WEBVTT - Fed to Cut Biggest Banks' Capital Hike by Half in Overhaul 0:00:02.400 --> 0:00:09.000 Bloomberg Audio Studios, Podcasts, radio news. Now you're listening to 0:00:09.039 --> 0:00:13.040 the Bloomberg Intelligence Podcast. Catch us live weekdays at ten 0:00:13.080 --> 0:00:15.720 am Eastern on Apple card playing and Broid Auto with 0:00:15.720 --> 0:00:18.800 the Bloomberg Business app. Listen on demand wherever you get 0:00:18.840 --> 0:00:22.040 your podcasts, or watch us live on YouTube. 0:00:23.120 --> 0:00:24.400 I'm Alex Deel longside false. 0:00:24.400 --> 0:00:24.640 We need. 0:00:24.760 --> 0:00:26.800 This is Bloomberg Intelligence Radio. We bring you all the 0:00:26.840 --> 0:00:29.560 top news and business, economics and finance right here at 0:00:29.560 --> 0:00:33.320 our Bloomberg World headquarters in the beautiful Midtown in Manhattan. 0:00:33.479 --> 0:00:35.400 So at the top of the hour of Federal Reserve 0:00:35.479 --> 0:00:38.479 Vice Chairmichael Barr commented in a speech in Washington, and 0:00:38.520 --> 0:00:42.279 this concerns Basil three endgame capital rules for banks, and 0:00:42.280 --> 0:00:45.280 he made some material changes to those bank capital proposals. 0:00:45.320 --> 0:00:47.080 The biggest banks are now going to face just nine 0:00:47.120 --> 0:00:50.760 percent capital increase after some revisions, and some smaller banks 0:00:50.880 --> 0:00:54.400 will be exempt altogether. Michael McKee, Bloomberger inter National Economics 0:00:54.400 --> 0:00:57.400 and Policy correspondent, joins us now to go through all 0:00:57.440 --> 0:00:59.560 of this. Okay, So, if I'm a JP Morgan, I 0:00:59.640 --> 0:00:59.920 like this. 0:01:01.440 --> 0:01:04.200 You like it better than what you had before. It's 0:01:04.240 --> 0:01:09.039 still higher than they would like to see, and it's 0:01:09.080 --> 0:01:11.920 sort of a compromise from the FED and the other 0:01:12.000 --> 0:01:15.240 regulators now. Michael Barr also noted that this hasn't been 0:01:15.280 --> 0:01:18.479 completely finalized yet. They're going to hopefully propose it next 0:01:18.520 --> 0:01:22.280 week and then it has to go through another comment period, 0:01:22.560 --> 0:01:25.399 and he noted that the other regulators haven't signed off yet, 0:01:25.400 --> 0:01:28.000 but this is likely what we're going to see. The 0:01:28.480 --> 0:01:34.640 nine percent is still a fairly hefty additional level of 0:01:35.160 --> 0:01:40.480 cushion against financial shocks for them, So it is better 0:01:40.520 --> 0:01:43.759 than the nineteen percent that had been in a lot 0:01:43.800 --> 0:01:47.720 original proposal. And then the medium sized banks the one 0:01:47.800 --> 0:01:50.960 hundred to two hundred and fifty billion, They won't see 0:01:51.000 --> 0:01:55.280 any change in any additional change in their capital requirements, 0:01:55.680 --> 0:02:00.520 with the exception of capital held to maturity, the stuff 0:02:00.520 --> 0:02:04.800 that got SVB in trouble. They if yours isn't in 0:02:04.880 --> 0:02:08.080 good enough shape, then you'll have to pay a bit more. 0:02:08.919 --> 0:02:13.280 Is this still from great Financial Crisis? 0:02:13.320 --> 0:02:14.280 All these rules. 0:02:14.000 --> 0:02:16.760 Here is kind of I mean, are we done yet? 0:02:17.360 --> 0:02:18.399 I mean, come on enough? 0:02:18.880 --> 0:02:21.240 Maybe after endgame? Maybe this is why it's called endgame? 