means that, 318 00:17:26,920 --> 00:17:29,520 Speaker 1: by the way, in the best, in the best possible. 319 00:17:31,280 --> 00:17:33,400 Speaker 1: I try to stay away from the numbers. David, talk 320 00:17:33,440 --> 00:17:36,400 Speaker 1: to us about Atomic invest. What are you guys doing there. 321 00:17:37,800 --> 00:17:42,880 Speaker 1: We provide wide labeled walt management and treasury services to bangs, 322 00:17:42,960 --> 00:17:45,640 Speaker 1: fintex and credit unions. So, for instance, if you have 323 00:17:45,840 --> 00:17:48,199 Speaker 1: a fintech app that you work from or that you 324 00:17:48,280 --> 00:17:51,879 Speaker 1: work with that is launching investing, we are on the 325 00:17:51,920 --> 00:17:55,040 Speaker 1: background serving as the infrastructure partner as well as the 326 00:17:55,200 --> 00:17:58,320 Speaker 1: regulated entity for them, so that leads me, David to 327 00:17:59,280 --> 00:18:03,040 Speaker 1: the big question. And if I am a startup that's 328 00:18:03,080 --> 00:18:05,919 Speaker 1: just gotten a boatload of money from a VC and 329 00:18:06,000 --> 00:18:09,600 Speaker 1: I put it all in a bank in Silicon Valley, 330 00:18:10,520 --> 00:18:13,199 Speaker 1: Suddenly last week I wanted to move it quickly to 331 00:18:13,280 --> 00:18:15,320 Speaker 1: one of the big four Wall Street banks. Do you 332 00:18:15,359 --> 00:18:18,760 Speaker 1: help me with that sort of thing? Yes, And actually 333 00:18:18,840 --> 00:18:22,080 Speaker 1: we helped hundreds of companies over the last six days 334 00:18:22,280 --> 00:18:26,000 Speaker 1: do exactly that. Wow, just share more context. You know. 335 00:18:26,080 --> 00:18:29,320 Speaker 1: Part of our infrastructure also includes treasury management and the 336 00:18:29,320 --> 00:18:32,720 Speaker 1: ability to open cash management and accounts with banks and 337 00:18:32,760 --> 00:18:35,560 Speaker 1: custodians like Banking New York Melind who has entered into 338 00:18:35,600 --> 00:18:40,000 Speaker 1: a strategic partnership with Atomic and so we saw hundreds 339 00:18:40,040 --> 00:18:43,359 Speaker 1: of such companies looking to open accounts with US and 340 00:18:43,480 --> 00:18:48,359 Speaker 1: to transfer their assets into a place that they feels safer. Hey, David, 341 00:18:48,400 --> 00:18:50,440 Speaker 1: you know here just in Wall Street in New York, 342 00:18:50,440 --> 00:18:52,760 Speaker 1: we're all trying to get a sense of is this 343 00:18:52,920 --> 00:18:55,399 Speaker 1: systemic in the banking community or is it specific to 344 00:18:55,440 --> 00:18:59,680 Speaker 1: the Bay Area maybe some of those depositors and so on. 345 00:19:00,440 --> 00:19:03,960 Speaker 1: What's the feeling out there in the Bay Area about 346 00:19:04,080 --> 00:19:07,200 Speaker 1: how bad this is, how bad it could get. What's 347 00:19:07,200 --> 00:19:10,000 Speaker 1: a feeling on the ground. The feeling on the ground 348 00:19:10,119 --> 00:19:12,760 Speaker 1: right now is that the rist and collapse of SVB, 349 00:19:13,119 --> 00:19:17,960 Speaker 1: Sulfurgate and First Republics percarious situation has emphasized the need 350 00:19:18,040 --> 00:19:22,840 Speaker 1: for quality, resilience, stability, and corporate cash management. We've also 351 00:19:22,880 --> 00:19:25,960 Speaker 1: seen that our companies are now elevated corporate treasury management 352 00:19:26,240 --> 00:19:29,680 Speaker 1: as something that needs to be a key, key competency 353 00:19:29,760 --> 00:19:32,400 Speaker 1: that needs to be prioritized. And so I think many 354 00:19:32,400 --> 00:19:34,720 Speaker 1: people right now. You know, initially the first couple of 355 00:19:34,800 --> 00:19:37,840 Speaker 1: days where a couple of days of panic, but over 356 00:19:37,880 --> 00:19:40,280 Speaker 1: the last two or three days, people have been thinking 357 00:19:40,320 --> 00:19:42,879 Speaker 1: more strategically in terms of how can they have an 358 00:19:42,880 --> 00:19:46,919 Speaker 1: automated cash management solution that allows them to diversify, strategic 359 00:19:47,119 --> 00:19:51,000 Speaker 1: to allocate their assets into treasury builds as well as 360 00:19:51,040 --> 00:19:55,239 Speaker 1: institutions that they feel are safe, like Atomic, So you 361 00:19:55,240 --> 00:19:58,679 Speaker 1: can help them manage their cash in ways that also 362 00:19:58,720 --> 00:20:04,439 Speaker 1: provides returns. Right now, obviously, because rates are up, what 363 00:20:04,560 --> 00:20:09,719 Speaker 1: about other kinds of problems, David? For example, you know 364 00:20:09,760 --> 00:20:14,000 Speaker 1: the official limit on insurance is two hundred fifty thousand dollars, 365 00:20:14,000 --> 00:20:16,080 Speaker 1: but I'm sure that most of the companies you deal 366 00:20:16,119 --> 00:20:19,479 Speaker 1: with need to have more cash on deposit than that 367 00:20:19,720 --> 00:20:23,080 Speaker 1: just to operate simple things like payroll. How do you 368 00:20:23,119 --> 00:20:26,760 Speaker 1: deal with that? Yes, so most of the companies we 369 00:20:26,800 --> 00:20:29,760 Speaker 1: deal with have tens of millions, if not hundreds of 370 00:20:29,760 --> 00:20:33,120 Speaker 1: millions of dollars in deposits, and so the typical FDIC 371 00:20:33,240 --> 00:20:35,679 Speaker 1: insurance limit of two hundred and fifty just doesn't make 372 00:20:35,720 --> 00:20:38,200 Speaker 1: sense for them. And so for those companies, we sweep 373 00:20:38,240 --> 00:20:40,800 Speaker 1: them into a money market sweep that offers up to 374 00:20:40,800 --> 00:20:44,560 Speaker 1: two point five million dollars of FDIC insurance through a 375 00:20:44,640 --> 00:20:49,040 Speaker 1: multi bank program. At the same time, we look to 376 00:20:49,160 --> 00:20:52,480 Speaker 1: see what their liquidity needs are as well as how 377 00:20:52,560 --> 00:20:55,920 Speaker 1: much cash they have on hand and structure custom ladders 378 00:20:55,960 --> 00:20:58,720 Speaker 1: that allow them to put the cash that that might 379 00:20:58,760 --> 00:21:01,720 Speaker 1: not need in the next month or too into treasuries, which, 380 00:21:01,960 --> 00:21:03,959 Speaker 1: as we all understand or full you backed by the 381 00:21:04,080 --> 00:21:07,080 Speaker 1: US government. That way, if a company has fifty million 382 00:21:07,119 --> 00:21:09,920 Speaker 1: dollars or one hundred million dollars, they can rest assured 383 00:21:10,040 --> 00:21:13,360 Speaker 1: that they're cash is either in these FDAC in short sweeps, 384 00:21:13,520 --> 00:21:15,560 Speaker 1: or is it a security that is backed by the 385 00:21:15,640 --> 00:21:20,480 Speaker 1: US government in whole. Davids, as founder and CEO of 386 00:21:20,560 --> 00:21:24,880 Speaker 1: Atomic invest, what have you done with your firms cash? 387 00:21:25,200 --> 00:21:28,800 Speaker 1: We actually moved our firms cash into our own platform. 