Speaker 1: This is Bloomberg Wall Street Week. And we may not
Speaker 1: have an overall recession, We're having a rolling recession. To
Speaker 1: Cone roll looks pretty strongly. It is when it comes
Speaker 1: to jobs. The financial stories that shape our work. Three
Speaker 1: major regional bank failures send shockwaves through the banking system.
Speaker 1: We're all trying to figure out what to make of
Speaker 1: generative AI through the eyes of the most influential voices.
Speaker 1: Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America,
Speaker 1: deebro Lair of the Paulson Institute, Len Hubbard of the
Speaker 1: Columbia Business School. Bloomberg Wall Street Week with David Weston
Speaker 1: from Bloomberg Radio. Looking up. As the US economy continues
Speaker 1: to grow, the Fed signals it's nearing an end to hikes,
Speaker 1: and big tech comes back in a big way. This
Speaker 1: is Bloomberg Wall Street Week. I'm David Weston. This week,
Speaker 1: Former White House economist Laura Tyson on why the Fed
Speaker 1: just may have an ace up its sleeve.
Speaker 2: He thinks this time we can engineer. He can engineer
Speaker 2: a soft landing.
Speaker 1: Ralph Schlastin of Evercore on how deal makers are getting
Speaker 1: ready for the next surge.
Speaker 3: We're certainly beginning to see a significantly a greater amount
Speaker 3: of activity.
Speaker 1: And Darren Williams of Southern bancour on the continuing shakeup
Speaker 1: in the ranks of regional banks.
Speaker 4: The particular merger between Pecquests and Bank A Galaia.
Speaker 2: That made sense probably for them.
Speaker 4: It seems that that's going to be a stronger institution.
Speaker 1: There were some puts in takes, but overall Global Wall
Speaker 1: Street had a pretty good week. Big Tech seems to
Speaker 1: be back on track with strong earnings reports from Alphabet
Speaker 1: setting up a move for Ruth port Up to president
Speaker 1: and chief Investment Officer, So.
Speaker 5: She's going to be CFO up until September the first,
Speaker 5: and this has got this newly created role that is
Speaker 5: going to be the CIO.
Speaker 1: I'm president and she's going to remain with the business
Speaker 1: until they find a success. And then Meta reported more users,
Speaker 1: more advertising revenue, and promises of even better yet to come.
Speaker 2: We're really excited about what we think that this is
Speaker 2: going to bring to bear for the consumer experience and
Speaker 2: of course also eventually for businesses to connect with consumers.
Speaker 1: Across the family of ops. Two ups had a somewhat
Speaker 1: different moment in the sun when the union representing UPS drivers,
Speaker 1: reached a tentative deal to avoid a strike, and Teamster's
Speaker 1: chief Sean O'Brien wasted no time in saying he's eager
Speaker 1: to move on to Amazon.
Speaker 6: Amazon's definitely going to be a target to organize. We're
Speaker 6: going to take this historic agreement and use it as
Speaker 6: a template to show the Amazon workers what they will
Speaker 6: receive when they joined the Team Stit's union and reorganize them.
Speaker 1: Things were a bit rockier for President je Over in China,
Speaker 1: who removed Foreign Minister Chin Gong after only seven months
Speaker 1: in office and brought back his predecessor Wang ye I.
Speaker 7: Think one's going nowhere.
Speaker 1: And then there was the case of British real estate
Speaker 1: magnet Joe Lewis, arraigned in a Manhattan court for allegedly
Speaker 1: giving illegal stock tips to the staff on his super yacht,
Speaker 1: his private jet pilots, and his girlfriends. But the big
Speaker 1: one this week was the Fed's much awaited July decision,
Speaker 1: which brought another twenty five basis points in rate increases,
Speaker 1: which surprised no one, but left open the possibility it
Speaker 1: may be done or nearly done with tightening.
Speaker 8: It's really a question of how do you have balance
Speaker 8: the two risks, the risk of doing too much or
Speaker 8: doing too little. And you know, I would say that,
Speaker 8: you know, we're coming to a place where where there
Speaker 8: really are risks on both sides. It's hard to say
Speaker 8: exactly whether whether they're in balance or not. But as
Speaker 8: our stances become more restrictive and inflation moderates, we do
Speaker 8: increasingly face that risk.
Speaker 1: As the odds for that soft landing seemed to increase,
Speaker 1: the US economy came in significantly stronger than expected, and
Speaker 1: inflation continued to ease so.
Speaker 7: Better than expected GENP report for the second quarter. This
Speaker 7: is going to have the FED changing some of its forecasts,
Speaker 7: and if.
