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Speaker 1: Yea. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Roberts

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Speaker 1: Shower with US of Yale University. He is a laureate

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Speaker 1: in this that in about fourteen other things as well. John,

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Speaker 1: I thought we'd wander into the land of tariffs, and

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Speaker 1: now that folds over into a national agony on wage growth.

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Speaker 1: What's actually quite interesting as the President has actually scored

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Speaker 1: his first win without much media coverage on on trade,

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Speaker 1: a revamped trade deal with South Korea. Maybe small at

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Speaker 1: the marching, but you do wonder whether this approach of

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Speaker 1: this administration can generate results. Professor Schiller Cannon, Well, he's

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Speaker 1: got people intimidated, and I think that it has an

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Speaker 1: effect on the negotiations. I mean, it may have a

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Speaker 1: positive effect in other area like North Korea. The you know,

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Speaker 1: he comes across as a kind of unpredictable, aggressive guy,

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Speaker 1: and I think he does know something about negotiating. Isn't

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Speaker 1: that a really good point that professor should have that

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Speaker 1: maybe some people are missing that the approach towards China

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Speaker 1: over the last twenty years hasn't resulted in any significant

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Speaker 1: opening up of the Chinese economy under pressure just through

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Speaker 1: talks that this is probably the way to do it,

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Speaker 1: using a stick rather than a carrot. Well, I don't know.

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Speaker 1: It's not my personality. I feel unfamiliar territory to me,

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Speaker 1: but I I think that a good relationship with these

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Speaker 1: countries is also very important, and we're suffering from that

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Speaker 1: right now. I was just in China last week. In

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Speaker 1: the sense that I got was these these aggressive measures

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Speaker 1: are are generating some anger and hostility. The anger and hostility, Professors,

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Speaker 1: you've written in Finance and the Good Society and any

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Speaker 1: of your other efforts is a societal scream in America.

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Speaker 1: All of our listeners know this. The haves and they

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Speaker 1: have nuts. Paul Krugman yesterday dropped on us that concept

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Speaker 1: of your classes. Monopsony, which is a dominant coal mine

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Speaker 1: minor in a coal mining town is the only employer,

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Speaker 1: or maybe a rubber plantation in Malaysia where there's one

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Speaker 1: rubber plantation in a lot of workers, is America's agony

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Speaker 1: here on trade actually about the monopsony of American business

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Speaker 1: where they almost can't raise wages because of the dominance

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Speaker 1: of select businesses and industries. I thought you were going

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Speaker 1: to refer to our trade policy as exploiting monopson moment.

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Speaker 1: We may be exploiting it in other countries. But is

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Speaker 1: the agony that brings us to this trade debate because

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Speaker 1: of a lack of wage growth in America partly from

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Speaker 1: monopsimistic tendencies. Uh, there has definitely been a lack of

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Speaker 1: wage growth. Is it because monopximistic power has increased? Uh?

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Speaker 1: I don't I tend to that. It's undoubtedly a complicated story,

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Speaker 1: but I think of important reasons why wage growth hasn't

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Speaker 1: been inspiring. Is a technological replacement, labor saving devices and

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Speaker 1: be globalization which continues. Do they dwarf the trade debate?

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Speaker 1: I mean, when the president's trade deficits are bad, is

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Speaker 1: that discussion, whether it's constructive or not overwhelmed like technology? Yeah,

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Speaker 1: you know, the general notion that trade deficits are bad

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Speaker 1: is just not supported by economic theory trade. You know,

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Speaker 1: trade deficits A lot of people want to invest in

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Speaker 1: the US, so they that that helps finance the trade deficit.

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Speaker 1: I don't. I don't think it seems like President Trump,

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Speaker 1: in focusing so much on that measure is is misguided,

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Speaker 1: just as he is in not not respecting the World

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Speaker 1: Trade Organization, which is a outgrowth of the General Agreement

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Speaker 1: on Tariffs and Trade in that was a post World

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Speaker 1: War two, post depression, post World War two active enlightenment. Uh,

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Speaker 1: and now we're losing sight of that, Professor um trite

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Speaker 1: deficits can be a problem with that persistent drawn out

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Speaker 1: of over a long period of time. And if there

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Speaker 1: are a consequence of subsidies and protectionism, which which China

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Speaker 1: front and center, right right right, that's a problem. Well,

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Speaker 1: I think there are problems. I think Peter Navarro, who

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Speaker 1: is Trump's advisor, makes it into more of a war

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Speaker 1: type problem than uh. You know, there's there's there's there's

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Speaker 1: something to be said for respect for other nations. I

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Speaker 1: think we want China. I know it's it can be

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Speaker 1: played as a cheat on American business, but on the

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Speaker 1: other hand, we we do want China to prosper. That

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Speaker 1: ultimately helps international accord. And uh, we we're talking about

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Speaker 1: another massive nuclear power here. I think there could be

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Speaker 1: more balance in our relations. Thank you for the time.

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Speaker 1: To the Robert should University, We're housing free there. Next

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Speaker 1: time we'll beat him to death about the housing market.

