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Speaker 1: This is Bloomberg Survebaiby's. So much of what's going on

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Speaker 1: right now is financial engineering. It's issuing really really low

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Speaker 1: cost debt. It's fine back shares. I think Left will

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Speaker 1: continue to be more lower. Cupon better quality issues will

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Speaker 1: continue to outperform the Dickie Elders. Now we're getting worried

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Speaker 1: off stock tumble seven or eight percent here today. We're

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Speaker 1: just more evily alarmed than we used to be for

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Speaker 1: some rail Bloomberg Surbaiby's your link to the world of economics,

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Speaker 1: finance and investment on Bloomberg Radio. Good morning. I'm Michael McKay.

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Speaker 1: It is seven am on Wall Street noon in the

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Speaker 1: city where London currency traders are very happy. It is

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Speaker 1: time to get out from under their desks and go

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Speaker 1: out to get something to eat. The pound a falling

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Speaker 1: knife this morning on Brexit concerns. Right now the pound

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Speaker 1: down more than two tom after Boris Johnson, the mayor

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Speaker 1: of London, Lord may here I guess they call him,

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Speaker 1: came out and said he would campaign four leaving the

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Speaker 1: European Union. So it's going to be an interesting campaign.

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Speaker 1: He head June. Sir Michael, it's it's here and shout

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Speaker 1: out to Francis laquix who like what ninety days ago,

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Speaker 1: a hundred days ago, was going brexit brexit and I'm

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Speaker 1: like you, no, I don't, I don't want there for breakfast,

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Speaker 1: And you know she was dead on. We're gonna have

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Speaker 1: a lot to talk. As if the world needed something

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Speaker 1: else to worry about. Now we've got this for a

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Speaker 1: couple of months. For equity investors, though, here's what you

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Speaker 1: need to know. West Texas one is up four percent,

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Speaker 1: Brent crude thirty thirty two is up four percent. Because

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Speaker 1: the correlation to equity markets is strong. This morning, the

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Speaker 1: stock six hundred up five points one and a half percent,

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Speaker 1: the docks up a hundred and eighty two points two

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Speaker 1: percent today. That is even though Market Economics Composite p

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Speaker 1: m I felt the fifty two point seven lowest in

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Speaker 1: more than a year. European economy is still growing but slowly.

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Speaker 1: In the US were being pushed higher by oil prices.

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Speaker 1: SMP Emni features up twenty two points one point one percent,

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Speaker 1: dowie mean he's a hundred and eighty six points one

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Speaker 1: point one percent, and Nasdaq e menies are up fifty

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Speaker 1: one points that's one point two percent. Bond yields in

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Speaker 1: the US and most of Europe are higher this morning.

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Speaker 1: Your tenure one point seven eight UH five year goes

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Speaker 1: for one point to seven percent, and we're at seventy

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Speaker 1: eight basis points for the two year. The German two

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Speaker 1: year negative fifty three basis points. You're you can probably

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Speaker 1: guess that across the curve they are lower. In the UK,

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Speaker 1: gold getting hammered this morning, down twenty six points two

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Speaker 1: point one percent, six dollars That Rich corrects me, You

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Speaker 1: are absolutely correct, U twenty six dollars two point one percent.

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Speaker 1: Speaking of hammered. Thanks stocks the KBW bank index down

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Speaker 1: sixteen point seven percent so far this year. Joining us

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Speaker 1: this morning, Brad hints he was for years, of course,

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Speaker 1: the top bank analy down Wall Street at Sanford Bernstein.

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Speaker 1: Now he has retired. He is teaching at n y U.

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Speaker 1: You are teaching managing financial businesses. I understand the second

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Speaker 1: year NBA students, and I would imagine that the way

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Speaker 1: you manage a financial business now is a whole lot

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Speaker 1: different from when you got into the business. Absolutely, you

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Speaker 1: teach an awful lot more about regulation and UH and

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Speaker 1: and living within regulation and then the other thing you

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Speaker 1: have to remember is that even to NBA students, the

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Speaker 1: financial crisis is ancient history. Well, it just shows how

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Speaker 1: old we are. But is it regular? I mean the

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Speaker 1: returns on banks have been terrible? Is it regulation? Is it?

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Speaker 1: They're not making their cost the capital? Is Is it

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Speaker 1: because the government is weighing on them? Well? I mean

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Speaker 1: mathematically you can you can run the numbers and say,

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Speaker 1: you know, look at the change in the capital base

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Speaker 1: and and and leverage of the banks, and that that

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Speaker 1: explains an awful lot of the r o E change,

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Speaker 1: But awful a lot of it is also the the

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Speaker 1: business models are changing. You know, fixed income, fixed income

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Speaker 1: remains the problem child, right, and fixed income was a

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Speaker 1: business of taking risk you know, you're no longer allowed

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Speaker 1: to take risk now, whether that is because for regulatory

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Speaker 1: guidance as of Europe right, or vulcar as in the

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Speaker 1: United States. We that big piece of the business is

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Speaker 1: still generating very very low turns, dragging down the returns.