388 00:21:28,840 --> 00:21:32,080 Speaker 1: Prior to these events, we did have a relationship with SVB, 389 00:21:32,440 --> 00:21:35,520 Speaker 1: and it's sad to see how things have unfolded. But 390 00:21:35,640 --> 00:21:38,520 Speaker 1: right now we manage our own cash on our own platform, 391 00:21:39,080 --> 00:21:42,320 Speaker 1: custodied with a Bank of New York Melon Pershing, and 392 00:21:42,400 --> 00:21:47,320 Speaker 1: we also now go ahead, please, we also have our 393 00:21:47,359 --> 00:21:50,080 Speaker 1: own ladder where we keep a small amount of working 394 00:21:50,160 --> 00:21:53,000 Speaker 1: capital and cash and the rest of it is in 395 00:21:53,200 --> 00:21:56,800 Speaker 1: treasury builds and money market funds. So, David, as I 396 00:21:56,880 --> 00:21:59,680 Speaker 1: understand it, one of the reasons that Silicon Valley Bank 397 00:21:59,760 --> 00:22:03,760 Speaker 1: was created several decades ago was because small startup companies 398 00:22:03,880 --> 00:22:08,960 Speaker 1: coming out of the valley the big banks, the existing 399 00:22:08,960 --> 00:22:12,120 Speaker 1: banks would not bank them. Has that changed at all? 400 00:22:12,119 --> 00:22:13,560 Speaker 1: I mean, if I take my money out a Silicon 401 00:22:13,600 --> 00:22:15,200 Speaker 1: Valley bank, am I not going to have the same 402 00:22:15,280 --> 00:22:19,840 Speaker 1: problem the I think. The thing that is changing right 403 00:22:19,840 --> 00:22:23,040 Speaker 1: now as we speak as results to this dislocation is 404 00:22:23,080 --> 00:22:26,600 Speaker 1: a model away from you know, one bank banking all 405 00:22:26,640 --> 00:22:29,600 Speaker 1: of these startups like a Silicon Value Bank, to a 406 00:22:29,600 --> 00:22:33,160 Speaker 1: model where you have an infrastructure provider like Atomic that 407 00:22:33,280 --> 00:22:37,080 Speaker 1: essentially allows companies to be able to access the services 408 00:22:37,119 --> 00:22:42,199 Speaker 1: of these larger banks. Without having to contend with, you know, 409 00:22:42,240 --> 00:22:44,520 Speaker 1: some of the limits or constraints that those larger banks 410 00:22:44,600 --> 00:22:47,520 Speaker 1: might have in serving small companies. So I do think 411 00:22:47,520 --> 00:22:51,160 Speaker 1: that the model will change drastically. I think that it's 412 00:22:51,160 --> 00:22:54,800 Speaker 1: going to be fintech companies that offer these services to 413 00:22:55,040 --> 00:22:59,800 Speaker 1: companies powered by infrastructure providers like Atomic in that respect. 414 00:23:00,160 --> 00:23:03,280 Speaker 1: Happy to go into more detail. Well, just speaking of detail, 415 00:23:03,320 --> 00:23:05,119 Speaker 1: I got a question that's kind of in the weeds, 416 00:23:05,160 --> 00:23:09,200 Speaker 1: But we had a story about depositors that move their 417 00:23:09,240 --> 00:23:12,119 Speaker 1: money out of SVB. But pick you any bank that 418 00:23:12,160 --> 00:23:15,399 Speaker 1: does that kind of business. They found out then or 419 00:23:15,440 --> 00:23:18,480 Speaker 1: they even knew before that they had clauses where they 420 00:23:18,520 --> 00:23:21,159 Speaker 1: weren't allowed to have access to certain loans if they 421 00:23:21,160 --> 00:23:25,080 Speaker 1: didn't have you know, specific deposit levels, and then now 422 00:23:25,119 --> 00:23:27,199 Speaker 1: they're trying to deal with the legal morass of do 423 00:23:27,240 --> 00:23:29,600 Speaker 1: they put money back in or how do you deal 424 00:23:29,640 --> 00:23:33,320 Speaker 1: with that kind of issue. Yeah, some of our clients 425 00:23:33,359 --> 00:23:37,280 Speaker 1: have covenants that require them to keep their money with 426 00:23:37,440 --> 00:23:41,200 Speaker 1: the specific bank where they've taken out a venture, where 427 00:23:41,200 --> 00:23:43,240 Speaker 1: they've taken out ventured debt from, and so we work 428 00:23:43,240 --> 00:23:47,200 Speaker 1: with them to help them facilitate that and their programs 429 00:23:47,200 --> 00:23:49,960 Speaker 1: that were putting in place to actually provide the liquidity 430 00:23:50,000 --> 00:23:53,720 Speaker 1: for those companies to pay out those loans, and we 431 00:23:53,800 --> 00:23:56,680 Speaker 1: would take those loans instead, at least in a secured 432 00:23:56,760 --> 00:24:00,920 Speaker 1: fashion in that respect. David thinks for joining us, really 433 00:24:00,920 --> 00:24:04,520 Speaker 1: fascinating story. It seems like you're right in your company, 434 00:24:04,560 --> 00:24:07,240 Speaker 1: are right in the middle of it, David Dindy, CEO 435 00:24:07,400 --> 00:24:11,480 Speaker 1: and co founder of Atomic Invest, which is really interesting. 436 00:24:11,520 --> 00:24:13,960 Speaker 1: They're out there in the valley mat and you know, 437 00:24:13,960 --> 00:24:17,080 Speaker 1: the one of these fintech stories that may become much 438 00:24:17,119 --> 00:24:18,719 Speaker 1: more central to kind of how a lot of those 439 00:24:18,760 --> 00:24:22,320 Speaker 1: companies do their banking. Yeah, I think it's absolutely fascinating. 440 00:24:22,720 --> 00:24:25,560 Speaker 1: This is one of the companies that's you know, on 441 00:24:25,600 --> 00:24:28,919 Speaker 1: the ground, on the front lines, helping to move this 442 00:24:29,000 --> 00:24:32,760 Speaker 1: money around, helping to work with these vcs that we 443 00:24:32,840 --> 00:24:35,320 Speaker 1: talk about, you know, from this coast in a kind 444 00:24:35,320 --> 00:24:38,840 Speaker 1: of theoretical way, but they're actually doing the work with 445 00:24:38,880 --> 00:24:43,639 Speaker 1: them and watching this providing infrastructure and watching this money 446 00:24:43,680 --> 00:24:45,719 Speaker 1: move around. So I think really cool to get in 447 00:24:45,760 --> 00:24:47,560 Speaker 1: touch with David for a little bit. Yeah, very interesting 448 00:24:47,640 --> 00:24:50,040 Speaker 1: and just getting quick update on these markets. SMP down 449 00:24:50,040 --> 00:24:52,960 Speaker 1: now one point three percent, kind of plumbing the bottoms 450 00:24:53,440 --> 00:24:57,080 Speaker 1: of the intra day Trading. You're listening to the Team 451 00:24:57,400 --> 00:25:01,240 Speaker 1: Cancer Line program, Bloomberg Markets. We Jason ten Am easting 452 00:25:01,400 --> 00:25:04,080 Speaker 1: on Bloomberg dot Com, the I Heard Radio app, and 453 00:25:04,160 --> 00:25:07,080 Speaker 1: the Bloomberg Business app. We're listening on demand wherever you 454 00:25:07,119 --> 00:25:11,120 Speaker 1: get your podcast. This is a treat, folks. We get 455 00:25:11,160 --> 00:25:15,480 Speaker 1: to speak with Ned Lamont, Governor of the State of Connecticut. 