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Speaker 1: One of the great engineering programs of America is the

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Speaker 1: University of Illinois Urbanish Champaign, and that is where she

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Speaker 1: was minted out of or she studied her thermodynamics and

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Speaker 1: also a little bit she probably quoted Python when she

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Speaker 1: was there. Eilean Bourbage uh joins us. She is a

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Speaker 1: course definitive within the United Kingdom tech space, with a

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Speaker 1: lot of experience with some of the tech giants over

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Speaker 1: the years. We now speak with engineer Eileen Bourbage. Um,

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Speaker 1: if you were to speak today II lean to the

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Speaker 1: leadership of a beleaguered American tech industry, what would you

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Speaker 1: say to them? Great question? Um. First of all, I

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Speaker 1: probably asked him if I could get any sort of

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Speaker 1: tips on on their future roadmaps. But I would then

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Speaker 1: probably try and advise them that now is a really

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Speaker 1: good sort of opportunity for them to really step up

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Speaker 1: and to really demonstrate that they've got mindfulness and consumer

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Speaker 1: sort of responsibility at the heart of what they do.

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Speaker 1: I think that's what people are wanting to see. I

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Speaker 1: think the markets are worried about you know, regulation or

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Speaker 1: overstepping from the regulators, and I really think the tech

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Speaker 1: leadership can actually thwart that. I think they can preempt

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Speaker 1: it if they sort of demonstrate and communicate that they're

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Speaker 1: thinking about these issues and that they're not taking them

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Speaker 1: too lightly. Do you look at them, is publicly traded

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Speaker 1: shareholder responsible managements or is there fiction of public ownership

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Speaker 1: so great that they're basically private venture capitalists using the

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Speaker 1: system while they do their tech stuff. I do think

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Speaker 1: not to be led too much by your great question,

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Speaker 1: but I do think they've probably been given a bit

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Speaker 1: of a path, and I think, you know, with these

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Speaker 1: sort of voting rights than the extraordinary sort of setups

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Speaker 1: that a lot of them have, they've benefited from not

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Speaker 1: having quite as much scrutiny from the markets and from

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Speaker 1: other shareholders as come on, they're not John crying over

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Speaker 1: at Deutsche Bank. I mean, that's what it comes, not

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Speaker 1: John cry at Deutsche Bank. Is Facebook delivered a return

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Speaker 1: of fifty on the I imagine it would be a

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Speaker 1: bit different from Mark Zuckerberg, and if he hadn't, Eileen,

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Speaker 1: the news coming from from Facebook is that they're going

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Speaker 1: to make it more straightforward for users to change their

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Speaker 1: their settings and delete data that they've already shared with

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Speaker 1: with the company. How big a move is that? And

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Speaker 1: if that's the ultimate business model? Now, if if you're

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Speaker 1: allowed to delete the data as an end user, how

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Speaker 1: do they monetize the platform as efficiently as they have

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Speaker 1: over the last couple of years for the next couple

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Speaker 1: of years with that a new policy setting. Yeah, so

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Speaker 1: I think it's a great step on their part, by

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Speaker 1: the way, And that's the kind of reaction that I

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Speaker 1: was sort of alluding to, where they've got an opportunity

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Speaker 1: to do these things right and make meaningful interventions to

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Speaker 1: demonstrate that they're leading from the front. I think that

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Speaker 1: the business model is not going to change because it's

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Speaker 1: all on a scale, it's all spectrum and all very relative.

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Speaker 1: Should some users choose to delete all their data, Facebook

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Speaker 1: as an example, will still have more data on more

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Speaker 1: people than any other platform in the world, And even

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Speaker 1: should one delete their entire profile, they still will have

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Speaker 1: the greatest ability to sort of target and offer insights

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Speaker 1: to specific groups of people based on other behavior. Um.

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Speaker 1: So it's a it's a bet worth taking in it's

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Speaker 1: actually a sort of a feature and an option for

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Speaker 1: users which they probably should have had all along. There

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Speaker 1: is an overarching concern amongst some analysts out there, Eileen

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Speaker 1: on Facebook specifically, that maybe we're meeting this point of

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Speaker 1: saturation for add growth. Are we anywhere near to that?

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Speaker 1: I don't think so. But even I've been skeptable about

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Speaker 1: sort of Facebook's ability to keep the stating the growth

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Speaker 1: that they've seen over recent years, and obviously I've been

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Speaker 1: proven wrong time and time again. So I don't think

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Speaker 1: what's happening now is a reason to think that they're

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Speaker 1: going to be at saturation point. I think this is

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Speaker 1: a minor stepback and actually has much more to do

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Speaker 1: with communications and use a responsibility. There's Silicon fen in

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Speaker 1: the United Kingdom, or I guess Cambridge Cluster is one

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Speaker 1: way to do they have the same arrogance over there,

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Speaker 1: or is it discreet to Silicon Valley the mess that

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Speaker 1: we've Silicon Valley. Well, I think there's no other place

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Speaker 1: in the world that's quite like Silicon Valley, and I

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Speaker 1: think the culture is different in Silicon Valley, having been

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Speaker 1: there a number of years. We've got silicon roundabout, but

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Speaker 1: we also have a number of great huts across the UK,

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Speaker 1: and I do think it's it's a different culture for sure,

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Speaker 1: but there's lots to learn from both sides. So well,

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Speaker 1: that was diplomatic. I come on, how can within the

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Speaker 1: competitive landscape, whether it's an island in the East River

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Speaker 1: of New York, Good morning, Cornell University, or it's what's

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Speaker 1: going on over in the United Kingdom, how do you

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Speaker 1: people take advantage of the chaos? Mr Zuckerberg is rot Oh,

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Speaker 1: it's fantastic. I mean, there are great advantages even if

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Speaker 1: you weren't to think about data privacy and data protection.