0:02:21.360 --> 0:02:26.080 Well, jamis that's that's the laugh, you know. The Marvel 0:02:26.120 --> 0:02:30.079 The Avengers movie series did a movie as a two 0:02:30.120 --> 0:02:33.799 part movie called Endgame, which was supposed to be sort 0:02:33.840 --> 0:02:36.799 of the end wrapping up all these threads over the years, 0:02:36.919 --> 0:02:40.400 and now they're doing more Marvel super hero movies. So 0:02:40.600 --> 0:02:43.480 Endgame is not going to be the endgame. There will 0:02:43.520 --> 0:02:46.200 always be something that comes up. But this is a 0:02:47.680 --> 0:02:49.920 process that's been under way for a very long time. 0:02:50.160 --> 0:02:53.120 BOZZL process started back in the nineteen nineties trying to 0:02:53.120 --> 0:02:57.480 harmonize international banking rules, and this Bozzle three process came 0:02:57.520 --> 0:03:01.880 after the Great Financial Crisis and to harmonize and agree 0:03:01.919 --> 0:03:06.600 on safety standards for banks around the world. And that 0:03:06.680 --> 0:03:08.800 goes a lot deeper than just capital it's what kind 0:03:08.840 --> 0:03:11.400 of models they can use. In this case, they're going 0:03:11.440 --> 0:03:15.320 to have to switch from using their own models for 0:03:15.440 --> 0:03:20.679 risk to standardize risk models stuff like that. It has 0:03:20.760 --> 0:03:26.360 a major impact on how the regulatory offices in these 0:03:26.400 --> 0:03:27.800 banks will operate. 0:03:28.160 --> 0:03:30.840 All right, Michael McKee, thank you so much. We appreciate it. 0:03:31.400 --> 0:03:33.880 Michael mcge is a our economics dude here for Bloomberg 0:03:33.960 --> 0:03:37.080 Radio TV JP Morgan is stock down four percent, no idea, why. 0:03:37.760 --> 0:03:39.640 Well, we also have some the big banks are all 0:03:39.680 --> 0:03:44.080 talking right now. So Jimmy Pinto over at JP Morgan 0:03:44.120 --> 0:03:47.320 is saying that third quarter investment bank banking fees could 0:03:47.360 --> 0:03:49.560 rise about fifteen percent from a year ago. Not a 0:03:49.560 --> 0:03:53.120 big fan of acquisitions and asset management, David Solomon, Woman 0:03:53.200 --> 0:03:57.200 Sachs spoke yesterday at a conference talking about their trading revenue. 0:03:57.240 --> 0:03:59.000 So we're getting all that feedback right now. 0:03:59.080 --> 0:04:02.760 So out there, it's September, which means it's conference time. 0:04:04.120 --> 0:04:08.000 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:04:08.080 --> 0:04:11.120 weekdays at ten am Eastern on Apple car Play and 0:04:11.120 --> 0:04:14.040 Android Auto with the Bloomberg Business app. You can also 0:04:14.120 --> 0:04:17.640 listen live on Amazon Alexa from our flagship New York station, 0:04:18.000 --> 0:04:20.760 Just say Alexa play Bloomberg eleven thirty. 0:04:22.240 --> 0:04:26.400 So today the EU's top court delivered two final binding 0:04:26.520 --> 0:04:28.440 rulings against two US tech companies. 0:04:28.520 --> 0:04:30.120 Apple lost its court fight. 0:04:30.080 --> 0:04:32.599 Over a fourteen point four billion dollar Irish tax bill, 0:04:32.839 --> 0:04:35.320 and Google lost its challenge over a two point four 0:04:35.320 --> 0:04:38.880 billion euro fine for abusing its market power. EU Competition 0:04:38.920 --> 0:04:42.200 Commissioner Margaret Vasteier spoke to Bloomberg following the victories for 0:04:42.240 --> 0:04:45.119 the European Commission, and she said she hopes her record 0:04:45.160 --> 0:04:47.320 show she was willing to take the risks to prove 0:04:47.600 --> 0:04:49.680 that the market works for consumers. 0:04:50.200 --> 0:04:52.960 You need to of course own your victories, but you 0:04:53.040 --> 0:04:57.400 also own your defeats, and we have had both, and 0:04:58.360 --> 0:05:01.480 hopefully that shows that we will to push the envelopes 0:05:01.720 --> 0:05:05.679 also sometimes to take a risk in order to try 0:05:05.720 --> 0:05:09.240 to make sure that the market serves the consumer and 0:05:09.320 --> 0:05:11.320 that we are not just small ponds or meet for 0:05:11.400 --> 0:05:14.560 the machine. And I hope that is what people take 0:05:14.600 --> 0:05:17.080 down from today's judgment, both that we won the Google 0:05:17.120 --> 0:05:19.599 case and it is final, and we won the Apple 0:05:19.640 --> 0:05:20.800 case and its final. 0:05:22.120 --> 0:05:24.640 Now was Margaret Westdeyer joining us. All right, let's get 0:05:24.680 --> 0:05:29.640 more insight here with Tamlin Basin, Bloomberg Intelligence technology analysts 0:05:29.640 --> 0:05:30.479 who joined us on this. 0:05:30.680 --> 0:05:32.280 Was this at all surprising to you? Tamlin? 