Speaker 1: All that word enough. At the end of the week,
Speaker 1: the Bank of Japan shook global bond markets by saying
Speaker 1: it's ceiling for ten year jgvs will now be a
Speaker 1: reference point rather than a fixed ceiling. For all the drama,
Speaker 1: bond markets ended the week relatively calm, as the yield
Speaker 1: on the ten year US Treasury spiked to over four
Speaker 1: on the BOJ news on Thursday, but then settled back
Speaker 1: down to three point ninety four stocks. Meanwhile, we're all
Speaker 1: about the FED and the strong economic numbers, with the
Speaker 1: S and P five hundred, up one percent on the week,
Speaker 1: powered in part by earnings per share coming in so
Speaker 1: far in an average of two hundred and twenty three
Speaker 1: dollars compared with the Bloomberg Elves expectation of two hundred
Speaker 1: and thirteen dollars per year end. The Nasdaq once again
Speaker 1: outperformed the S and P of just over two percent
Speaker 1: for the week. To give us his take on what
Speaker 1: we are seeing, Welcome back now, Greg Peters. He is
Speaker 1: pgim cocio for fixing him. Greg. Great to have you
Speaker 1: back on Ball Street week here. It really was sort
Speaker 1: of a bond week, if I can put it that way,
Speaker 1: fixed income, it's your kind of week. First, start with
Speaker 1: the Fed. What did we hear from the Fed? What
Speaker 1: did you hear from the Fed? What does it mean
Speaker 1: for the bond markets?
Speaker 9: Yeah, so the Fed is kind of dancing along the
Speaker 9: nice said tier. Inflation is much more under control than
Speaker 9: where we were a year ago. So we're moving in
Speaker 9: the right direction, but it's far from declaring victory. And
Speaker 9: so they're very open to being data dependent and somewhat ambiguous.
Speaker 9: And what's really unique about this cycle, David, is that
Speaker 9: the markets are embracing that ambiguity. Typically that is a
Speaker 9: volve producer, but in this case is having the opposite effet.
Speaker 9: So the Fed is doing somewhat of a masterclass year
Speaker 9: on dampening market concerns, which I think is important of course.
Speaker 1: So great, what are the bond markets telling us, if anything,
Speaker 1: about the likelihood a recession, Because on the one hand,
Speaker 1: we got really strong economic numbers this week, surprise a
Speaker 1: lot of people. We don't see a lot of weakness
Speaker 1: in the market. At the same time, as I understand,
Speaker 1: we still are pricing in price rate cuts coming up
Speaker 1: next year.
Speaker 9: Yeah, So I think it's important to remember that the
Speaker 9: bond market's been wrong now for a better part of
Speaker 9: a year or so, so the curve has been inverted
Speaker 9: that typically suggests that a recession is imminent. This has
Speaker 9: been the most forecasted recession that hasn't come about yet.
Speaker 9: So I think, you know, the economy, the nominal part
Speaker 9: of the economy GDP has been quite robust and quite strong,
Speaker 9: and I think that's surprised a lot of pundits. That's
Speaker 9: the first thing. But what's curious in the market as
Speaker 9: well is the fact that we're still seeing rate cuts
Speaker 9: priced in, so investors are quite bullish around the outlook.
Speaker 9: Your risk assets are, you know, taking off and doing
Speaker 9: quite well, but you're still seeing back end rate cuts
Speaker 9: being priced in, and to us, we just see that
Speaker 9: as incongruent. You can't have your cake and eat it
Speaker 9: too right. You can't have a situation where risk assets
Speaker 9: really well and the FED is cutting because of economic weakness.
Speaker 9: So you have to choose a side. And I think
Speaker 9: there's some confusion here on that front.
Speaker 1: Greg. What does that tell you as a bond investor,
Speaker 1: where do you invest if at all? Right now is
Speaker 1: just a good time fixed income? And if so, what
Speaker 1: parts of fixed income?
Speaker 9: Yes, so I actually think it's a great time to
Speaker 9: be in fixed income. And it's very simple premise, and
Speaker 9: that is the income piece and the yield piece. So
Speaker 9: yields are much higher than where we were a year
Speaker 9: or two years ago. I think that is a fantastic
Speaker 9: starting point. So the income producing nature of fixed income
Speaker 9: really starts to assert itself. Where we see value is twofold.