456 00:25:15,520 --> 00:25:18,439 Speaker 1: Governor Lamont, thanks so much for taking the time. The 457 00:25:18,600 --> 00:25:21,160 Speaker 1: conversation here on Global Wall Street over the last ten 458 00:25:21,240 --> 00:25:23,680 Speaker 1: days has been, you know, kind of the concern we're 459 00:25:23,720 --> 00:25:25,920 Speaker 1: seeing in the marketplace about some of these banks and 460 00:25:26,160 --> 00:25:29,600 Speaker 1: what does that mean for the global economy. From the 461 00:25:29,640 --> 00:25:32,719 Speaker 1: state of Connecticut, s or how are you thinking about 462 00:25:33,280 --> 00:25:38,359 Speaker 1: your state's economy, your state's soundness of the banking system, 463 00:25:38,400 --> 00:25:40,320 Speaker 1: How are you thinking about those How has that evolved 464 00:25:40,320 --> 00:25:44,480 Speaker 1: over the last week or so. Look, we watched it 465 00:25:44,520 --> 00:25:47,679 Speaker 1: as carefully. We're a small state. This is obviously, you know, 466 00:25:47,800 --> 00:25:51,000 Speaker 1: a national issue. Well, this is Connecticut, where the land 467 00:25:51,040 --> 00:25:53,520 Speaker 1: is steady habits. I you know, there's a little bit 468 00:25:53,560 --> 00:25:55,959 Speaker 1: of the madness of crowds when you see everybody, um, 469 00:25:56,480 --> 00:25:59,800 Speaker 1: you know, running to the bank window to get their 470 00:25:59,800 --> 00:26:04,040 Speaker 1: money out. And I'd like to think that we follow 471 00:26:04,080 --> 00:26:07,440 Speaker 1: our banks very closely. We have a good, strong relationship there. 472 00:26:07,480 --> 00:26:10,280 Speaker 1: We know what their asset base is. We haven't seen 473 00:26:10,320 --> 00:26:12,760 Speaker 1: any ripples. I do worry that it's going to make 474 00:26:12,840 --> 00:26:15,679 Speaker 1: banks a lot more cautious around the country and that 475 00:26:15,720 --> 00:26:19,760 Speaker 1: could impact the economy. Are the banks in Connecticut sound 476 00:26:19,840 --> 00:26:23,720 Speaker 1: right now? You have full confidence in them? I really do? 477 00:26:24,240 --> 00:26:26,800 Speaker 1: You know everything I've learned to understand. We have a 478 00:26:26,800 --> 00:26:32,560 Speaker 1: strong economy, we have a diversified economy, manufacturing, life sciences. 479 00:26:32,960 --> 00:26:36,480 Speaker 1: They're all growing strong right now. I think that's reflected 480 00:26:36,480 --> 00:26:40,119 Speaker 1: in the balance seat of our banks. Governor. One of 481 00:26:40,160 --> 00:26:44,720 Speaker 1: the discussion points here is regulation. Dodd Frank should their 482 00:26:44,800 --> 00:26:47,880 Speaker 1: Dodd Frank regulations, which really are They've been rolled back. 483 00:26:47,920 --> 00:26:49,879 Speaker 1: They were rolled back in twenty eighteen to really just 484 00:26:49,920 --> 00:26:53,520 Speaker 1: focus on some of the larger systemically important banks. But 485 00:26:53,640 --> 00:26:56,240 Speaker 1: now we're seeing, geez, maybe some of these regional banks 486 00:26:56,240 --> 00:27:01,760 Speaker 1: should have some more regulation. What's your opinion there? I 487 00:27:01,760 --> 00:27:05,800 Speaker 1: think they probably should. You know, um, the smaller banks 488 00:27:05,800 --> 00:27:08,080 Speaker 1: are a lot more regional. The more regional and have 489 00:27:08,200 --> 00:27:11,040 Speaker 1: a sort of a customer base that's a little more narrow. 490 00:27:11,400 --> 00:27:14,520 Speaker 1: Let's say Silicon Valley Bank was all the innovation and Um, 491 00:27:15,400 --> 00:27:19,480 Speaker 1: you know media type of investors. So, um, I think 492 00:27:20,200 --> 00:27:22,840 Speaker 1: you should keep a very close side to make sure 493 00:27:22,920 --> 00:27:28,840 Speaker 1: that their risk is diversified. Yeah, Governor, I wanted to 494 00:27:28,840 --> 00:27:31,119 Speaker 1: touch on an issue that we've heard a lot delight 495 00:27:31,200 --> 00:27:34,959 Speaker 1: at lately ESG, etc. And so forth, as far as 496 00:27:35,480 --> 00:27:40,200 Speaker 1: underwriters for for debt in certain states, the underwriters are 497 00:27:40,400 --> 00:27:44,000 Speaker 1: being held to a new standard. Um. Your view of that, 498 00:27:44,160 --> 00:27:51,840 Speaker 1: and is it a disservice to the taxpayers the service 499 00:27:51,920 --> 00:27:53,879 Speaker 1: of the taxpayers of the the banks are involved in 500 00:27:53,880 --> 00:27:58,359 Speaker 1: their communities and making some you know, donations and contributions 501 00:27:58,400 --> 00:28:01,720 Speaker 1: to our communities. I don't think so. I like the 502 00:28:01,720 --> 00:28:05,520 Speaker 1: fact that the corporate community or the banking communities not 503 00:28:05,560 --> 00:28:08,399 Speaker 1: in Ivory Tower. They're involved in their community. That's what 504 00:28:08,520 --> 00:28:11,800 Speaker 1: community banking is. You know, your first and foremost, you've 505 00:28:11,800 --> 00:28:14,080 Speaker 1: got to make sure you take care of your depositors 506 00:28:14,119 --> 00:28:17,080 Speaker 1: than your shareholders. But I think they have a broader 507 00:28:17,359 --> 00:28:19,720 Speaker 1: mission as well. So I think a lot of this 508 00:28:20,080 --> 00:28:24,359 Speaker 1: ESG has been exaggerated, Governor. What we saw during the 509 00:28:24,400 --> 00:28:27,320 Speaker 1: pandemic many things. One of the fallouts from it was 510 00:28:28,520 --> 00:28:31,840 Speaker 1: a lot of people leaving the Tri state area, and 511 00:28:32,520 --> 00:28:35,720 Speaker 1: for many reasons, but many of them tax related reasons. 