0:05:33.720 --> 0:05:37.520 Now, this wasn't terribly surprising, Alex. The Apple tax case, 0:05:37.560 --> 0:05:40.480 we start with that. In twenty sixteen, the European Commission 0:05:40.560 --> 0:05:44.240 made this finding. It assess the thirteen billion dollar penalty, 0:05:44.560 --> 0:05:47.640 which is basically what it said were unpaid taxes because 0:05:47.680 --> 0:05:51.000 the Irish tax authority had given these favorable opinions to 0:05:51.040 --> 0:05:55.800 Apple that essentially amounted to improper state aid. Now, what 0:05:55.839 --> 0:05:58.279 was interesting is that the Intermedia A court in twenty 0:05:58.320 --> 0:06:01.840 twenty did reverse that decision and said the Commission didn't 0:06:01.880 --> 0:06:06.040 follow certain guidelines and setting that fine. But when we 0:06:06.080 --> 0:06:09.080 looked at the briefing going into this this final I'm hearing, 0:06:09.360 --> 0:06:12.000 it did seem like this was going to be the result. 0:06:12.360 --> 0:06:15.239 So I think this thirteen million dollar verdict against Apple 0:06:15.279 --> 0:06:17.760 wasn't entirely surprising. And this money has been held in 0:06:17.920 --> 0:06:20.480 s grow for a number of years, so I think 0:06:20.520 --> 0:06:22.920 people sort of saw this this coming this way. 0:06:23.279 --> 0:06:27.480 So I mean, is this just another I guess hurdle 0:06:27.640 --> 0:06:30.359 that Apple and you know, other big tech companies have 0:06:30.480 --> 0:06:33.200 to deal with from a regulatory standpoint just all over 0:06:33.240 --> 0:06:33.880 the world. 0:06:33.600 --> 0:06:37.680 Here, Yeah, I mean the hurdles are certainly stacking up. 0:06:38.000 --> 0:06:40.040 But I think what's interesting about this is I look 0:06:40.080 --> 0:06:44.159 at these two decisions as really some of the last ripples, 0:06:44.160 --> 0:06:47.440 some really regulatory actions that began kind of nearly a 0:06:47.520 --> 0:06:50.359 decade ago, and I think now we've certainly moved on 0:06:50.680 --> 0:06:53.560 and both and especially in Europe but also in the US, 0:06:53.920 --> 0:06:57.280 there are increasing hurdles there that the companies are having 0:06:57.279 --> 0:06:59.159 to face. I mean, especially if you look at Google 0:06:59.240 --> 0:07:00.960 and you know it's sort are locked up in another 0:07:01.000 --> 0:07:04.680 trial this week with the DJ over competition concerns. So 0:07:04.800 --> 0:07:08.280 these these these challenges really are mounting up around the globe. 0:07:08.960 --> 0:07:11.760 So put it all together. So I guess that's a 0:07:11.760 --> 0:07:12.160 great point. 0:07:12.440 --> 0:07:15.920 What's on the dock at court wise for big tech 0:07:15.960 --> 0:07:17.680 in Europe, and then what's on the dock at big 0:07:17.720 --> 0:07:19.920 tech wise in the US. And do have like a 0:07:19.960 --> 0:07:22.520 spreadsheet that sort of outlines everything? So I honestly can't 0:07:22.600 --> 0:07:24.800 keep track, and also like what the money is associated with. 0:07:24.760 --> 0:07:25.160 All of it? 0:07:26.040 --> 0:07:28.360 Yeah, yeah, We've got quite a few spreadsheets. I do 0:07:28.480 --> 0:07:31.400 have one wide track all the ones that are in Europe. 0:07:31.440 --> 0:07:33.480 And if you look at Europe, what's I say that 0:07:33.520 --> 0:07:36.080 we've moved on from that is because after these these 0:07:36.120 --> 0:07:40.280 regulations or sorry, these litigations were started five, six, seven 0:07:40.320 --> 0:07:42.960 years ago, what the Europegian Commission did is they went 0:07:42.960 --> 0:07:45.040 back and they rewrote some rules where they said, we're 0:07:45.040 --> 0:07:47.080 going to make it easier to really go after some 0:07:47.160 --> 0:07:49.920 of these anti competitive practices that we're seeing. And that's 0:07:49.960 --> 0:07:51.840 why we have the Digital Markett Act, That's why we 0:07:51.920 --> 0:07:54.960 now have the Digital Services Act, and we already see 0:07:55.040 --> 0:07:58.280 under the DMA that there are some probes facing both 0:07:58.640 --> 0:08:01.560 Apple and Google Google for sort of similar practices that 0:08:01.600 --> 0:08:04.240 were at issue here, where it was alleged to have 0:08:04.360 --> 0:08:07.760 abused its dominant position and search to elevate its own 0:08:07.840 --> 0:08:11.760 products over the products of peers. It's already facing investigation 0:08:11.800 --> 0:08:16.040 for that. Apple's facing two DMA probes, both related to 0:08:16.080 --> 0:08:19.000 that store, and I think these ongoing have brying more 0:08:19.000 --> 0:08:21.960 of an operational risk because they really could go to 0:08:22.040 --> 0:08:25.360 how these companies are currently operating, not just sort of 0:08:25.400 --> 0:08:29.880 this backwards looking financial penalty thing that we saw today. 0:08:30.120 --> 0:08:31.680 Then if you look at the US, so of course, 0:08:31.720 --> 0:08:34.520 I think the biggest thing facing Google right now is 0:08:34.559 --> 0:08:38.400 this DOJ lawsuit that is going to trial this week 0:08:38.480 --> 0:08:41.520 based on its ad stack. So I think that could 0:08:41.600 --> 0:08:45.520 have some really profound ramifications for the company, not just 0:08:45.600 --> 0:08:49.200 in terms of financial penalty, but really behavioral remedies, which 0:08:49.240 --> 0:08:52.040 is I think, moving forward, what could be the most 0:08:52.040 --> 0:08:53.679 frightening thing for a lot of these companies. 0:08:54.280 --> 0:08:58.920 Camlin is the UK view of big tech different than 0:08:58.960 --> 0:09:01.760 the EU? And reason asks now that obviously the UK 0:09:01.840 --> 0:09:04.400 is out of the EU, do they look at tech 0:09:04.400 --> 0:09:05.920 any differently than the European Union? 0:09:07.320 --> 0:09:11.080 Maybe there's some slight variations where they maybe trend slightly 0:09:11.200 --> 0:09:13.559 more towards the US, although I say that but US 0:09:13.600 --> 0:09:16.760 now is really fairly aggressive in their stance on big tech. 0:09:17.120 --> 0:09:21.720 But the UK doesn't really quite have the competition rules. 0:09:21.720 --> 0:09:24.640 But they also are saying that we're going to reevaluate 0:09:24.880 --> 0:09:27.880 how some of these rules are going to be applied 0:09:27.960 --> 0:09:31.160 against these big tech firms. So I think it's difficult 0:09:31.200 --> 0:09:34.280 to find any real safe haven in terms of a 0:09:34.280 --> 0:09:38.360 regulatory standpoint for these big tech companies, whether it's EU, 0:09:38.640 --> 0:09:40.680 UK or even increasingly the US. 0:09:41.240 --> 0:09:44.000 How do you handicap all of this within say valuations 0:09:44.080 --> 0:09:45.439 or how you model the stock. 0:09:46.679 --> 0:09:49.959 I honestly think a lot of investors have a little 0:09:49.960 --> 0:09:53.200 bit of regulation fatigue when it comes to this. This 0:09:53.320 --> 0:09:56.439 is by no means a new story, especially if you 0:09:56.480 --> 0:10:00.120 look at how the EU has been going after the 0:10:00.120 --> 0:10:04.280 these dominant firms for over a decade now, and I 0:10:04.320 --> 0:10:06.320 can't say when you look at them you can see 0:10:06.360 --> 0:10:09.439 really a loosening of their grip on the markets here. 0:10:09.480 --> 0:10:13.000 So I do think in many ways that the investors 0:10:13.040 --> 0:10:16.200 are sort of shrugging off these actions. And I think, 0:10:16.280 --> 0:10:19.680 you know, especially when you look at the the increasing 0:10:19.960 --> 0:10:23.160 trials that we're having, that we actually could see some 0:10:24.000 --> 0:10:29.120 huge sort of landmark litigations coming out, So it's definitely 0:10:29.200 --> 0:10:31.560 something to keep an eye on, even though we've been 0:10:31.559 --> 0:10:33.439 seeing it for years and years and years. 0:10:33.520 --> 0:10:35.840 All right, Tamlin and Apple stockdown about eight tenths of 0:10:35.920 --> 0:10:40.400 one percent. Tamlin Basson joining us Bloomberg Technology a technology analyst. 