Speaker 9: One is leaning against those rate cuts. So we think
Speaker 9: the hurdle for the Fed to raise interest rates or
Speaker 9: i'm sorry, cut interest rates is really quite high even
Speaker 9: if there's a tweak, what's being priced in as too
Speaker 9: much in our minds. So we see value being kind
Speaker 9: of short here, at least in the fun end, and
Speaker 9: we see a lot of value in high quality assets
Speaker 9: within fixed income. So no longer do you have to
Speaker 9: reach out the risk curve in order to achieve those
Speaker 9: income goals and targets. So we think it's a great
Speaker 9: time to invest in fixed income where you get a
Speaker 9: lot of safe carry and really kind of good earnings
Speaker 9: along the way.
Speaker 1: So high quality fixed income, are you being compensated for
Speaker 1: the risk when it comes to high yield or leverage loans?
Speaker 9: I think that's where it's a little more tricky, David.
Speaker 9: I look at it, or we look at, you know,
Speaker 9: the parts of the high yield market, We look at
Speaker 9: the lever loan market, we look at the private credit
Speaker 9: market and really question whether you're being appropriately compensated for
Speaker 9: the risks there. So these are still you know, highly
Speaker 9: levered entities. There's been a lot of leverage added to
Speaker 9: capital structures over the past decade or so, kind of
Speaker 9: feasting off the low interest rates. But as those interest
Speaker 9: costs continue to kind of reset high higher, right as
Speaker 9: the cheaper debt rolls off into more expensive debt. I
Speaker 9: think that puts a lot more pressure on these companies
Speaker 9: in that segment of the market, and even without a recession,
Speaker 9: I think you'll have a a higher default experience than
Speaker 9: what we've observed over the past just called five seven years.
Speaker 1: Greg, we can't let you go without talking about what
Speaker 1: happened with the Bank of Japan because it shook a
Speaker 1: lot of people. When that report came out a Thursday afternoon,
Speaker 1: there was a lot of move in the markets actually
Speaker 1: at the time, at least for a short period of time.
Speaker 1: What did you make out of what happened and does
Speaker 1: it have long lasting effects?
Speaker 9: I think it's too early to tell. So it was
Speaker 9: you know, in the price over the past couple of
Speaker 9: days or so. But either way, ten year jgb's kind
Speaker 9: of jumped ten bases points, which is a pretty big
Speaker 9: move in that market. But essentially the Bank of Japan
Speaker 9: is drafting off of other global central banks, so we'll see,
Speaker 9: so they have this last mover advantage and so a
Speaker 9: lot of that the tightening has kind of happened away
Speaker 9: from them, and so they're just catching up. But I
Speaker 9: think it's a rationalization that's finally occurring into Japanese markets,
Speaker 9: but I think it's a long ways to go. So
Speaker 9: you know, our strong senses yields will continue to move
Speaker 9: higher in jaman with in Japan test that one percent threshold.
Speaker 9: But we're finally starting to see some movement out of
Speaker 9: the Bank of Japan, who's been stuck very much in
Speaker 9: this highly accommodated stance for a very long time.
Speaker 1: Many thanks now, Greg, always great to have you with
Speaker 1: us as Greg Peters of PGM. Coming up, we're going
Speaker 1: to go over with the Fed told us and also
Speaker 1: what it left unsaid with the Connors Laura Tyson of
Speaker 1: the Berkeley Has School of Business. And then next week
Speaker 1: we're going to take you to Aspen for a special
Speaker 1: edition of Wall Street Week from the Aspen Economic Strategy
Speaker 1: Group's annual meeting. We'll sit down with former Council of
Speaker 1: Economic Advisors Chair Celia Raus, Atlanta FED President Raphael Bastik,
Speaker 1: Chicago FED President Austin Goolsby, and more, only on Wall
Speaker 1: Street Week on blueg This is Wall Street Week. I'm
Speaker 1: David Weston. The FED spoke again this week and raised
Speaker 1: interest rates again, this time by twenty five basis points,
Speaker 1: hoping it is doing enough to deal with inflation but
Speaker 1: not too much, a risk that isn't new for the FED.
Speaker 1: As Lewis Ruckheiser described on Wall Street Week back in
Speaker 1: July of two thousand and one, back in the days
Speaker 1: of Alan Greenspan.
Speaker 10: The FED chairman misread the economy's signals so embarrassingly in
Speaker 10: nineteen ninety nine and two thousand that he was raising
Speaker 10: in interest rates to guard against inflation when he should
Speaker 10: have been lowering them to go out against what has
Speaker 10: proved to be the biggest economic collapse in a decade.
Speaker 1: To take us through the risks facing this FED and
Speaker 1: this FED chair. In twenty twenty three, we welcome back
Speaker 1: Laura Tyson, Professor at the Berkeley Hawes School of Business.