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Speaker 1: There's so good businesses, right, I mean, you know, if

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Speaker 1: you look at the capital markets businesses now, M and

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Speaker 1: A and equity underwriting, wonderful businesses, right, you know, those

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Speaker 1: are still very very profitable businesses for the banks. But

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Speaker 1: the mixes are all are all wrong and that's what's

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Speaker 1: pulling there are there are always down. Well, I know

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Speaker 1: Tom wants to get him, and let me ask one

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Speaker 1: more quick question Tom, and that is, so, are we

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Speaker 1: seeing a reset in what the value of the businesses

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Speaker 1: is and that's why stocks going down? Or is it

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Speaker 1: people don't believe these businesses are good businesses. You're saying

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Speaker 1: they are, well, some of them are, um and and

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Speaker 1: so what we what we have with investors is you

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Speaker 1: remember it's been six years since since they've beaten their

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Speaker 1: cost of capital, right and um and there there was

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Speaker 1: a survey came out in December that of all the

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Speaker 1: major institutional investors around the world, they what was surprising

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Speaker 1: about this is across the group Europa, Asian, North America,

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Speaker 1: none of the investors believed that the banks were going

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Speaker 1: to be able to beat their cost of capital over

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Speaker 1: the next five years. And that says that regulation hasn't changed, right,

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Speaker 1: I mean regulation changes, capital keeps going up, uh C.

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Speaker 1: Car stress become harder, and the banks can't adjust their

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Speaker 1: business models fast enough to the changing regulations. If you

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Speaker 1: think about a two thousand nine. We would expected that

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Speaker 1: new regulations would come out, we'd have a new a new,

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Speaker 1: new level playing field. Hasn't turned out to be that way.

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Speaker 1: Fred hands with us with the New York University Futures

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Speaker 1: features up one seventy nine Bloomberg Surveillance brought to you

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Speaker 1: this Monday by Investco. In Vesco believes it's time to

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Speaker 1: bench the benchmarks and consider active management and factor based strategies.

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Speaker 1: Find out more investco dot com slash high conviction bread

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Speaker 1: I got like eight ways to go here. Let me

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Speaker 1: start with a two charts over the Wall Street Journal.

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Speaker 1: I think it was last week, which is basically the

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Speaker 1: bigger too big to failed banks are bigger than they

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Speaker 1: were x the number of years ago, and that some

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Speaker 1: of them are actually minting money. There is, however, say,

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Speaker 1: and I don't mean to pick up Mr Corbett, but

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Speaker 1: City Group with a ten for one reverse split is

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Speaker 1: trading before the reverse but it's three dollars nineties cents

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Speaker 1: per share and basically hasn't been able to get out

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Speaker 1: of its own way for seven years. Is that a

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Speaker 1: going concern? Um? I had an executive at Moodies in

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Speaker 1: my class who said City is the most difficult bank

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Speaker 1: to manage, simply because it's everywhere around the world and

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Speaker 1: it's in all these businesses. So let's give manage to

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Speaker 1: benefit of the doubt that day that this is a

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Speaker 1: this is a tough machine to run. They're strong and

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Speaker 1: certain parts of the world there they don't have quite

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Speaker 1: the retail business in the States. We've seen the retail

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Speaker 1: business is not a bad business to be in and banking, right,

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Speaker 1: that's there, you can you can make money. Okay, Then

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Speaker 1: to rip up the script here will they expense away

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Speaker 1: the retail business as well in their desperation to cut costs. Well,

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Speaker 1: they're cutting costs in there, and you're seeing them target areas.

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Speaker 1: You know, we're gonna be bigger in Asia. That's gonna

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Speaker 1: be our it's going to be one of our strengths,

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Speaker 1: right and we're you know, we're we're going to They

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Speaker 1: don't want to back away from capital markets. So part

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Speaker 1: of this is is there's a reluctance to give up

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Speaker 1: on some of those businesses that are pulling down. Like

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Speaker 1: I open a bank account this weekend over by Columbus Circle.