512 00:28:35,760 --> 00:28:37,640 Speaker 1: Talk to us about kind of how you think the 513 00:28:37,680 --> 00:28:40,920 Speaker 1: tax situation is in Connecticut and maybe even the region, 514 00:28:40,960 --> 00:28:44,280 Speaker 1: because if this region in Connecticut in particular wants to 515 00:28:44,320 --> 00:28:47,120 Speaker 1: remain competitive, is there an argument that they need to 516 00:28:47,160 --> 00:28:50,440 Speaker 1: be more competitive on a tax basis to something like 517 00:28:50,600 --> 00:28:53,320 Speaker 1: a Florida, Texas some of those companies that seem to 518 00:28:53,360 --> 00:28:58,680 Speaker 1: attract a lot of people and companies during the pandemic. Well, 519 00:28:58,680 --> 00:29:03,280 Speaker 1: first of all, during the pandemic, we probably had about 520 00:29:03,920 --> 00:29:08,120 Speaker 1: fifty sixty thousand families move into the state of Connecticut. 521 00:29:08,320 --> 00:29:11,920 Speaker 1: Unfortunately for New York, a lot of them did come 522 00:29:11,960 --> 00:29:15,120 Speaker 1: from New York. To your broader point, what I've got 523 00:29:15,120 --> 00:29:17,360 Speaker 1: to do in Connecticut is make sure people know we 524 00:29:17,440 --> 00:29:21,320 Speaker 1: have a stable fiscal situation. Remind people that were having 525 00:29:21,360 --> 00:29:23,320 Speaker 1: the biggest tax cut in the history of the state 526 00:29:23,440 --> 00:29:27,880 Speaker 1: is before the legislature right now. So for everybody earning 527 00:29:27,960 --> 00:29:31,680 Speaker 1: less than two hundred and fifty thousand dollars, you know 528 00:29:31,760 --> 00:29:34,480 Speaker 1: you're paying probably less in Connecticut than you are in 529 00:29:34,760 --> 00:29:37,440 Speaker 1: a lot of other states. We do have a progressive 530 00:29:37,480 --> 00:29:39,760 Speaker 1: tax structure, so we make sure we keep an eye 531 00:29:39,800 --> 00:29:43,720 Speaker 1: on that compared to other states. But that's not going 532 00:29:43,840 --> 00:29:47,760 Speaker 1: up a governor, Can we those of us who live 533 00:29:47,800 --> 00:29:53,240 Speaker 1: in a high tax states expect to start deducting the lead. 534 00:29:53,600 --> 00:29:57,120 Speaker 1: You're getting everybody's blood boiling with this one, including Paul 535 00:29:57,160 --> 00:30:00,440 Speaker 1: and myself. But with the state and local tax deductions. 536 00:30:00,800 --> 00:30:03,320 Speaker 1: Can we expect that to go back the way it 537 00:30:03,440 --> 00:30:09,000 Speaker 1: was anytime soon. What's happening on that front. Well, obviously 538 00:30:09,040 --> 00:30:14,600 Speaker 1: that's a federal determination. That was a tax increase on 539 00:30:15,080 --> 00:30:17,440 Speaker 1: blue states. Up here in the Northeast, we got hit 540 00:30:17,480 --> 00:30:20,560 Speaker 1: on that particularly hard because of our property and income 541 00:30:20,600 --> 00:30:24,360 Speaker 1: tax and capping the deductibility. We put and play something 542 00:30:24,360 --> 00:30:26,800 Speaker 1: golo to pass through edity credits. So at least for 543 00:30:26,840 --> 00:30:30,640 Speaker 1: all those LLCs, we're able to hold them harmless, and 544 00:30:30,680 --> 00:30:33,520 Speaker 1: it makes it a lot easier they can deduct overall 545 00:30:33,520 --> 00:30:35,920 Speaker 1: on their balance sheet, even though they can't do it firstally. 546 00:30:36,080 --> 00:30:40,479 Speaker 1: So we're trying to mitigate that effect as best we can. Governor. 547 00:30:40,520 --> 00:30:42,680 Speaker 1: One of the key issues for most states, certainly those 548 00:30:42,720 --> 00:30:46,840 Speaker 1: in the Northeast, is transportation infrastructure, and just this week, 549 00:30:47,320 --> 00:30:52,120 Speaker 1: Republican lawmakers in Connecticut legislature by passed the Democratic majority 550 00:30:52,160 --> 00:30:54,920 Speaker 1: to force a public hearing on a bill to eliminate 551 00:30:54,960 --> 00:30:57,360 Speaker 1: the highway use tax I know this is something you've 552 00:30:58,520 --> 00:31:01,000 Speaker 1: is a tax, is a levy. You've support what's going 553 00:31:01,080 --> 00:31:07,120 Speaker 1: on in Connecticut with this issue. The highway user fee, 554 00:31:07,920 --> 00:31:11,600 Speaker 1: just like you have in New York, is paid disproportionately 555 00:31:11,760 --> 00:31:14,960 Speaker 1: by a big tractor trailer trucks that come right through 556 00:31:14,960 --> 00:31:17,640 Speaker 1: our state. Many cases, we're just a pass through state. 557 00:31:17,680 --> 00:31:21,040 Speaker 1: They're going from Massachusetts in New York and beyond. They 558 00:31:21,120 --> 00:31:23,120 Speaker 1: create a lot of wear and tear on our highways, 559 00:31:23,160 --> 00:31:26,959 Speaker 1: so they are paying a mileage fee. You know, over time, 560 00:31:27,040 --> 00:31:29,520 Speaker 1: you're going to find the gas lean tax is less 561 00:31:29,560 --> 00:31:31,520 Speaker 1: and less of a revenue driver as we move to 562 00:31:32,080 --> 00:31:35,600 Speaker 1: all electric vehicles. So I think this mileage fee, which 563 00:31:35,640 --> 00:31:38,480 Speaker 1: you see on the track and trailers, is one where 564 00:31:38,800 --> 00:31:41,840 Speaker 1: we can divertify our revenue sources. Everybody thinks we're getting 565 00:31:41,880 --> 00:31:44,080 Speaker 1: free money from the Feds. Why do you need to 566 00:31:44,120 --> 00:31:46,560 Speaker 1: be able to pay your own way? But the Feds, 567 00:31:46,720 --> 00:31:48,640 Speaker 1: you know, we've got to pay twenty or thirty percent. 568 00:31:48,720 --> 00:31:51,360 Speaker 1: A lot of those grants are competitive, so we got 569 00:31:51,360 --> 00:31:53,440 Speaker 1: to show our ability to put up our share. But 570 00:31:53,480 --> 00:31:56,880 Speaker 1: then we can leverage thanks to the Infrastructure bill, you know, 571 00:31:56,960 --> 00:31:59,479 Speaker 1: three to one. Yeah, one of the issues we hear 572 00:31:59,480 --> 00:32:01,360 Speaker 1: about every day. I mean some of the people I 573 00:32:01,440 --> 00:32:07,560 Speaker 1: work with childcare, especially working moms, single working moms. What's 574 00:32:07,600 --> 00:32:10,880 Speaker 1: the status of child's care in the state of Connecticut. 