Speaker 1: Doctor Tyson served both as chair of the Council of
Speaker 1: Economic Advisors and as Director of the National Economic Council
Speaker 1: under President Clinton. So doctor Tyson, thank you so much
Speaker 1: for being back with us. So a lot that we
Speaker 1: heard from the FED and from Sharepowe was not a
Speaker 1: big surprise. Was there anything you found surprising?
Speaker 2: Really surprising but forward looking or going out a little
Speaker 2: bit to say for a variety of reasons. He thinks
Speaker 2: this time we can engineer he can engineer a soft landing.
Speaker 2: He noted that that's very rare, but he did talk
Speaker 2: about the fact that we have an economy which is
Speaker 2: stronger than expected, stronger than expected. His own FED forecasters
Speaker 2: have taken out a recession for this year and put
Speaker 2: in stronger growth. But he noted, also, we have inflation
Speaker 2: coming down, we have quits coming down, we have job
Speaker 2: openings coming down. We have a kind of sense that
Speaker 2: the labor market may be easing without creating unemployment, and
Speaker 2: that growth may still be strong, and that would be
Speaker 2: a soft landing.
Speaker 1: Well, and underscore what you're saying, doctor Tyson. The day
Speaker 1: after the FEDS decision, we got GDP numbers out that
Speaker 1: really were substantially stronger than we expected, indicating the economy
Speaker 1: is doing quite well. At the same time, we've raised
Speaker 1: interest rates a lot at this point, a lot in
Speaker 1: a very short period of time. How do you account
Speaker 1: for the fact we don't have more unemployment because a
Speaker 1: lot of people, I think, predicted that if you raise
Speaker 1: interestrates that high that fast, you're going to have higher unemployment.
Speaker 2: We do know that consumers continue to be a spend
Speaker 2: out of their savings, they continue to create strong demand
Speaker 2: for output, both services now and increasingly products, and Pal
Speaker 2: mentioned that yesterday the importance of the shifting of spending
Speaker 2: back towards goods, because that way you can ease some
Speaker 2: of the inflationary pressures on the services side and on
Speaker 2: the good side, as you pointed out, the supply chain
Speaker 2: is really it's strong now. There's a lot of supply,
Speaker 2: so the demand for consumer goods and the shift in
Speaker 2: consumer goods important. He mentioned investment as well, and I
Speaker 2: think there the change in technology, the artificial intelligence breakthroughs,
Speaker 2: and the rush by firms to figure out a way
Speaker 2: to invest in that technology, that's boosting investments. So you
Speaker 2: have sources of demand at home, consumption and investment demand stronger,
Speaker 2: and that's what's keeping the economy going. Certain interest rate
Speaker 2: sectors housing you don't see that strength obviously, but for
Speaker 2: a variety of reasons, demand remains strong.
Speaker 1: Artificial intelligence is all the rage these days, at least
Speaker 1: to talk about. I'm not sure we're seeing it show
Speaker 1: up yet, but there are some who really speculate it
Speaker 1: could have significant effect on productivity. Do you expect it
Speaker 1: may have that effect and if so, how long does
Speaker 1: that take to have to really show up in the numbers.
Speaker 2: So one of the interesting omissions yesterday in the discussion
Speaker 2: of Chairman Pale, and this is a standard omission because
Speaker 2: FED chairs don't talk a lot about productivity. But if
Speaker 2: you're thinking about inflation and you're thinking about, well, as
Speaker 2: our wage is going up, is that going to drive
Speaker 2: inflation up further? There's an intermediate variable there that is wages,
Speaker 2: productivity growth, and prices. If productivity growth picks up and
Speaker 2: you have that allows for stronger wage growth without an
Speaker 2: effect on price growth. So productivity is really important. It
Speaker 2: is very hard to predict. I have to smile at
Speaker 2: the fact that you started with two thousand. The Federal
Speaker 2: Reserve Chairman Greenspan, President Clinton were absolutely surprised by the
Speaker 2: strength of productivity growth. No one predicted it. And there
Speaker 2: was a very significant uptick in productivity growth associated with
Speaker 2: the rollout, the very rapid rollout of internet technology, which
Speaker 2: really occurred from the late nineteen nineties. So you had
Speaker 2: a decade of much stronger percentage point stronger growth rate
Speaker 2: in productivity, and that changed the inflation outlook. It changed
Speaker 2: the course of monetary policy. So I think about today
Speaker 2: and I would say perhaps because I'd mostly spend my
Speaker 2: time in northern California. But there are a number of scholars.