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Speaker 1: We've got great policymakers who think about things like this

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Speaker 1: an event so DPR that's going to be coming out

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Speaker 1: in Europe, but even specific subsectors, so if you look

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Speaker 1: at fintech or financial services, you know, policymakers here have

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Speaker 1: been really helpful for innovation and have been working sort

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Speaker 1: of in steps with the industry. That helps a lot.

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Speaker 1: See that John Ferrell, that was just a wind And

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Speaker 1: how vicious Eileen Burbage can be. Do you see how

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Speaker 1: says it was just fantastic. I mean it's the nicest

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Speaker 1: person in the world of tech eyes. When are we

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Speaker 1: going to talk about cricket? Well, don't don't encourage him, Eileen,

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Speaker 1: Please please don't encourage him. Apparently the captain has been

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Speaker 1: banned for the Australian team for for twelve months. Under yes,

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Speaker 1: I know we're not going We're not going down the road, Eileen,

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Speaker 1: looking forward, thinking about someone that might get shredded and

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Speaker 1: have their eyes pulled out. Could be Zuckerberg, and it

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Speaker 1: could be in front of Congress. The reports the last

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Speaker 1: twenty four hours leading us to believe that the CEO

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Speaker 1: of Facebook will have his day on the hill. And

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Speaker 1: I just wonder, Eileen, as an investor, how nervous investors

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Speaker 1: should be about that, given that we know this is

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Speaker 1: a man that's incredibly uncomfortable under pressure in those kind

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Speaker 1: of situations, you know, I actually, I mean, I don't

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Speaker 1: know how investors would feel. I would actually caution them

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Speaker 1: that there's not too much concerned here. I think he

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Speaker 1: will be extremely well briefed, really well prepped. He'll be

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Speaker 1: sort of trained in condition to answer appropriately. And I

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Speaker 1: actually think it's a good chance for sort of the

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Speaker 1: air to be cleared in that there's not going to

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Speaker 1: be anything that's going to come out that's going to

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Speaker 1: be hugely detrimental. I think it's going to be a

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Speaker 1: very straightforward you know, here's when our tea sency is

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Speaker 1: always allowed for this is what happened. Yes, we will

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Speaker 1: now take greater responsibility to make sure it's easier to understand.

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Speaker 1: And we have taken these steps from A to Z

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Speaker 1: already and so I actually think it's going to be

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Speaker 1: a pretty strong opportunity for Facebook to say we did

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Speaker 1: things correctly. We probably should have communicated even better about

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Speaker 1: those things, and we will do our best to sort

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Speaker 1: of help audit, monitor and verify that these things are

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Speaker 1: being abided by even more so in the future. I mean,

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Speaker 1: one final question, if we could give us an update

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Speaker 1: on how you see the continent of Europe's tone of

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Speaker 1: regulation of technology, a reticence about the dominance of technology.

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Speaker 1: Is that a trend that's growing, Is it's stable or

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Speaker 1: is it just a moment for them. I think it's

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Speaker 1: relatively stable, and to be honest, just sort of being

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Speaker 1: on this side of the pond, I think it's been

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Speaker 1: pretty consistent. So I haven't seen, you know, as Princeton, say,

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Speaker 1: a spike up or anything like that. I think it's

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Speaker 1: been relatively consistent. Whether they're looking at tax treatment or

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Speaker 1: they're looking at data rights and data protection, they've been consistent.

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Speaker 1: And it just does happen that the largest tech companies

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Speaker 1: are the ones that are squarely in the sites of

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Speaker 1: where they might want to set examples or try and

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Speaker 1: use for case study. It's going to be the American companies,

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Speaker 1: you know. I think what will be interesting is if

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Speaker 1: they start to take a look at, you know, maybe

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Speaker 1: what companies from Asia are starting to do as they

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Speaker 1: become more influential, or they start to increase their user

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Speaker 1: basis sort of over here in Europe as well. But

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Speaker 1: I think they would do the same, by the way,

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Speaker 1: for a company that's coming out of Europe as well.

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Speaker 1: I think thank you so much, Ellien Bourbage, a great, great,

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Speaker 1: great briefing there with Passion Capital, of course, with their

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Speaker 1: perspective Transatlantic perspective on that technology for Global Wall Street.