575 00:32:13,280 --> 00:32:15,680 Speaker 1: Interesting you ask them here at a Baringer Ingleheim and 576 00:32:15,800 --> 00:32:19,920 Speaker 1: rich Field. They've got a childcare facility here which we 577 00:32:20,520 --> 00:32:24,040 Speaker 1: were celebrating, and so we have the biggest expansion of 578 00:32:24,160 --> 00:32:27,200 Speaker 1: daycare childcare in the history of the state. It gives 579 00:32:27,200 --> 00:32:30,080 Speaker 1: the kids the very best head start. It allows mom 580 00:32:30,080 --> 00:32:33,520 Speaker 1: and dad to get back to work. We have fewer people, 581 00:32:33,720 --> 00:32:35,880 Speaker 1: you know, working. I've got to get them back off 582 00:32:35,880 --> 00:32:39,840 Speaker 1: the sidelines into the game and daycare. Childcare is a 583 00:32:39,880 --> 00:32:42,880 Speaker 1: big piece of that, making it accessible and making that affordable. 584 00:32:43,760 --> 00:32:45,920 Speaker 1: So what's the next step in Connecticut and for other 585 00:32:45,960 --> 00:32:51,560 Speaker 1: states as well well? For us, we're providing a twenty 586 00:32:51,560 --> 00:32:56,360 Speaker 1: five percent tax credit for new facilities, and for Brenger 587 00:32:56,440 --> 00:32:59,800 Speaker 1: Ingleheim is subsidizing daycare for their workers here and they've 588 00:32:59,840 --> 00:33:02,840 Speaker 1: got a few thousand of them. We're providing a tax 589 00:33:02,880 --> 00:33:05,000 Speaker 1: credit to help and send them to continue to do 590 00:33:05,040 --> 00:33:07,920 Speaker 1: the right thing. Governor, many parts of the country are 591 00:33:07,920 --> 00:33:11,640 Speaker 1: dealing with an opioid crisis in their communities. Can you 592 00:33:11,640 --> 00:33:14,320 Speaker 1: give us a sense of how the situation is in 593 00:33:14,400 --> 00:33:18,600 Speaker 1: Connecticut what the state is trying to do to combat it. Again, 594 00:33:18,640 --> 00:33:21,160 Speaker 1: many parts of the country really really getting ravaged by this. 595 00:33:23,520 --> 00:33:27,720 Speaker 1: I can tell you that coming out of COVID, the 596 00:33:27,880 --> 00:33:34,160 Speaker 1: level of addiction and fatalities related to opioids related to 597 00:33:34,280 --> 00:33:39,200 Speaker 1: Sentinel has been severe, and we've been addressing that in 598 00:33:39,280 --> 00:33:43,200 Speaker 1: terms of you know, everything from mental health to narkhan 599 00:33:43,600 --> 00:33:47,400 Speaker 1: and police and going after those folks who are distributing 600 00:33:48,160 --> 00:33:51,880 Speaker 1: Sadly Sentinel. It's just it's everywhere right now, and it's 601 00:33:52,000 --> 00:33:55,960 Speaker 1: so dangerous. So we're coming after that with law enforcement 602 00:33:55,960 --> 00:33:58,959 Speaker 1: as well as treatment. Well, what are the state's finances 603 00:33:59,080 --> 00:34:02,720 Speaker 1: look like right now as I imagine a budget preparation 604 00:34:02,840 --> 00:34:08,760 Speaker 1: is underway. Yeah, we're pretty solid. We've got fifteen percent 605 00:34:08,880 --> 00:34:11,839 Speaker 1: set aside as a rainy day fund. Our revenues are 606 00:34:11,840 --> 00:34:17,000 Speaker 1: holding up pretty well. Our income is up compared to 607 00:34:17,120 --> 00:34:19,759 Speaker 1: last year. Capital gains is down a little bit, but 608 00:34:19,840 --> 00:34:23,239 Speaker 1: we had anticipated that, and again that allows us to 609 00:34:23,280 --> 00:34:26,279 Speaker 1: have the biggest tax cut in history of the state, 610 00:34:26,320 --> 00:34:28,520 Speaker 1: which I think will be passed in the next ninety days. 611 00:34:29,400 --> 00:34:31,279 Speaker 1: Is there an appetite? I just want to get this 612 00:34:31,280 --> 00:34:34,680 Speaker 1: one because I've asked this every governor I've talked to, 613 00:34:34,920 --> 00:34:39,000 Speaker 1: is there appetite in your state for anything like pension reform. 614 00:34:42,480 --> 00:34:45,880 Speaker 1: There's a lot of appetite. First of all, one of 615 00:34:45,880 --> 00:34:48,040 Speaker 1: the things I've done is because we had a big 616 00:34:48,160 --> 00:34:51,040 Speaker 1: unfunded pension liability, nobody put money in de pension for 617 00:34:51,080 --> 00:34:54,680 Speaker 1: the last fifty years. We paid down about eight billion 618 00:34:54,719 --> 00:34:57,919 Speaker 1: dollars a pension debt in the last four years. That's 619 00:34:57,960 --> 00:35:00,680 Speaker 1: not reform, but at least it's stableising what was a 620 00:35:00,760 --> 00:35:04,080 Speaker 1: bleeding situation. And we're going to have to look more 621 00:35:04,160 --> 00:35:07,600 Speaker 1: broadly at pension for him as the next you know, budget, 622 00:35:07,680 --> 00:35:11,080 Speaker 1: as the next employee contract negotiations come up over the 623 00:35:11,120 --> 00:35:14,439 Speaker 1: next couple of years. We don't pay enough up front. 624 00:35:14,480 --> 00:35:18,600 Speaker 1: We're having a hard time recruiting young employees. But there's 625 00:35:18,640 --> 00:35:21,919 Speaker 1: a lot of big backside pension benefits that you get 626 00:35:21,960 --> 00:35:24,879 Speaker 1: at a very early age. That's a less value when 627 00:35:24,880 --> 00:35:27,680 Speaker 1: it comes to recruiting that twenty seven something who's thinking 628 00:35:27,680 --> 00:35:30,120 Speaker 1: about where they want to go the consulting firm or 629 00:35:30,160 --> 00:35:34,919 Speaker 1: the Connecticut Department of Education. I want them at our doe. 630 00:35:35,560 --> 00:35:39,360 Speaker 1: A governor, it's been about twenty year anniversary of the 631 00:35:39,400 --> 00:35:43,400 Speaker 1: Iraq Ward and obviously impacted so many people here in 632 00:35:43,680 --> 00:35:47,640 Speaker 1: this country and others. How did it impact you in 633 00:35:47,920 --> 00:35:52,719 Speaker 1: your trajectory of your career? Oh? Big time. And I 634 00:35:52,800 --> 00:35:56,640 Speaker 1: was I had a little telecommunications company and we were 635 00:35:56,640 --> 00:36:01,200 Speaker 1: wiring up big institutions, and I just thought the invasion 636 00:36:01,239 --> 00:36:06,840 Speaker 1: of Iraq was a colossal error in judgment. You know, 637 00:36:06,840 --> 00:36:08,880 Speaker 1: we're going to be great as Liberator is going to 638 00:36:08,960 --> 00:36:13,120 Speaker 1: pay for itself. So I stood up. I challenged a 639 00:36:13,120 --> 00:36:15,680 Speaker 1: guy named Joe Laberman, who had the Democratic candidate for 640 00:36:15,800 --> 00:36:19,480 Speaker 1: vice president previously. And you know, in a primary here 641 00:36:19,560 --> 00:36:22,719 Speaker 1: twenty years ago, and I think twenty years later, I 642 00:36:22,760 --> 00:36:27,720 Speaker 1: think I think most people realized it was a terrible mistake. 