Speaker 2: For Examma McKinsey. Global Wins too just did something on this,
Speaker 2: looking at how AI is affecting already productivity in major
Speaker 2: business functions and sales functions, in accounting functions in majorctors
Speaker 2: of the economy like finance. So it's already looking to
Speaker 2: generate a productivity burst.
Speaker 1: So, doctor Tis, you were there in the White House
Speaker 1: when the Internet phenomenon was really taking hold. As an economist,
Speaker 1: so often the economic numbers are backward looking. How long
Speaker 1: did it take you to see that productivity increase in
Speaker 1: the numbers? How long did it take you to figure
Speaker 1: out this is actually what's going on.
Speaker 2: Well, we saw the numbers pretty quickly. We were surprised
Speaker 2: at the numbers. I want to say, I oftentimes tell
Speaker 2: the story that I used to do brief President Clinton
Speaker 2: regularly on the outlook for the deficit, and that depended
Speaker 2: very much on the outlet for economic growth, and that
Speaker 2: depended very much on the outlook for productivity growth. And
Speaker 2: I used to give them the pretty standard economist answers
Speaker 2: that productivity growth was likely remain slow, We shouldn't expect
Speaker 2: a significant change. We needed to be cautious, and we
Speaker 2: therefore were constantly surprised at the extent of the productivity gains,
Speaker 2: and they really started to come in early. The artificial
Speaker 2: intelligence revolution is going to be as significant as the
Speaker 2: Internet revolution is actually probably going to be more significant
Speaker 2: than that, and the question therefore becomes how fast will
Speaker 2: the effects be felt. A very good positive indicator here
Speaker 2: is that in some sectors which are early adopters, you
Speaker 2: already see some amazing productivity gains. In some of the
Speaker 2: work being done by economists. You see using you know,
Speaker 2: there are cases where they'll sort of look at the
Speaker 2: application of AI to a call center and see how
Speaker 2: how much the productivity of each call center worker increases.
Speaker 2: And it's not just the quantity that's the productivity number,
Speaker 2: but the quality. They do better job, and the customers
Speaker 2: like it more. So. I think we've got a lot
Speaker 2: pieces of evidence all around that this productivity effect is
Speaker 2: going to be large, and it's going to be quick,
Speaker 2: but very We do not have good economic models to
Speaker 2: make this prediction, so we have to look at I've
Speaker 2: been you know, I heard yesterday a lot of companies.
Speaker 2: So even though the interest rate is high, the cost
Speaker 2: of capital is high, credit conditions are restrictive. Companies are
Speaker 2: rushing out to invest in this technology because they realize
Speaker 2: it's maybe signaling a fundamental change. So the long term
Speaker 2: you have to look at your investment decisions. Now for
Speaker 2: the long term.
Speaker 1: Yeah, well, not a certainty, but something we could certainly
Speaker 1: hope for. Thank you so much, doctor, is always a
Speaker 1: pleasure having on the Wall Street Week. That is Professor
Speaker 1: Laura Tyson of the Haas School of Business at Berkeley
Speaker 1: University coming up. Those higher rates brought deal making almost
Speaker 1: to a halt, but there are some indications now that
Speaker 1: things may be coming back soon. We'll ask Ralph Schlastein
Speaker 1: of Evercore.
Speaker 3: Certainly the amount of dialogue among our clients is up
Speaker 3: quite dramatically, and our backlogs are up.
Speaker 1: This is Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. Mergers
Speaker 1: and acquisitions. They make the investment bankers world go round,
Speaker 1: And just two short years ago it was going around
Speaker 1: pretty fast, when a record three point eight trillion dollars
Speaker 1: worth of deals were done in twenty twenty one.
Speaker 11: We are continuing to see a just tremendous momentum in
Speaker 11: US emini.
Speaker 1: But then inflation came along and the Fed decided it
Speaker 1: had to raise interest rates fast to get things under control,
Speaker 1: leading to all sorts of uncertainty in terms of our
Speaker 1: own business.
Speaker 3: Oh yes, it has a big effect because when the
Speaker 3: volatility is so high, and that the VIX this twenty
Speaker 3: was thirty two and a half.
Speaker 7: I think of when the day started, people hesitate, They.
Speaker 3: Want to step back and wait for the smoke to
Speaker 3: clear in the environment to settle, and so transactions slow down,
Speaker 3: there's no doubt about it.
Speaker 1: All of which took that three point eight trillion dollars
Speaker 1: in deals in twenty twenty one all the way down
Speaker 1: to two point six trillion last year, and the pace
Speaker 1: this year so far is down another forty percent from that.