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Speaker 1: This is a great interview. Features up six down, features

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Speaker 1: up Mark Conners and the Credit Suites team. You know,

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Speaker 1: I love this title, Prime Services, Risk and Portfolio Advisory

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Speaker 1: market color and we're going to protect the copyright. We

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Speaker 1: don't send it out. It is a spectacular detailed report

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Speaker 1: on what hedge funds are actually doing doing And Mark,

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Speaker 1: I love what you summarize puzzling positions. I mean, it's

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Speaker 1: it's a mess right now, right, yeah, it is. And

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Speaker 1: you know, we always like to have one theme because

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Speaker 1: that you know, not many people are can take on

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Speaker 1: three different ideas at once. But um, when you look

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Speaker 1: at the rates position in which now we see funds

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Speaker 1: net long to tenure, why would that be when we're

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Speaker 1: stairs stepping up to you know, seven in or eight

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Speaker 1: moves over the next two years. And people are selling

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Speaker 1: base medals when we have you know, inflation, and they

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Speaker 1: are selling banks, and we're expecting your characterize you've got

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Speaker 1: all these esoteric things, mastery index, long short market blah

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Speaker 1: blah blah. The trend guys and the commodity futures guys.

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Speaker 1: They're getting hammered. Why is that? So? They January was

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Speaker 1: one of the best months they had, right, but January

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Speaker 1: is years ago in the world of markets, and then

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Speaker 1: they got hammered to your point in February. But one

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Speaker 1: reason why we are little, we're pretty constructive, is that

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Speaker 1: they got washed out. So these folks are trend followers

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Speaker 1: and they can really ramp up the equity positioning, and

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Speaker 1: they took it down in feb They went down to

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Speaker 1: a bottom desc style positioning. So we don't think that

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Speaker 1: we're gonna have much follow through beyond where we are

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Speaker 1: today on the equity market. What's the mood in raising

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Speaker 1: money right now? I don't want to go into the

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Speaker 1: you know, the nintet gritte of credit suite and what

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Speaker 1: you're doing in prime brokerage. But can people start a

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Speaker 1: hedge fund now or is it just brutal up there

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Speaker 1: because people have to see fourteen years of track record

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Speaker 1: for you to get you know, X million of dollars going.

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Speaker 1: That's always going to be the case about track record.

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Speaker 1: That's great, we love your system, we love your setup,

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Speaker 1: in your pedigree, uh, your space that you're in, but

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Speaker 1: give me a call in eighteen to thirty six months

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Speaker 1: when you you know, and that's when your heart sinks.

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Speaker 1: So what we're seeing is a lot of platforms are

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Speaker 1: seeding uh folks and having them in house. So they're

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Speaker 1: letting the hedge fund keep their name, keep the track

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Speaker 1: record if they do well, but they're gonna share in

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Speaker 1: the economics. So so the bigger getting bigger is what

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Speaker 1: we see, and Mark the active guys must be loving this.

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Speaker 1: I mean the last couple of months, they must be

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Speaker 1: in a better place with a vix's north at twenty.

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Speaker 1: So yeah, so what we saw was the reason why

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Speaker 1: people couldn't make money was the great compression of two thousand,

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Speaker 1: sort of post Q one sixteen, where it was all

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Speaker 1: a monolithic move higher. Everything went higher. So now you

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Speaker 1: have dispersion, but it would be careful what you wish for,

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Speaker 1: because not everyone's of the monetized the vol right, and

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Speaker 1: so it's yeah, let's talk about that because I want volatility.

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Speaker 1: I want volatility, and then all of a sudden that

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Speaker 1: so I don't want this kind of volatility. It is

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Speaker 1: this good vall so to speak, is it bad vault?

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Speaker 1: It is. So let's just look at returns right to

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Speaker 1: what Tom is talking about. With returns earlier in the

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Speaker 1: Master index UM hedge funds only caught about downside of

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Speaker 1: feb So market was down, hedge funds were down only

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Speaker 1: it March is going to be the test. So we're

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Speaker 1: gonna find out, you know, week chaff, who the adults

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Speaker 1: are in the room about how they didn't March. How

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Speaker 1: do you respond, is a grizzled prime brokerage, strategist and analyst.

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Speaker 1: When you see the media frenzy over a few select

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Speaker 1: ginormous hedge fund players, whether they're up x per cent

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Speaker 1: or down wide percent, when you see them, you know,

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Speaker 1: I want to pick up Mr Ackman right now. When

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Speaker 1: you see that focus on a few guys, how does

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Speaker 1: a grizzled pro like you respond to that? You you

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Speaker 1: step back and you say, definitely a segment of the market,

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Speaker 1: an individual high profile. But you know, we don't speak

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Speaker 1: about specific managers in case their clients. We look at

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Speaker 1: the hedge funds space still three point one three point

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Speaker 1: two trillion. That doesn't even speak to the alternative beta

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Speaker 1: spaces that are derivative that some of these managers are

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Speaker 1: also rolling in. They're becoming businesses. So a lot of

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Speaker 1: these clients are no longer single strats, but they are

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Speaker 1: multiple strategies down the margin. I would suggest in the

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Speaker 1: real world of hedge funds, people are more diversified than

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Speaker 1: the headline grabbing bets that the media is fixated on.