643 00:36:27,800 --> 00:36:29,440 Speaker 1: What it meant in terms of blood, what it meant 644 00:36:29,440 --> 00:36:32,880 Speaker 1: in terms of treasure. Now, in hindsight, everybody was against 645 00:36:32,920 --> 00:36:36,360 Speaker 1: the invasion of Iraq, but not at that time, Governor. 646 00:36:36,400 --> 00:36:38,400 Speaker 1: One of the issues here on Global Wall Street of 647 00:36:38,640 --> 00:36:40,920 Speaker 1: Bloomberg Radio and Television, which we talk a lot about, 648 00:36:41,000 --> 00:36:43,359 Speaker 1: just as kind of over the last week to ten days, 649 00:36:43,360 --> 00:36:45,400 Speaker 1: with some of these banking issues, it's just kind of 650 00:36:45,400 --> 00:36:48,759 Speaker 1: brings to light, you know, the venture capital community. I 651 00:36:48,800 --> 00:36:51,160 Speaker 1: didn't know you've had a business background. Your wife isn't 652 00:36:51,200 --> 00:36:55,040 Speaker 1: an venture capital business. How do you think that may 653 00:36:55,080 --> 00:37:01,239 Speaker 1: be impacted going forward over the next several years. How 654 00:37:01,280 --> 00:37:05,000 Speaker 1: the banking crisis impacts investment capital and yeah, just venture 655 00:37:05,200 --> 00:37:07,640 Speaker 1: venture capital and just you know, kind of growth capital 656 00:37:07,760 --> 00:37:12,200 Speaker 1: for new technologies and so on. Well, I put the 657 00:37:12,280 --> 00:37:14,360 Speaker 1: lens back. First of all, I think one of the 658 00:37:14,400 --> 00:37:19,560 Speaker 1: greatest strategic advantages this country has is a liquid capital market, 659 00:37:19,600 --> 00:37:22,040 Speaker 1: and that starts with investment capital. That starts with the 660 00:37:22,160 --> 00:37:25,680 Speaker 1: venture capital, in particular seed capital, which is what we're 661 00:37:25,719 --> 00:37:28,800 Speaker 1: doing in this state. We've had more new business startups 662 00:37:28,800 --> 00:37:30,600 Speaker 1: the last three years than we had in the last 663 00:37:30,800 --> 00:37:34,880 Speaker 1: twenty three years combined. So I really worry about the 664 00:37:34,960 --> 00:37:40,239 Speaker 1: risk appetite pulling back, and part of that's reflected in 665 00:37:40,320 --> 00:37:44,640 Speaker 1: the nervousness in and around our banking system. I'll leave 666 00:37:44,640 --> 00:37:47,120 Speaker 1: it at that. Hey, Governor, you want to make some 667 00:37:47,200 --> 00:37:52,839 Speaker 1: predictions for the presidential race. Who you support, should Joe 668 00:37:52,840 --> 00:37:56,319 Speaker 1: Biden run again, and who do you think the Republican 669 00:37:57,719 --> 00:38:03,439 Speaker 1: nominee will eventually be. I had the catch right now. 670 00:38:03,480 --> 00:38:07,880 Speaker 1: I think it will be Biden versus Trump. But you know, 671 00:38:07,920 --> 00:38:11,320 Speaker 1: I probably said it's gonna be a Clinton versus Boys 672 00:38:12,160 --> 00:38:15,040 Speaker 1: eight years ago, so I'm not very original. On that, 673 00:38:15,120 --> 00:38:18,879 Speaker 1: but more importantly, which of you was the big duke 674 00:38:19,000 --> 00:38:23,480 Speaker 1: supporter in basketball? So I just want to run into 675 00:38:23,480 --> 00:38:26,360 Speaker 1: the Yukon Huskies. That's where I wanted to go, and 676 00:38:26,440 --> 00:38:28,719 Speaker 1: I will make well. I want to prediction there because 677 00:38:28,719 --> 00:38:31,120 Speaker 1: you have a great coach there and Danny Hurley, he's 678 00:38:31,120 --> 00:38:34,520 Speaker 1: a New Jersey product, comes from the great Hurley family 679 00:38:34,680 --> 00:38:37,840 Speaker 1: coaching tree and his brothers also coaching in the NCAA 680 00:38:38,160 --> 00:38:40,680 Speaker 1: tournament at Arizona State. Of course, his father, Bob Hurley, 681 00:38:40,800 --> 00:38:44,000 Speaker 1: is a legendary high school coach from Saint Anthony's, New 682 00:38:44,080 --> 00:38:47,040 Speaker 1: Jersey City. So talk to us about your Yukon Huskies here. 683 00:38:49,640 --> 00:38:53,759 Speaker 1: He's done an amazing job. The men's basketball team wasn't 684 00:38:53,760 --> 00:38:56,000 Speaker 1: winning there for a little while, having had a great 685 00:38:56,040 --> 00:38:59,880 Speaker 1: tradition under Jim Calhoun. They've got five years of improvement. 686 00:39:00,040 --> 00:39:02,720 Speaker 1: I think they're one of the certainly top ten teams 687 00:39:02,719 --> 00:39:06,239 Speaker 1: in the country. They're playing really not well and we 688 00:39:06,320 --> 00:39:08,640 Speaker 1: got a guy named Gino Oriamo on the other side. 689 00:39:08,640 --> 00:39:11,239 Speaker 1: When it comes to women's basketball, they're going to be 690 00:39:11,280 --> 00:39:15,960 Speaker 1: going to the final four. Very good ned Lamont best 691 00:39:15,960 --> 00:39:19,160 Speaker 1: elucty to Yukon Huskies there. Love to see that program 692 00:39:19,239 --> 00:39:21,920 Speaker 1: get back to where it was. You're listening to the 693 00:39:22,000 --> 00:39:25,520 Speaker 1: tape cats are live program Bloomberg Markets weekdays at ten 694 00:39:25,600 --> 00:39:29,040 Speaker 1: am Eastern on Bloomberg Radio, the tune in alf Bloomberg 695 00:39:29,120 --> 00:39:31,680 Speaker 1: dot Com, and the Bloomberg Business App. You can also 696 00:39:31,760 --> 00:39:34,960 Speaker 1: listen live on Amazon Alexa from our flagship New York 697 00:39:34,960 --> 00:39:40,640 Speaker 1: station Just Say Alexa playing Bloomberg eleven thirty. FedEx reported 698 00:39:40,719 --> 00:39:44,400 Speaker 1: numbers last night, and my untrained eye, they missed numbers. 699 00:39:44,480 --> 00:39:47,120 Speaker 1: But the stock is up. So this is a story. 700 00:39:47,160 --> 00:39:50,920 Speaker 1: It sounds like cost cutting and cost cutting is certainly 701 00:39:50,960 --> 00:39:54,560 Speaker 1: in vogue for many companies in many different industries these days. 702 00:39:54,719 --> 00:39:56,279 Speaker 1: You don't have to be just a startup company. You 703 00:39:56,280 --> 00:39:59,560 Speaker 1: could be a you know, like a company like FedEx. 704 00:39:59,640 --> 00:40:02,080 Speaker 1: Leek scal he's a sector head, senior analysts. He covers 705 00:40:02,120 --> 00:40:06,160 Speaker 1: all the freight, transportation and logistics for Bloomberg Intelligence Lee 706 00:40:06,360 --> 00:40:09,279 Speaker 1: FedEx stock it's up eight point two percent today. What 707 00:40:09,320 --> 00:40:12,840 Speaker 1: did the street like? Yeah? I think you know, FedEx 708 00:40:12,880 --> 00:40:15,719 Speaker 1: has been a company in transition and it's kind of 709 00:40:16,280 --> 00:40:19,440 Speaker 1: been a while, like people are really expecting them to execute, 710 00:40:19,480 --> 00:40:22,319 Speaker 1: and what it seems like is management is finally executing. 