0:10:41.800 --> 0:10:45.679 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:10:45.760 --> 0:10:48.400 weekdays at ten am Eastern on Apple, car Play and 0:10:48.640 --> 0:10:51.480 rout Otto with the Bloomberg Business app. Listen on demand 0:10:51.520 --> 0:10:55.839 wherever you get your podcasts, or watch us live on YouTube. 0:10:56.960 --> 0:10:59.360 Alex Deal Paul Sweeney live here in our Bloomberg Directive 0:10:59.360 --> 0:11:02.360 Brokers studio. We're also streaming live on YouTube as well. 0:11:02.920 --> 0:11:07.040 I've been a loyal BMW customer for probably twenty five 0:11:07.160 --> 0:11:10.120 thirty years, currently driving the X three, which is the 0:11:10.160 --> 0:11:13.120 best vehicle I've ever driven. Period. Not a good day 0:11:13.160 --> 0:11:16.400 however for the stock of BMW down eleven percent today. 0:11:16.720 --> 0:11:20.640 That's the most since March sixteenth, twenty twenty, just the 0:11:20.640 --> 0:11:22.520 beginning of the pandemic, and it's the lowest since twenty 0:11:22.520 --> 0:11:25.199 twenty one. So tough times out there for BMW. Let's 0:11:25.240 --> 0:11:27.560 get the latest of what's happening with them. Michael Dean, 0:11:27.640 --> 0:11:31.040 head of Global Autos of Bloomberg Intelligence, joins us from 0:11:31.320 --> 0:11:35.280 London via zoom. Michael, what's going on with BMW today? 0:11:35.320 --> 0:11:38.560 I saw that they took their earnings forecast down. What's 0:11:38.640 --> 0:11:39.200 driving that? 0:11:40.480 --> 0:11:43.320 So BMW had a profit warning today and that was 0:11:43.400 --> 0:11:46.760 partly on the back of a warranty issue has with 0:11:46.920 --> 0:11:49.960 its breaks not on the xtreet. So you're fine, Paul, good, 0:11:50.800 --> 0:11:53.120 but they're going have to recall one point five million 0:11:53.760 --> 0:11:57.240 vehicles and that's going to cost a high three digits 0:11:57.720 --> 0:12:00.280 million in terms of earnings for twenty twenty four. But 0:12:00.320 --> 0:12:02.679 that doesn't tell the whole story because they've downgraded their 0:12:02.720 --> 0:12:05.320 margin by about two hundred basis points, which is about 0:12:05.320 --> 0:12:07.960 two billion of v bits. So the balance of that 0:12:08.040 --> 0:12:13.240 is coming from we could China sales, lower pricing in Europe, 0:12:13.360 --> 0:12:16.360 lower demand in Europe. So just the demand and pricing 0:12:16.400 --> 0:12:19.360 environment globally has been very difficult and that's part of 0:12:19.360 --> 0:12:21.480 the reason for the profit warning, which. 0:12:21.280 --> 0:12:22.719 Then leads us to Volkswagen. 0:12:22.800 --> 0:12:25.000 So the latest news today is that it's ending its 0:12:25.040 --> 0:12:27.559 job protections for autoworkers in Germany as part of its 0:12:27.559 --> 0:12:29.160 cost cutting push. 0:12:29.320 --> 0:12:30.240 There are several. 0:12:29.920 --> 0:12:32.280 Agreements that were linked to a three decades old pack 0:12:32.320 --> 0:12:35.000 that was supposed to safeguard employment un till twenty twenty nine, 0:12:35.040 --> 0:12:36.720 but now those guarantees are going to run out by 0:12:36.720 --> 0:12:38.480 the middle of next year. 0:12:39.240 --> 0:12:42.880 I mean, wow, yeah. 0:12:43.080 --> 0:12:45.520 So you know, Volkswagen was in the news last week 0:12:45.600 --> 0:12:48.400 because it said it needs to close half a million 0:12:48.480 --> 0:12:53.040 units of capacity in Germany. So that's very difficult because 0:12:53.080 --> 0:12:55.720 of workers' rights. And you know, worker's rights have been 0:12:55.800 --> 0:12:58.959 very one sided for Volkswagen in particular because you have 0:12:59.040 --> 0:13:01.840 VW law and this is where twenty percent of the 0:13:02.000 --> 0:13:05.199 ordinary shares, the voting shares are owned by the States 0:13:05.200 --> 0:13:08.679 of Lower Saxony, which is where Volkswagen's biggest battery is, 0:13:08.800 --> 0:13:12.120 and funnily enough, and they have the ability to block 0:13:13.040 --> 0:13:18.720 certain agreements. So worker's rights are very strong for Volkswagen employees. 