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Speaker 1: Do I have that right? You did? You got too

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Speaker 1: quicker than I did, so that's why. And you're exactly right,

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Speaker 1: People are no longer saying, you know what I'm gonna

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Speaker 1: bet against, you know, going back decades, I'm gonna bet

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Speaker 1: against a certain currency pair, or I'm going to bet

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Speaker 1: on a certain that is out the way I mean, John,

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Speaker 1: let me translate this for you. When you're at bill

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Speaker 1: Bok having the Cajun Chicken, I don't know what you're

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Speaker 1: talking about. A week when you're at the bill Bokay,

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Speaker 1: you know, they introduce you to a hed treat guy.

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Speaker 1: He's way more diversified typically and way more managing his

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Speaker 1: risk than all the headline grabbing alternative investment. Just I've

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Speaker 1: only ever been to that restaurant three times, and those

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Speaker 1: three times you took me. Okay, I have took myself.

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Speaker 1: You took me good morning to Rhado, keeper of the continue.

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Speaker 1: Did you expense that? Did your trouble? Mark Connors? How

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Speaker 1: important was it that the treasury market actually took a

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Speaker 1: bit yesterday in a risk off move in a significant way.

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Speaker 1: We had a bit of one last week, but actually

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Speaker 1: finally the treasury market acted as a shock absorber in

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Speaker 1: the traditional way. How important was that? So that's that's

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Speaker 1: very important because as you know, Tom was talking about

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Speaker 1: the diversified hedge fund world. Not everyone is in equally

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Speaker 1: long short. Some folks are playing that cross asset, and

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Speaker 1: so when those brakes hit UM, it is constructive and

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Speaker 1: acts as a breaker in the market. So one reason

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Speaker 1: why a note we went out today to some clients

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Speaker 1: was we don't we think the market acting well. We're

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Speaker 1: not seeing a Q one sixteen de leveraging which was

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Speaker 1: massively UM destructive to the alternative space, worst months in

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Speaker 1: five years. Something that I think a lot of people

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Speaker 1: will pick up on from listening to you was something

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Speaker 1: you said about the positioning of some of these hedge funds.

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Speaker 1: There is a narrative out there that the market in

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Speaker 1: its entirety is net short treasuries and net short the

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Speaker 1: U s, though in quite a significant way. But I

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Speaker 1: heard you say something very different about the funds that

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Speaker 1: you cover and about the positioning of those funds in

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Speaker 1: those markets. Just walk me through it and what's driving it. Yeah,

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Speaker 1: it's a time frame. We think it's a tactical move.

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Speaker 1: And whether it's the you know, a longer lower for

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Speaker 1: longer narrative UM over the outs, you know, for a

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Speaker 1: period of time of one, two, three months, But it

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Speaker 1: is absolutely opposite. What the narrative is of rate higher?

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Speaker 1: Who wants to be long a tenure when three percent

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Speaker 1: is a given? We went out with this when it

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Speaker 1: was to and we're two seventy five, so they got

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Speaker 1: it right. So c t A s are making money

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Speaker 1: on rates now and that's why people like a c

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Speaker 1: t A sleeve in their long equities. The counterbalance for

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Speaker 1: those of you c tas are trend based. Uh, good morning,

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Speaker 1: Monroe Trout if you're listening and John Henry of the

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Speaker 1: Red Sox trend base people. That seems where my head

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Speaker 1: is as well. How are the quants doing? How are

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Speaker 1: the math the studs out of kurant n Yu are

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Speaker 1: out of Carnegie Mel and how are the quants doing? Uh?

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Speaker 1: There it's a wide dispersion. Some having a tough year.

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Speaker 1: Again back to the volatility. They're not monetizing it. Uh

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Speaker 1: And whether it because they had a tilt to the

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Speaker 1: longside in the you know, given what's happening in seventeen

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Speaker 1: with it being a so where are they flat to

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Speaker 1: either side of the one question? We're gonna come back

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Speaker 1: with you and keep this going. What is the short

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Speaker 1: everybody wants? Now? They all up that go. Well, we're

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Speaker 1: gonna give you our prime brokerage, but we gotta get shares.

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Speaker 1: And what's that It's not Krispy Kreme, right, I mean

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Speaker 1: we're past Crispy Creme, thank god? Right, because what's the short? No,

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Speaker 1: I got gotta I gotta get I gotta get four

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Speaker 1: million shares short? Go right, So we can't talk single names.

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Speaker 1: Come on, no one's listening. My phone is already buzzing,

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Speaker 1: So thank you on that one. Um so the I'll

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Speaker 1: speak a little broader. The shorts are working. So for

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Speaker 1: for two and a half years, you saw short underperformance

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Speaker 1: eat away at alpha. I mean hedge funds weren't producing

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Speaker 1: alpha a lot because of shorts. That changed mid seventeen

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Speaker 1: and whether it was the advent of fiscal policy, tax initiatives,

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Speaker 1: what have you um or rates, we did see shorts

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Speaker 1: start to add to the bottom line. So whatever names

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Speaker 1: you want to say, there there is more interest in

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Speaker 1: have a Krispykreme donut. We'll come back. Mark Connors with

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Speaker 1: us with credit sweeze. As we look at prime broker

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Speaker 1: we now get brighter and smarter. With Michael Mayo at

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Speaker 1: Wells Fargo, and he's dragged along at least Greenberg. We're

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Speaker 1: gonna talk about b B and T, which his own

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Speaker 1: twisted story here, but Mike, I gotta rip up the