Speaker 1: But now markets think we may be nearing the end
Speaker 1: of those rate hikes, leading some people like Michael Jay
Speaker 1: of Blackstone to think the deals are about to come back.
Speaker 4: I think market participants are now seeing that we're nearing
Speaker 4: the end of this dramatic rate increased cycle and therefore
Speaker 4: feeling like there's a little less uncertainty, certainty and are
Speaker 4: readier to transact.
Speaker 1: Though Betsy Grask Morgan Stanley says it maybe next year
Speaker 1: before we really see mergers and acquisitions get their mojo back.
Speaker 12: We are one of those who is looking for an
Speaker 12: acceleration and deal activity as we go into next year.
Speaker 12: Part of the reason is understanding what the terminal rate
Speaker 12: is in Ray.
Speaker 1: Heins, and to bring us up this feed on exactly
Speaker 1: where we are in mergers acquisitions, we turn to a
Speaker 1: true authority. He's Wel Schlestein. He is Chairman emeritus of Evercore.
Speaker 1: Ralph thanks so much for being back on Wall Street week.
Speaker 1: We hear a lot about the fact that M and
Speaker 1: A dropped off, as we know from those record numbers
Speaker 1: back in twenty one. Are they coming back.
Speaker 3: We're certainly beginning to see a significantly greater amount of activity.
Speaker 3: It hasn't manifested itself yet in announced transactions, but announced
Speaker 3: M and A for the first six months of the
Speaker 3: year was down. The dollar volume was down forty percent.
Speaker 3: I don't expect it will be quite as bad in
Speaker 3: the second half of the year, but certainly the amount
Speaker 3: of dialogue among our clients is up quite dramatically, and
Speaker 3: our backlogs are up.
Speaker 1: A big change from twenty one, for example, is interest rates. Yes,
Speaker 1: I mean that has been adding interest rate basis points
Speaker 1: as fast as it could. How does that change the
Speaker 1: nature I mean going forward? I mean, are they're going
Speaker 1: to look different the deals that you do well? It does.
Speaker 3: It unquestionably affects the amount of leverage that you can
Speaker 3: put on a transaction, and that of course affects the
Speaker 3: private equity firms, particularly not as much industrial companies because
Speaker 3: they're all or many of them are investment grade rated,
Speaker 3: and you know, the ultimately the banks or the lenders
Speaker 3: which are increasingly non bank you know, calculate how much
Speaker 3: debt a company can support by you know, some measure
Speaker 3: of interest coverage. So when rates are up, that limits
Speaker 3: somewhat the amount of debt that that a private equity
Speaker 3: firm can put on a company. However, they also look
Speaker 3: at the way a mortgage is done. You know, what's
Speaker 3: the amount of loan to value a traditional loan to
Speaker 3: value analysis, and that doesn't really change that much. So
Speaker 3: it's a balancing act between interest coverage and the fact
Speaker 3: the loan to value analysis you.
Speaker 1: Mentioned private particularly private credit to what extent is private
Speaker 1: credit taking up the slack right now, particularly banks feel
Speaker 1: they may needed to pull back some.
Speaker 3: Well, there was a period probably five six months ago
Speaker 3: when almost all leveraged loans, all leveraged buyout transactions were
Speaker 3: financed by private credit. And by the way, that's not
Speaker 3: a terrible thing because they're separated from the deposit insurance function,
Speaker 3: and so that's taking actually credit risk out of the
Speaker 3: banking system. So there's probably you know, a trillion dollars
Speaker 3: of private credit balance sheet out there, and so that's
Speaker 3: become a significant competitor for the banks. But that's probably
Speaker 3: a healthy thing for the financial system.
Speaker 1: What is the shakeup if I can put that one
Speaker 1: M and A doing to the investment banking business itself,
Speaker 1: because we saw credit sweet now is really obviously essentially
Speaker 1: pulling out of the business. Entire Golden SAX has been
Speaker 1: laying off of the bankers. Is it changing the personnel
Speaker 1: situation for a place like evercor Well.
Speaker 3: The interesting thing is that so advisory you know M
Speaker 3: and A restructuring, but M and A obviously being the
Speaker 3: biggest part of it, is almost our only business. We
Speaker 3: have a research business and we have an underwriting business.
Speaker 3: But their peak they were maybe fourteen to fifteen percent
Speaker 3: of our revenues. So the vast majority of our revenues
Speaker 3: come from advisory. Goldman Sachs, which has the largest advisory business,
Speaker 3: advisory is about five percent of their revenues, so it's
Speaker 3: the most prestigious part of their business. But it's not
Speaker 3: something that dramatically affects, you know, the profitability of the business,
Speaker 3: although when you put it together with equity underwriting and
Speaker 3: debt underwriting and other things, that's not great for Goldman Sachs.