711 00:40:23,239 --> 00:40:25,840 Speaker 1: You know, FedEx is probably late to the game in 712 00:40:25,960 --> 00:40:30,760 Speaker 1: terms of aligning its resources to demand. You know, ups 713 00:40:30,880 --> 00:40:34,040 Speaker 1: is kind of was doing that a couple of years ago, 714 00:40:34,719 --> 00:40:37,080 Speaker 1: but it looked like some of the cost cutting measurements 715 00:40:37,120 --> 00:40:39,840 Speaker 1: that measures that they've been doing have really started to work. 716 00:40:40,560 --> 00:40:43,400 Speaker 1: You know, they beat expectations by seventy cents to share, 717 00:40:44,120 --> 00:40:47,440 Speaker 1: so they're earning. Their physical third quarter came in at 718 00:40:47,480 --> 00:40:51,360 Speaker 1: three dollars forty one cents, which was seventy cents above expectations, 719 00:40:51,680 --> 00:40:54,840 Speaker 1: and that was really, you know, to your point, being 720 00:40:54,920 --> 00:40:59,040 Speaker 1: driven on the cost cutting side, especially in its ground 721 00:40:59,080 --> 00:41:01,600 Speaker 1: business and it's eight business, which is it's less than 722 00:41:01,680 --> 00:41:05,560 Speaker 1: truckload business. And they also guided up, so they raised 723 00:41:05,640 --> 00:41:09,680 Speaker 1: a full year guidance, so it was implied EPs for 724 00:41:09,719 --> 00:41:12,719 Speaker 1: the fourth quarter. Their physical fourth quarter of a four 725 00:41:12,760 --> 00:41:16,439 Speaker 1: dollars and fifty seven cents to five dollars and seventeen cents, 726 00:41:16,480 --> 00:41:18,759 Speaker 1: which was well of a consensus of four dollars and 727 00:41:18,800 --> 00:41:21,600 Speaker 1: twenty three cents. So, you know, people are recalibrating their 728 00:41:21,600 --> 00:41:24,200 Speaker 1: expectations for the fourth quarter, and I think they're they're 729 00:41:24,239 --> 00:41:27,960 Speaker 1: they're recalibrating their expectations for physical twenty twenty four UM 730 00:41:28,560 --> 00:41:30,279 Speaker 1: for FedEx, So you know, I think you're going to 731 00:41:30,320 --> 00:41:32,800 Speaker 1: see earning festimates from the street to move higher in 732 00:41:32,840 --> 00:41:35,440 Speaker 1: the coming days and weeks. Okay, when you cut costs, 733 00:41:35,480 --> 00:41:39,080 Speaker 1: are you cutting into future growth? I mean there's it's 734 00:41:39,120 --> 00:41:42,960 Speaker 1: a sort of a fausty and bargain for some companies. No, 735 00:41:43,760 --> 00:41:47,479 Speaker 1: not really. So they're doing some like temporary cuts, which 736 00:41:47,560 --> 00:41:51,000 Speaker 1: is you know, really dealing with the demand trends, so 737 00:41:51,160 --> 00:41:54,279 Speaker 1: maybe like cutting some flights, parking some airlines and things 738 00:41:54,320 --> 00:41:57,319 Speaker 1: that when demand picks up they can easily get back 739 00:41:57,360 --> 00:42:01,080 Speaker 1: into business. And they're also you know, FedEx has always 740 00:42:01,080 --> 00:42:04,080 Speaker 1: been considered a little more bloated than some other companies, 741 00:42:04,120 --> 00:42:06,560 Speaker 1: and I think they're just dealing with that bloat um. 742 00:42:06,600 --> 00:42:09,160 Speaker 1: You know, they announced a bunch of you know, middle 743 00:42:09,200 --> 00:42:13,399 Speaker 1: management and senior management cuts, um, which which they're doing 744 00:42:13,400 --> 00:42:17,160 Speaker 1: across the organization. They're talking about you know, you know, 745 00:42:17,200 --> 00:42:20,240 Speaker 1: they operate two very separate networks. They operate a ground 746 00:42:20,239 --> 00:42:23,560 Speaker 1: network and an express network, which is unique because you know, 747 00:42:23,680 --> 00:42:26,920 Speaker 1: most companies in the courier business they'll have one network, 748 00:42:26,960 --> 00:42:30,480 Speaker 1: so ups their express and their domestic business is kind 749 00:42:30,520 --> 00:42:35,040 Speaker 1: of all in one operations. And you know, FedEx is 750 00:42:35,400 --> 00:42:38,680 Speaker 1: looking at ways where they can combine those two networks, 751 00:42:39,120 --> 00:42:41,680 Speaker 1: you know, and gain kind of some of the scale 752 00:42:42,160 --> 00:42:44,960 Speaker 1: and um and and and and benefit that that will 753 00:42:45,040 --> 00:42:48,360 Speaker 1: bring and just increase productivity overall, because at the end 754 00:42:48,400 --> 00:42:50,799 Speaker 1: of the day, you know, these networks were built for 755 00:42:51,239 --> 00:42:54,600 Speaker 1: B two C commerce and as B to B I'm sorry, 756 00:42:54,600 --> 00:42:57,319 Speaker 1: they're built for B to B commerce, and as you know, 757 00:42:57,400 --> 00:43:00,600 Speaker 1: business to consumer commerce or e commerce is picking up, 758 00:43:00,800 --> 00:43:02,799 Speaker 1: you know, they need to kind of change the way 759 00:43:02,840 --> 00:43:06,120 Speaker 1: these accident intensive networks operate. That's kind of where I 760 00:43:06,120 --> 00:43:08,279 Speaker 1: wanted to go, Lee. Is I think about FedEx and 761 00:43:08,400 --> 00:43:13,200 Speaker 1: ups and DHL and boy even Amazon, Um, how have 762 00:43:13,600 --> 00:43:16,640 Speaker 1: the business has changed since the pandemic. It just seems 763 00:43:16,680 --> 00:43:20,360 Speaker 1: like is there more capacity in the system now? Is 764 00:43:21,080 --> 00:43:25,400 Speaker 1: the demand at a going to grow from this higher level? Um? 765 00:43:25,880 --> 00:43:29,200 Speaker 1: How has it changed? Yeah? So I mean, if you 766 00:43:29,239 --> 00:43:32,400 Speaker 1: want to talk about like pre pandemics today, so obviously, 767 00:43:32,480 --> 00:43:35,080 Speaker 1: you know we had a surge in you know, B 768 00:43:35,080 --> 00:43:38,400 Speaker 1: B two C or e commerce demand as more and 769 00:43:38,480 --> 00:43:41,000 Speaker 1: more people were you know, stuck at home and not 770 00:43:41,160 --> 00:43:44,360 Speaker 1: able to get out. You know, that pulls forward e 771 00:43:44,440 --> 00:43:48,239 Speaker 1: commerce penetration by three or five years. And so what 772 00:43:48,360 --> 00:43:51,759 Speaker 1: that did is that that really brought a rush into 773 00:43:51,840 --> 00:43:55,680 Speaker 1: this lower margin business into their their network. So if 774 00:43:55,719 --> 00:43:57,920 Speaker 1: you think about it, you know, when you see a 775 00:43:57,960 --> 00:44:01,720 Speaker 1: FedEx delivery person coming to your house delivering one package, 776 00:44:01,760 --> 00:44:04,800 Speaker 1: you know, the margins on that it's pretty small relative 777 00:44:04,840 --> 00:44:07,239 Speaker 1: to them going to a lawyer's office and delivering one 778 00:44:07,280 --> 00:44:10,800 Speaker 1: hundred packages. Um. So you know, so what they're trying 779 00:44:10,840 --> 00:44:14,040 Speaker 1: to do is build dnser networks to be able to 780 00:44:14,520 --> 00:44:17,759 Speaker 1: you know, lower their costs to deliver um. And so 781 00:44:17,960 --> 00:44:20,800 Speaker 1: you know, in addition to your questions about what's different, 782 00:44:21,040 --> 00:44:23,640 Speaker 1: you know, obviously we had you know, very tight labor markets. 