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Speaker 1: I had to give them a toaster well as banks

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Speaker 1: trying to figure out what to do. Are we seeing

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Speaker 1: them go into different businesses city You're saying, focus on Asia,

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Speaker 1: who's in the banking supermarket business for the long haul,

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Speaker 1: that that's a business model, that that that probably isn't

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Speaker 1: going to uh it. Well, you can look at JPM

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Speaker 1: and say JPM is is is well positioned in terms

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Speaker 1: of it. But the question about the supermarket is it

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Speaker 1: does it doesn't work? Um, the cross selling, right, because

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Speaker 1: that's the argument, and you know, I can I can

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Speaker 1: put myself in the position of having been a corporate treasurer, right,

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Speaker 1: cross selling simply doesn't work, and it it doesn't work

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Speaker 1: for a very simple reason. You know, the the loans

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Speaker 1: are done by the corporate treasure M and a is

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Speaker 1: done by the CFO and the CEO. So how do

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Speaker 1: you cross sell between when when the decision makers are

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Speaker 1: different players? And so the idea that I can take

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Speaker 1: a retail checking account and turn that into a wealth

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Speaker 1: management account, that's pretty tough to do. And and yet

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Speaker 1: that's what the banks have tried over the years. You

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Speaker 1: bring up wealth management and I find that interesting because, um,

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Speaker 1: coming out of the financial crisis, UBS when whole hog

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Speaker 1: to that business and it seems like everybody is following

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Speaker 1: that model that Barclays wants to be big in wealth management.

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Speaker 1: Credit Suee says, well, we're getting out of investment banking

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Speaker 1: and we're going to concentrate on wealth management. Are there

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Speaker 1: enough wealth wealthy people to manage their money where all

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Speaker 1: these banks can make money in that business wealth You're

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Speaker 1: you're you, You're absolutely right. There's a there's a limit

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Speaker 1: to all the wealthy people in the world if everybody

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Speaker 1: goes after it. But to me, the the issue is

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Speaker 1: many of these banks that are doing me too write,

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Speaker 1: I mean ubs can become largely an asset management firm.

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Speaker 1: They had a large enough asset management business that if

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Speaker 1: they shrink their their their capital markets business, there are

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Speaker 1: always go up and they and and it's a successful strategy.

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Speaker 1: If you don't have an asset management business, saying that

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Speaker 1: you're going into asset management isn't going to offset that

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Speaker 1: that that that drag of a fixed income business that's

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Speaker 1: pulling down your performance. So a lot of this is,

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Speaker 1: you know, Morgan Stanley was able to pull off what

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Speaker 1: they did because they bought City Smith Barney business. When

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Speaker 1: you put them to other you ended up with a

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Speaker 1: wealth management business. Roughly half the firm, So Morgan Stanley

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Speaker 1: has reduced its reliance on the capital markets business. On

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Speaker 1: that Denovo builds. That's we're talking decades to build something

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Speaker 1: like that, and I'm not certain that the that that

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Speaker 1: the the the investors are willing to to to take

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Speaker 1: that long, long time frame. We've got lots to talk

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Speaker 1: about bread hints with us in the future of your

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Speaker 1: Wall Street will continue this discussion. I also want to

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Speaker 1: talk to about the scope and scale a big banking

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Speaker 1: and scope and scale that I think we lose touch

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Speaker 1: with mostly each and every day. I want to go

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Speaker 1: right to the nuance of the screen this morning, which

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Speaker 1: is curved flattening. Yields are higher, equities up, futures up

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Speaker 1: twenty one, but the two stents spread is flattened out

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Speaker 1: by a solid seven basis points. This morning, this hour

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Speaker 1: of surveillance is brought to you by Mazda White Planes.

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Speaker 1: Visit Masda white Plains dot com. John Tucker has our

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Speaker 1: news headlines Job Michael and Tom. Apple CEO Tim Cook

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Speaker 1: says the US government should withdraw its demand that Apple

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Speaker 1: healthy FBI hack a locked I phone used by the

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Speaker 1: shooter in the San Bernardino attack. In an early morning

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Speaker 1: email to employees and an online post, Cook is dismissing

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Speaker 1: the government's claims that company is acting out of business interest.

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Speaker 1: He says that Congress should form a commission to discuss

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Speaker 1: the implications suspect to the shooting rampage in Kalamazoo, Michigan

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Speaker 1: that left six people Dad expected to be ragined today

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Speaker 1: on murder charges. Please say Jason Dalton seemed to choose

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Speaker 1: his victims at random. He has no criminal record, and

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Speaker 1: with Jeff Bush's departure from the presidential race on Saturday,

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Speaker 1: a mighty fundraising army scattered. The question now facing the troops,

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Speaker 1: pick another side or retreat. Most bushed loyalist contacted Sunday

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Speaker 1: say they were preparing to support Marco Rubio. Global News

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