Speaker 3: In terms of our business, you know, our growth comes
Speaker 3: from adding a plus and a talent, and we just
Speaker 3: announced our earnings yesterday.
Speaker 1: We've had a record.
Speaker 3: Number of very, very talented what we call senior managing directors,
Speaker 3: which is our most senior title, join us or commit
Speaker 3: to join us in the first half of the year.
Speaker 3: So disruption in the large firms, you know, causes people
Speaker 3: to stick up their head and say, gee, do I
Speaker 3: want to be in a place where what I do
Speaker 3: is the core business of the company rather than you know,
Speaker 3: five or seven percent of revenues. And in the case
Speaker 3: of places like you know, JP Morgan and b of A,
Speaker 3: they're so big, still important, still prestigious, but it's a
Speaker 3: very small part of their revenues.
Speaker 1: Let's talk about regulation for a second. There's a lot
Speaker 1: of talk has been since the beginning of the administration
Speaker 1: about anti trust enforcement, and now we've just had new
Speaker 1: proposed merger guidelines come out which are decidedly more restrictive,
Speaker 1: particularly involving private equity. Potentially, how much of a chilling
Speaker 1: effect is that having on businesses as they think about
Speaker 1: mergers and acquisition.
Speaker 3: Now, well, I think I may have been asked this
Speaker 3: a couple of years ago when the appointments were made
Speaker 3: to the FTC and the Anti Trust position, and I
Speaker 3: said that there definitely will be a more aggressive enforcement,
Speaker 3: but for it to actually dramatically limit activity, there would
Speaker 3: have to be law change in Congress. And I was
Speaker 3: very skeptical about that happening. That has not happened, It's
Speaker 3: not going to happen in my view. So we've gone
Speaker 3: through a cycle. In my view, you've gone through a
Speaker 3: period where there's been more enforcement, more second requests, more
Speaker 3: challenges to transactions, and some of those transactions companies chose
Speaker 3: to not proceed because they didn't want to go through
Speaker 3: the pain of contesting the FDC or the anti trust
Speaker 3: divisions contesting. Now we've seen two or three or four
Speaker 3: instances where companies have said, you don't really have a
Speaker 3: basis in law for challenging this merger, so we're going
Speaker 3: to go to court. And their record in court has
Speaker 3: not been great because the law hasn't changed. And so
Speaker 3: now what you're hearing a little bit more from clients
Speaker 3: is I recognize that this will probably be challenged, but
Speaker 3: let them take me to.
Speaker 1: Court because we'll win. But it must increase the friction costs.
Speaker 1: That's longer, it'd be more expensive. You have litigation you
Speaker 1: have to pay for. So is that to turn it
Speaker 1: at all? Or it is people just blow past that.
Speaker 1: It raises the bar.
Speaker 3: But if the bar went up because of the challenges
Speaker 3: six or eight or ten months ago, it's now come
Speaker 3: down a little bit because they've lost in court and
Speaker 3: challenging them legally has become a more accepted practice.
Speaker 1: Ralph, it's really great to have you on. Thank you
Speaker 1: so much for being back on Wall Street. Because Ralph
Speaker 1: last night is chairman emeritus of Evercore.
Speaker 2: Coming up.
Speaker 1: Unemployment is just a number unless you're the one out
Speaker 1: of a job. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Wall Street Week. I'm David Weston. This week
Speaker 1: we saw a continued rise in bond defaults and it
Speaker 1: decided drop off and lending, especially in Europe. To take
Speaker 1: us through the two developments and whether they may be connected.
Speaker 1: Welcome back now, Bloomberg International and Economics correspondent Michael McKee.
Speaker 7: Can you have too much of a bad thing to
Speaker 7: control inflation? Central banks raise interest rates, credit becomes more expensive,
Speaker 7: Fewer people and companies borrow, and economic activity slows. Monetary
Speaker 7: policy is working by that book in Europe. This week,
Speaker 7: the European Central Bank reported demand for loans among companies
Speaker 7: in the Eurozone plunged by the most on record in
Speaker 7: the second quarter. Demand for mortgages and other consumer borrowing
Speaker 7: also fell. Could that be a sign the policy has
Speaker 7: gone too far?
Speaker 1: Well.
Speaker 7: Banks play a dominant role in financing the European economy,
Speaker 7: and the Eurozone has seen two consecutive quarters of economic contraction.