0:13:18.920 --> 0:13:20.920 And now I think management are saying, Okay, hold on 0:13:21.040 --> 0:13:24.520 a minute. The automotive world's changing rapidly. We need to 0:13:24.559 --> 0:13:27.160 do something to reduce costs, and part of that is 0:13:27.200 --> 0:13:29.360 the close factories and reduce jobs. 0:13:30.240 --> 0:13:32.680 Michael, give us it just a thirty thousand foot view 0:13:32.679 --> 0:13:35.120 of kind of the global auto business here. I mean, 0:13:35.240 --> 0:13:38.040 the weakness that you're seeing in Europe. The weakness you're 0:13:38.040 --> 0:13:42.400 seeing in China. Is that just general economic weakness effect 0:13:42.640 --> 0:13:44.440 that we've seen in past cycles or is this something 0:13:44.480 --> 0:13:48.640 to do with this ongoing transition to electric vehicles. 0:13:49.320 --> 0:13:51.400 Yeah, it's a bit of both. So you know, you 0:13:51.440 --> 0:13:54.440 have the transition to battery electric vehicles. It's going much 0:13:54.480 --> 0:13:58.640 slower than expected in Western markets. Other markets probably going 0:13:58.720 --> 0:14:01.920 quicker than expected, such as China. But the problem Volkstagener 0:14:01.960 --> 0:14:04.800 has is that the competition is so intense and has 0:14:05.240 --> 0:14:08.319 overtaken them in China, such as BYD So Volkswagen a 0:14:08.360 --> 0:14:10.600 couple of years ago was the market leader in China. 0:14:10.920 --> 0:14:14.520 Now byd within two years has overtaken Volkswagen, and really 0:14:14.559 --> 0:14:16.760 it's going to be a survival of the fittest in 0:14:17.080 --> 0:14:17.800 these markets. 0:14:18.080 --> 0:14:20.920 Well, I mean, these companies aren't going to go under 0:14:21.000 --> 0:14:23.160 or anything, right, So I guess I'm wondering when the 0:14:23.200 --> 0:14:23.760 trough is. 0:14:23.800 --> 0:14:26.240 When do we know what is a trough actually going 0:14:26.280 --> 0:14:26.800 to look like? 0:14:27.760 --> 0:14:30.000 Well, you say, well, a lot of companies could could 0:14:30.080 --> 0:14:32.880 go under, particularly the pure play battery electric vehicles. 0:14:33.680 --> 0:14:35.800 I just meant that, like Germany's not gonna let Bolkswagen 0:14:35.840 --> 0:14:36.840 go bankrupt. 0:14:37.640 --> 0:14:40.120 Now, of course, and the interesting thing if you look 0:14:40.120 --> 0:14:43.520 at the valuation of Volkstagen today is valued at forty 0:14:43.520 --> 0:14:46.720 five billion euros. I've had a lot of clients talk 0:14:46.760 --> 0:14:49.320 to me about this today. They have almost forty billion 0:14:49.320 --> 0:14:51.680 of cash on the balance sheet, there's seventy five percent 0:14:51.720 --> 0:14:55.960 stake in Porsche is worth forty five billion euros. They 0:14:56.040 --> 0:15:00.400 own Lamborghini brands, which has higher probability rates that Ferrari, 0:15:00.440 --> 0:15:03.200 which is currently value at seventy seven billion, So we 0:15:03.240 --> 0:15:06.440 think Lamborghini's worth thirty billion to use a Ferrari valuation. 0:15:06.720 --> 0:15:07.800 So there's some of the parts. 0:15:07.800 --> 0:15:12.320 Is volksg is huge compared to the actual valuation at 0:15:12.360 --> 0:15:13.400 Volkswagen at the moment. 0:15:13.960 --> 0:15:17.840 So you highlight an area for me that just kind 0:15:17.840 --> 0:15:19.720 of feels like a long term issue, which is China. 0:15:20.240 --> 0:15:22.880 I mean, if you they spend decades they being any 0:15:22.920 --> 0:15:27.880 auto company, Volkswagen, BMW, Mercedes, whatever, building brand value and 0:15:27.920 --> 0:15:30.520 brand loyalty in a market like China, and in a 0:15:30.520 --> 0:15:33.760 period of two years they've lost that, it seems like, 0:15:34.160 --> 0:15:36.920 I mean, is that the real barish case for some 0:15:36.960 --> 0:15:38.240 of these global auto companies. 