783 00:44:23,680 --> 00:44:26,279 Speaker 1: Those labor markets are loosening a little bit. You know, 784 00:44:26,360 --> 00:44:30,080 Speaker 1: it's it's a lot easier to find people today was 785 00:44:30,120 --> 00:44:33,560 Speaker 1: a year ago that you know, some much pressures that 786 00:44:33,600 --> 00:44:37,279 Speaker 1: they're casing. But in generally speaking, you know, they just have, 787 00:44:38,360 --> 00:44:42,200 Speaker 1: um not necessarily reinvent themselves, but just take a look 788 00:44:42,200 --> 00:44:44,720 Speaker 1: at their networks and figure out, you know, how should 789 00:44:44,719 --> 00:44:48,120 Speaker 1: they be operating with this new paradigm of you know, 790 00:44:48,239 --> 00:44:51,520 Speaker 1: more home deliveries versus you know, um, you know, B 791 00:44:51,600 --> 00:44:57,239 Speaker 1: to B deliveries. What what counts for innovation in this industry? Um, So, 792 00:44:57,280 --> 00:44:59,600 Speaker 1: there's a lot of things. So there's there's software, so 793 00:44:59,680 --> 00:45:03,919 Speaker 1: the acting tracing technologies. They're always constantly improving that. They're 794 00:45:03,960 --> 00:45:07,080 Speaker 1: trying to figure better ways to route freight. Um they're 795 00:45:07,200 --> 00:45:10,800 Speaker 1: they're making big investments and automation, so they're trying to 796 00:45:10,840 --> 00:45:14,000 Speaker 1: get more of their sorting hubs automated, so more and 797 00:45:14,120 --> 00:45:17,320 Speaker 1: more of their freight doesn't really get touched by people, 798 00:45:17,360 --> 00:45:20,160 Speaker 1: and if it is touched by people, they charge a 799 00:45:20,280 --> 00:45:22,759 Speaker 1: surcharge for that. And that was really you know, one 800 00:45:22,800 --> 00:45:25,719 Speaker 1: of the things coming off the call last night was that, 801 00:45:25,800 --> 00:45:29,040 Speaker 1: you know, pricing remains rational across all of its businesses, 802 00:45:29,600 --> 00:45:31,920 Speaker 1: which is really good. You know, they still can get 803 00:45:31,960 --> 00:45:36,000 Speaker 1: price increases even if volumes are declining in some of 804 00:45:36,000 --> 00:45:39,640 Speaker 1: their businesses by mid to high single digits, so you 805 00:45:39,680 --> 00:45:41,799 Speaker 1: know they'll be able to offset that. You know, they're 806 00:45:42,080 --> 00:45:45,080 Speaker 1: they're they're earning you know what, we're down by you know, 807 00:45:45,360 --> 00:45:49,560 Speaker 1: significant double digits versus last year. Obviously, you know last 808 00:45:49,640 --> 00:45:52,840 Speaker 1: year was an unsustainable level, but their their revenue was 809 00:45:52,920 --> 00:45:55,520 Speaker 1: only off by you know, like low single digits. You know, 810 00:45:55,560 --> 00:45:58,160 Speaker 1: you're still you're still seeing them able to price in 811 00:45:58,440 --> 00:46:02,080 Speaker 1: this difficult market. Thirty seconds, you cover everything on the 812 00:46:02,120 --> 00:46:07,640 Speaker 1: logistics fronts. Is the supply chain fixed, the supply chain 813 00:46:07,640 --> 00:46:11,120 Speaker 1: will never be fixed because there's always changing and always complicated. 814 00:46:11,800 --> 00:46:13,759 Speaker 1: But the good news is that, you know, there was 815 00:46:13,800 --> 00:46:17,759 Speaker 1: a lot of news last year and about you know, 816 00:46:17,800 --> 00:46:20,400 Speaker 1: the backup at the ports. Well there's really there hasn't 817 00:46:20,400 --> 00:46:23,680 Speaker 1: been a backup at the ports for quite some time 818 00:46:23,760 --> 00:46:26,640 Speaker 1: since November, so that's good news. You know, the next 819 00:46:26,680 --> 00:46:31,000 Speaker 1: wrench in the system could be a strike at you know, 820 00:46:31,120 --> 00:46:34,239 Speaker 1: FedEx's big competitor, or ups or contract ends at the 821 00:46:34,320 --> 00:46:36,719 Speaker 1: end of July. That actually might be a near term 822 00:46:36,760 --> 00:46:40,320 Speaker 1: benefits of FedEx as shippers looks a secure capacity ahead 823 00:46:40,320 --> 00:46:43,279 Speaker 1: of the uncertainty. You know, we think there, you know, 824 00:46:43,600 --> 00:46:45,880 Speaker 1: is a low probability of a strike. You know, we 825 00:46:45,920 --> 00:46:47,960 Speaker 1: don't we don't think. We don't think it's going to happen, 826 00:46:48,320 --> 00:46:50,480 Speaker 1: but you know, shippers have to prepare. We were at 827 00:46:50,480 --> 00:46:54,200 Speaker 1: a conference last week or actually sorry this week, uh, 828 00:46:54,640 --> 00:46:57,440 Speaker 1: talking to a bunch of shippers and they were telling us, 829 00:46:57,560 --> 00:47:00,799 Speaker 1: you know that they're they're engaging with other providers to 830 00:47:00,840 --> 00:47:02,640 Speaker 1: make sure their stuff gets to where it needs to be. 831 00:47:02,760 --> 00:47:05,239 Speaker 1: All right, I got good stuff, Lee sector Head. He 832 00:47:05,280 --> 00:47:08,760 Speaker 1: covers all things logistics for Bloomberg Intelligence. Thanks for listening 833 00:47:08,800 --> 00:47:12,279 Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen 834 00:47:12,320 --> 00:47:16,600 Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer. 835 00:47:16,960 --> 00:47:20,280 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen 836 00:47:20,400 --> 00:47:23,040 Speaker 1: seventy three. And I'm fall Sweeney. I'm on Twitter at 837 00:47:23,080 --> 00:47:25,920 Speaker 1: pt Sweeney. Before the podcast, you can always catch us 838 00:47:25,960 --> 00:47:27,640 Speaker 1: worldwide at Bloomberg Radio