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Speaker 1: script and spent a good amount of time here on

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Speaker 1: you don't follow Deutsche Bank, but you could certainly talk

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Speaker 1: about European banking and your BB and T research. Note

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Speaker 1: you talk about how they had to go out and

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Speaker 1: quote reduced expenses by six percent year over year. European

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Speaker 1: banks really can't do that, can they. Well, the U

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Speaker 1: S banks took their medicine after the financial crisis and

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Speaker 1: much of this decade, uh, you know, slim down the

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Speaker 1: infrastructure or raised capital, just managed better for profitability. And

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Speaker 1: that's a big contrast to the European banks which are

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Speaker 1: less efficient, lower return less capital and just but did

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Speaker 1: not take their medicine with your decades of experience. Are

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Speaker 1: they that way because of the cultural realities of those

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Speaker 1: nations and those people's in society or are they just

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Speaker 1: afraid to be like BBNT, your Bank of America or JP. Morgan, Well,

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Speaker 1: there are cultural and political differences that make it more difficult.

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Speaker 1: But I also think that uh, the U S regulators

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Speaker 1: did a better job at forcing the issue with the

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Speaker 1: US banks, and as strong as the European regulators have been,

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Speaker 1: it's not like one central regulator that's forcing the European

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Speaker 1: banks to get into where they need to be at

428
00:24:39,240 --> 00:24:40,679
Speaker 1: least wants to jump in here. But I got one

429
00:24:40,680 --> 00:24:43,440
Speaker 1: more question here on Deutsche Bank. The the idea here

430
00:24:43,520 --> 00:24:47,800
Speaker 1: that something radical is going to happen. The easiest way

431
00:24:47,960 --> 00:24:52,640
Speaker 1: to change things is the geographical change. Do you predict

432
00:24:52,680 --> 00:24:55,120
Speaker 1: that any of the troubled banks, whether it's Deutsche Bank

433
00:24:55,240 --> 00:24:58,240
Speaker 1: or the other list of European banks, that they're gonna

434
00:24:58,240 --> 00:25:01,800
Speaker 1: make geographical choices to get out of certain things in

435
00:25:01,920 --> 00:25:06,760
Speaker 1: certain geographies. Well, you've seen that with the US banks.

436
00:25:06,800 --> 00:25:09,280
Speaker 1: You know, I've been here talking about City group stock

437
00:25:09,359 --> 00:25:13,240
Speaker 1: that we recommend um. But the US is the place

438
00:25:13,280 --> 00:25:17,360
Speaker 1: to be right now, and especially with some deregulation, US

439
00:25:17,440 --> 00:25:19,640
Speaker 1: looks a lot more favorable than your Europe. And so

440
00:25:19,880 --> 00:25:23,160
Speaker 1: the European banks need to pick their spots to improve

441
00:25:23,240 --> 00:25:26,359
Speaker 1: that efficiency, to improve their returns, to get closer to

442
00:25:26,400 --> 00:25:27,959
Speaker 1: where the U. S banks are right now. But right

443
00:25:27,960 --> 00:25:30,159
Speaker 1: in the U S banks have extended the lead in

444
00:25:30,280 --> 00:25:32,920
Speaker 1: capital markets at leasta they should build a skyscraper in

445
00:25:34,119 --> 00:25:37,719
Speaker 1: like you know, one question that I have. I'm watching

446
00:25:37,760 --> 00:25:40,040
Speaker 1: the perpetual bonds of Deutsche Bank, and they had kind

447
00:25:40,080 --> 00:25:42,720
Speaker 1: of a freak out in the past couple of years

448
00:25:42,760 --> 00:25:44,439
Speaker 1: as people started to worry that this could become a

449
00:25:44,520 --> 00:25:47,240
Speaker 1: capital issue. It certainly is a profitability issue with Deutsche Bank.

450
00:25:47,359 --> 00:25:52,440
Speaker 1: When does it become a capital issue? Look, the US

451
00:25:52,520 --> 00:25:55,960
Speaker 1: banks have the strongest balance sheets in a generation. Uh,

452
00:25:56,080 --> 00:25:59,199
Speaker 1: certainly that the global banking system is stronger, and that

453
00:25:59,240 --> 00:26:01,919
Speaker 1: includes the europe Pian banks. So the idea of the

454
00:26:01,960 --> 00:26:05,800
Speaker 1: next financial crisis, financial crisis is financial crisis that it's

455
00:26:05,800 --> 00:26:09,480
Speaker 1: been ten decades for past that stage. The foundation solid.

456
00:26:09,760 --> 00:26:12,160
Speaker 1: The issue when we compare the European banks the US

457
00:26:12,240 --> 00:26:15,359
Speaker 1: banks is really a profitability and efficiency one. You know.