0:15:39.440 --> 0:15:40.880 It's a it's a big case. 0:15:40.920 --> 0:15:43.640 So for the German automakers In the past few years, 0:15:43.880 --> 0:15:47.040 China was the most profitable market, accounted for thirty five 0:15:47.080 --> 0:15:49.520 to forty percent of their profits. Now this year it 0:15:49.560 --> 0:15:52.560 could be as low as ten percent, and you know 0:15:52.640 --> 0:15:55.080 what the market's pricing is is that could be zero 0:15:55.120 --> 0:15:59.040 in the future. And that's because the technology changing and 0:15:59.120 --> 0:16:02.960 the way that startups in China are pushing through so quickly. 0:16:04.000 --> 0:16:06.000 They're really fighting for market share at the moment and 0:16:06.000 --> 0:16:06.640 their future. 0:16:07.520 --> 0:16:10.000 So then it goes back to my question, what does 0:16:10.200 --> 0:16:14.040 the bottom for either US car companies or for European 0:16:14.080 --> 0:16:17.480 car companies wind up looking like as the tariff's go 0:16:17.560 --> 0:16:21.320 into place, as China keeps producing these really cheapvs, as 0:16:21.360 --> 0:16:23.760 we have different restrictions here in the US, like what 0:16:23.920 --> 0:16:24.240 is that? 0:16:25.440 --> 0:16:27.320 Well, you look at what GM and Ford have done. 0:16:27.360 --> 0:16:30.480 I mean, in particulate, it's looked at different markets and 0:16:30.480 --> 0:16:32.680 if it's not profitable, it's pulled out at those markets. 0:16:32.800 --> 0:16:36.360 So China's one example, Europe's another example. So it's whether 0:16:36.480 --> 0:16:39.560 the German automakers take a view that can they be 0:16:39.640 --> 0:16:43.560 profitable in China in the future, And many foreign carmakers 0:16:43.560 --> 0:16:46.000 are saying no. Volksfagen at the moment is saying yes, 0:16:46.040 --> 0:16:48.720 we can and they've got this long term plan and 0:16:48.720 --> 0:16:54.200 they've invested in xpaying so hopefully accelerate their transition. But 0:16:54.240 --> 0:16:56.640 it's going to be very, very difficult for foreign carmakers 0:16:56.640 --> 0:16:59.000 to continue to make profits in China. 0:17:00.000 --> 0:17:03.360 I mean again, it feels like is there an even 0:17:03.440 --> 0:17:06.200 discussion on whether they should be there at some point. 0:17:07.119 --> 0:17:11.280 Certainly within the market, but for the company itself that 0:17:11.320 --> 0:17:15.720 they've invested heavily in China and they've got a plan 0:17:15.840 --> 0:17:18.439 now to try and catch up with local producers, to 0:17:18.480 --> 0:17:22.320 catch up with BYD, which is with this partnership with xpang. 0:17:22.680 --> 0:17:25.480 So they think they've got an opportunity because they've got 0:17:25.480 --> 0:17:27.120 a good brand in China. 0:17:27.160 --> 0:17:28.880 But it's going to be very tough. I mean, pricing 0:17:29.080 --> 0:17:30.360 in China is. 0:17:30.720 --> 0:17:33.480 Really really competitive at the moment, so the point where 0:17:33.680 --> 0:17:37.399 battery electric vehicles are actually priced below internal combustion in 0:17:37.359 --> 0:17:40.040 the vehicles compared to that to Europe, where the average 0:17:40.160 --> 0:17:43.679 battery electric vehicle is thirty five percent higher than a 0:17:43.840 --> 0:17:46.399 ice vehicle, and they still can barely make a profit 0:17:46.440 --> 0:17:46.959 in Europe. 0:17:47.000 --> 0:17:48.760 So yeah, it's a very tough environment. 0:17:49.040 --> 0:17:51.400 Yeah, and then they'll have ev factory there, but then 0:17:51.520 --> 0:17:53.640 all of a sudden you're looking at potential losses then 0:17:53.680 --> 0:17:55.400 for workers in actual Germany. 0:17:55.480 --> 0:17:56.639 A really interesting story. 0:17:56.680 --> 0:17:59.520 Thank you very much, Michael Dean and joining us from 0:17:59.600 --> 0:18:00.720 bloom Intelligence. 0:18:02.160 --> 0:18:06.080 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:18:06.160 --> 0:18:09.640 weekdays at ten am Eastern on applecard Play and Android 0:18:09.680 --> 0:18:12.480 Otto with the Bloomberg Business App. You can also listen 0:18:12.600 --> 0:18:15.680 live on Amazon Alexa from our flagship New York station, 0:18:16.040 --> 0:18:20.000 Just say Alexa playing Bloomberg eleven thirty. 