Speaker 7: It's a different story in the US, where growth has
Speaker 7: remained stronger than expected. There is bank lending, of course,
Speaker 7: and it's flattened out in recent months, but the capital
Speaker 7: markets play a much bigger role here, and there are
Speaker 7: incipient signs of trouble in those markets. Defaults are beginning
Speaker 7: to rise, no surprise, particularly for commercial real estate. But
Speaker 7: a New York Fed index shows stress in the bond
Speaker 7: market is up, even for investment grade bonds for the Fed,
Speaker 7: like the ECB. The trick from here is to keep
Speaker 7: the pressure on inflation without turning lending stress into economic distress.
Speaker 1: David Many thanks to Bloomberg's Michael McKee. Finally, one more thought,
Speaker 1: whe knows the answer. One reason is really as good
Speaker 1: as another. An awful lot of employees seem to be
Speaker 1: getting a no when it comes to their jobs these days.
Speaker 1: Whatever the reasons, it certainly is hitting Goldman.
Speaker 2: For Goldman to make cuts.
Speaker 6: This steep is very concerning because the question is when
Speaker 6: do deals come back in a way to justify these
Speaker 6: swollen workforces all across.
Speaker 1: Wall Street and big tech heavyweights.
Speaker 10: Most of these layoffs at scale are happening in the
Speaker 10: soupus right there, happening in the mess.
Speaker 1: Is there happening in the facebooks?
Speaker 10: That are happening in twits are And to a degree
Speaker 10: it's just kind of right sizing.
Speaker 1: A fair number of people are being shown the proverbial
Speaker 1: door without a key to get back in? Are you
Speaker 1: you need your key card? And it's not just their
Speaker 1: rank and file who are feeling a bit less secure
Speaker 1: in their jobs. Think about Bob Chapek out as CEO
Speaker 1: of Disney after only twenty one months.
Speaker 11: We think Japek failed to win hearts and minds of
Speaker 11: the troops and the creative businesses at Disney. And we
Speaker 11: think there is quite literally nobody on earth as well
Speaker 11: qualified to do that as Bob Ayger or.
Speaker 1: Chris Licked being shown the door at CNN after thirteen.
Speaker 5: Months, The CNN CEO Chris Liked has stepped down from
Speaker 5: the cable news channel pair and company Warner Brothers Discovery.
Speaker 5: He says his departure is immediate and that they're scouting
Speaker 5: for a new leader. This comes after the backlash over
Speaker 5: a Trump town hall in May and an unflattering profile
Speaker 5: of him by the Atlantics.
Speaker 1: So with all the turnover out there, it's good to
Speaker 1: know that there is still one place where you can
Speaker 1: keep your job pretty much no matter what, one place
Speaker 1: that just doesn't know what a pink slip looks like.
Speaker 1: Those in the higher education have long enjoyed tenure going
Speaker 1: back as far as the sixteen hundreds. The idea originally
Speaker 1: served to protect academics from religious prejudice, making sure they
Speaker 1: could not be removed no matter how the time's changed.
Speaker 1: But this summer all that is coming into a bit
Speaker 1: of question, as professor at Harvard's Business School was put
Speaker 1: on administrative leave after challenging some data she used in
Speaker 1: several published papers. Next came the president of Stanford, who
Speaker 1: abruptly announced he'd be stepping down at the end of
Speaker 1: the summer after questions were raised by the Stanford student
Speaker 1: newspaper about data he relied on for some seminal work
Speaker 1: on Alzheimer's.
Speaker 13: The president said yesterday he would resign, so there is
Speaker 13: an interim. Yes, he'll be leaving at the end of
Speaker 13: August and interim coming in in September. But the reason
Speaker 13: is kind of shocking that over the last twenty years
Speaker 13: there were issues in research that he did not correct.
Speaker 1: And last week came word that the president of Texas
Speaker 1: and M stepped down after fear over misandling of the
Speaker 1: hiring of a prominent black professor from UT Austin to
Speaker 1: head Texas a M's journalism program, apparently because of the
Speaker 1: politics over diversity hiring all this couldn't come at a
Speaker 1: worse time for students who run a debt to pay
Speaker 1: those schools for their sky high tuition fell Stelio wallets,
Speaker 1: pull your baby shoes. They will shrink themselves down to
Speaker 1: two inches high height in your pockets and take that
Speaker 1: money back one time. It's a time, But if your
Speaker 1: student debt won't be forgiven, maybe you should consider simply
Speaker 1: asking for your money back. That does it. For this
Speaker 1: episode of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 1: See you next week.