458
00:26:15,440 --> 00:26:18,200
Speaker 1: I do want to just get your thoughts on the

459
00:26:18,280 --> 00:26:21,399
Speaker 1: two tens yield curve spread, which is the narrowest that

460
00:26:21,480 --> 00:26:24,199
Speaker 1: it's been since two thousand seven. This is usually a

461
00:26:24,359 --> 00:26:28,760
Speaker 1: key indicator for profitability of US banks. How worried are

462
00:26:28,760 --> 00:26:31,240
Speaker 1: you about this? Well, I know a lot of investors

463
00:26:31,280 --> 00:26:34,320
Speaker 1: look at, you know, the flat, flatter yield curve and say, oh,

464
00:26:34,320 --> 00:26:36,760
Speaker 1: look out for the banks. But that's one of many

465
00:26:36,840 --> 00:26:39,960
Speaker 1: factors driving banks, and that's kind of the typical way

466
00:26:39,960 --> 00:26:41,840
Speaker 1: of looking at it. But we're seeing for the U

467
00:26:41,880 --> 00:26:45,240
Speaker 1: S banks, it's a twenty five year structural breakout for

468
00:26:45,240 --> 00:26:48,880
Speaker 1: the benefits of scale. A lot of people care there.

469
00:26:49,080 --> 00:26:51,639
Speaker 1: So in terms of you know your national banking for

470
00:26:51,680 --> 00:26:54,480
Speaker 1: the first time in n this is the first time

471
00:26:54,480 --> 00:26:56,520
Speaker 1: in twenty five years when you can be a national

472
00:26:56,560 --> 00:26:59,960
Speaker 1: bank without the distractions of big system integrations or financial

473
00:27:00,040 --> 00:27:02,760
Speaker 1: racist or new regulations. So we're looking at the structural

474
00:27:02,840 --> 00:27:05,560
Speaker 1: changes as opposed to the technical factor of flatter yolker.

475
00:27:05,640 --> 00:27:07,520
Speaker 1: But some people care about that. No, No, I was

476
00:27:07,600 --> 00:27:09,640
Speaker 1: kidding as a joke that I have with my producer

477
00:27:09,720 --> 00:27:11,919
Speaker 1: Rich Trueman, we're going back and forth on the huge

478
00:27:11,920 --> 00:27:14,560
Speaker 1: headline flow DOW up a hundred and five points. Let

479
00:27:14,640 --> 00:27:17,080
Speaker 1: us migrate to something. And I give you great credit

480
00:27:17,119 --> 00:27:20,639
Speaker 1: for this, both Mike Mayo and Elie Greenberg here of

481
00:27:20,800 --> 00:27:23,200
Speaker 1: not looking at the top six banks. Where does BB

482
00:27:23,600 --> 00:27:27,720
Speaker 1: and T fit in their regional bank? Is that a

483
00:27:27,760 --> 00:27:29,840
Speaker 1: good place to start? So BB and T is a

484
00:27:29,880 --> 00:27:33,240
Speaker 1: different animal. They are the tenth largest bank. They're a

485
00:27:33,280 --> 00:27:36,960
Speaker 1: regional bank. They're mostly in the Southeast mid Atlantic in Texas.

486
00:27:37,119 --> 00:27:39,440
Speaker 1: But what's unique about this bank is that they own

487
00:27:39,720 --> 00:27:43,440
Speaker 1: the fifth largest insurance broker in the world, and it's

488
00:27:43,480 --> 00:27:45,879
Speaker 1: a little less than one fifth of their revenues. So,

489
00:27:45,920 --> 00:27:48,600
Speaker 1: as a bank analyst, bank aallics don't know a whole

490
00:27:48,640 --> 00:27:52,320
Speaker 1: lot about the insurance So we collaborate with Elise green

491
00:27:52,400 --> 00:27:55,200
Speaker 1: Span UM and you know, so I talked to my

492
00:27:55,280 --> 00:27:57,840
Speaker 1: colleague Elie green Span and said, what do you think

493
00:27:57,920 --> 00:28:01,000
Speaker 1: of this insurance business? What's happened in the insurance world?

494
00:28:01,040 --> 00:28:02,800
Speaker 1: And that's where she came in. By the way, time

495
00:28:02,920 --> 00:28:06,040
Speaker 1: yesterday we upgraded BB and T for the first time

496
00:28:06,040 --> 00:28:09,600
Speaker 1: in many years to market out perform where buyers now.

497
00:28:09,720 --> 00:28:12,000
Speaker 1: BB and what's it like working with Mike Mayo? Do

498
00:28:12,040 --> 00:28:14,440
Speaker 1: they have to medicate you before you work with Michael Mayo?

499
00:28:14,760 --> 00:28:17,359
Speaker 1: I mean, it's a it's an experience, right, They do not.

500
00:28:17,440 --> 00:28:20,160
Speaker 1: He's very experienced and he's a pleasure to work with. UM.

501
00:28:20,200 --> 00:28:23,199
Speaker 1: You know, we collaborate a lot across Wells Fargo Security.

502
00:28:23,240 --> 00:28:26,320
Speaker 1: What's the distinction of their insurance company? So the distinction

503
00:28:26,440 --> 00:28:30,200
Speaker 1: is they're they're an insurance broker, so essentially they're they're

504
00:28:30,240 --> 00:28:32,480
Speaker 1: not taking on any underwriting risks. They're not doing the

505
00:28:32,520 --> 00:28:36,239
Speaker 1: Bermuda thing. They're not doing the Bermuda thing. That's the

506
00:28:36,240 --> 00:28:39,080
Speaker 1: host of companies in Bermuda are companies that underwrite risk.