0:18:20.560 --> 0:18:23.960 It's September, which means it's conference time. It's also time 0:18:23.960 --> 0:18:26.679 to talk about the hedge fund business. I'm not buying it, 0:18:26.720 --> 0:18:28.800 per se. I'm not a fan of the hedge fund business. 0:18:28.840 --> 0:18:30.600 I think the model's broken. I think it was broken 0:18:30.600 --> 0:18:32.600 in the mid two thousand's. That's just my personal opinion. 0:18:32.800 --> 0:18:35.320 Donald Steinberger joints us here. He's founder and CEO of 0:18:35.400 --> 0:18:39.399 Agecroft Partners. I know the term Agecroft. That's from Richmond, Virginia, 0:18:39.640 --> 0:18:41.520 and that's where he's based on a Richmond, which is 0:18:41.560 --> 0:18:44.480 one of my fall time favorite towns. My twins are 0:18:44.520 --> 0:18:46.680 born there, I went to school down there, great town. 0:18:47.080 --> 0:18:50.600 Don I think those whole hedge fund games is scam. 0:18:50.680 --> 0:18:52.680 But tell me about what's going on in the hedge 0:18:52.680 --> 0:18:55.720 fund business in terms of can people raise capital? Are 0:18:55.720 --> 0:18:58.040 they what's the state of the hedge fund business these days? 0:18:58.040 --> 0:18:59.719 Well, first of all, it's great to be back, and 0:18:59.800 --> 0:19:01.680 I think it's probably going to take a couple more 0:19:01.720 --> 0:19:04.359 interviews before I finally get you to buy into hedge funds, 0:19:04.359 --> 0:19:06.040 but it's going to happen. You're moving, you know a 0:19:06.080 --> 0:19:09.119 little bit each time. You know, hedgehont industry is pretty strong. 0:19:09.160 --> 0:19:11.159 I started an industry in two thousand and one. It 0:19:11.200 --> 0:19:15.600 was six hundred billion industry. It's now five trillion. The 0:19:15.680 --> 0:19:18.400 market is pretty saturated, meaning when you look at who's 0:19:18.440 --> 0:19:22.400 investing in hedge funds, pensions and Downmans, foundations, softoign wealth funds, 0:19:22.640 --> 0:19:24.399 the ones that are going to invest in hedge funds 0:19:24.400 --> 0:19:27.600 tend to be pretty fully allocated. So you're not really 0:19:27.600 --> 0:19:30.720 seeing growth from an inflow standpoint. As matter of fact, 0:19:30.720 --> 0:19:32.840 you've had a little bit of money come out of 0:19:32.880 --> 0:19:36.840 the industry, but the industry has grown significantly because of performance. 0:19:36.880 --> 0:19:39.520 For example, you know, year to date, the hedgehont industry 0:19:39.560 --> 0:19:42.560 is up seven point five percent. In addition to that, 0:19:42.640 --> 0:19:47.240 it's a great business to raise assets because you have 0:19:47.400 --> 0:19:51.399 huge divergence in performance between strategies and managers. There's always 0:19:51.400 --> 0:19:54.240 people getting fired. Average person owns a hedge fund for 0:19:54.359 --> 0:19:57.680 five years means twenty percent of the industry turns over 0:19:58.080 --> 0:20:01.959 trillion dollars to be had. But it's still difficult because 0:20:02.520 --> 0:20:05.040 ninety percent of assets are going to five percent of managers. 0:20:05.080 --> 0:20:08.040 Wow, So what kind of strategies work right now? 0:20:08.760 --> 0:20:11.040 Well, the one with the biggest demand right now is 0:20:11.440 --> 0:20:14.560 long short equity. And long short equity went through a 0:20:14.600 --> 0:20:17.199 real laughing at you right now, just yeah, a really 0:20:17.280 --> 0:20:20.920 long period where people just hated it. I mean, last decade, 0:20:20.960 --> 0:20:24.640 money just kept coming out and their performance was under 0:20:24.680 --> 0:20:26.679 the S and P five hundred over and over and 0:20:26.720 --> 0:20:29.639 over again, and a lot of people said, hey, you 0:20:29.720 --> 0:20:31.639 put all your money in the S and P five hundred, 0:20:31.640 --> 0:20:33.639 and what has that done. It's driven the S and 0:20:33.680 --> 0:20:36.800