507
00:28:39,240 --> 00:28:41,560
Speaker 1: So when there's losses, like all the losses we had

508
00:28:41,640 --> 00:28:43,960
Speaker 1: last year, there's exposure and they're going to take a

509
00:28:44,000 --> 00:28:47,960
Speaker 1: big loss. A broker is essentially placing the business. That's

510
00:28:47,960 --> 00:28:50,680
Speaker 1: what they're that's their role, and so they can benefit

511
00:28:50,840 --> 00:28:53,560
Speaker 1: like BB and T is positioned to benefit from a

512
00:28:53,680 --> 00:28:57,719
Speaker 1: firmer pricer pricing environment means rates are going up. So

513
00:28:57,760 --> 00:29:00,400
Speaker 1: if we take a step back here, last year was

514
00:29:00,480 --> 00:29:04,560
Speaker 1: the highest cat loss year ever for the industry. That's catastrophe,

515
00:29:04,560 --> 00:29:08,880
Speaker 1: bond or catastrophe generally catastrophe, so anything that caused a

516
00:29:08,880 --> 00:29:12,680
Speaker 1: big event. You at earthquakes, you had um you had hurricanes,

517
00:29:12,680 --> 00:29:15,160
Speaker 1: who had fires. It was essentially the triple wammy for

518
00:29:15,200 --> 00:29:18,680
Speaker 1: the industry, three events that hit in one year and

519
00:29:18,720 --> 00:29:21,800
Speaker 1: so essentially so the largest level of losses. Pricing power

520
00:29:21,880 --> 00:29:24,320
Speaker 1: has come back to the sector and it's really to

521
00:29:24,400 --> 00:29:27,680
Speaker 1: the benefit of insurance brokers like BB and T as

522
00:29:27,720 --> 00:29:30,640
Speaker 1: well as some other some other you know, large insurance brokers.

523
00:29:30,720 --> 00:29:32,360
Speaker 1: Is this a way of saying that they can charge

524
00:29:32,400 --> 00:29:35,520
Speaker 1: people a lot more to to get covered. Yes, So essentially,

525
00:29:35,560 --> 00:29:38,160
Speaker 1: I mean you need losses to push for higher prices

526
00:29:38,200 --> 00:29:41,320
Speaker 1: in the absence of losses. It had been many years

527
00:29:41,400 --> 00:29:45,320
Speaker 1: before we actually suck a very large, significant hurricane, and

528
00:29:45,360 --> 00:29:48,040
Speaker 1: so there is no pricing power if there's no losses.

529
00:29:48,120 --> 00:29:51,760
Speaker 1: Is your interest here of the regional bank with the

530
00:29:51,840 --> 00:29:55,760
Speaker 1: insurance brokerage that they would spin it off or sell

531
00:29:55,800 --> 00:29:58,720
Speaker 1: it out to someone or is it really part Is

532
00:29:58,720 --> 00:30:01,200
Speaker 1: it a corpus of BB No. I think it's it's

533
00:30:01,240 --> 00:30:03,360
Speaker 1: something that's unique to B B and T. It's a

534
00:30:03,400 --> 00:30:06,520
Speaker 1: capital light business that's different than the rest of their

535
00:30:06,560 --> 00:30:09,240
Speaker 1: bank business. And so essentially, I think they like the

536
00:30:09,240 --> 00:30:12,480
Speaker 1: diversification that they have here, and they're looking at this

537
00:30:12,520 --> 00:30:16,200
Speaker 1: as an opportunity to grow their revenue, to expand their margins,

538
00:30:16,200 --> 00:30:18,840
Speaker 1: and essentially to increase the earnings they're seeing from this

539
00:30:19,000 --> 00:30:21,440
Speaker 1: business as opposed to looking to sell it. So I

540
00:30:21,440 --> 00:30:23,480
Speaker 1: would not expect the sale of their insurance. And what

541
00:30:23,760 --> 00:30:27,320
Speaker 1: these shares with me, Tom is that these companies, the

542
00:30:27,440 --> 00:30:30,000
Speaker 1: pure plays that she covers in the insurance area, are

543
00:30:30,000 --> 00:30:33,120
Speaker 1: often valued about one fourth higher and the banks. So

544
00:30:33,240 --> 00:30:35,600
Speaker 1: this is a premium business that B B and T as,

545
00:30:35,600 --> 00:30:38,080
Speaker 1: and again it's unique among you know, all the banks.

546
00:30:38,320 --> 00:30:40,720
Speaker 1: Michael Mayo with us with Wells Fargoing the Street Spend

547
00:30:40,720 --> 00:30:51,000
Speaker 1: as well. Thanks for listening to the Bloomberg Surveillance podcast.

548
00:30:51,360 --> 00:30:56,400
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

549
00:30:56,440 --> 00:31:00,760
Speaker 1: whichever podcast platform you prefer. I'm on Winter at Tom

550
00:31:00,880 --> 00:31:04,760
Speaker 1: Keane before the podcast. You can always catch us worldwide.

551
00:31:05,200 --> 00:31:06,280
Speaker 1: I'm Bloomberg Radio