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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 2: This is the way it works, Folks at Bloomberg News.

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Speaker 2: When a story gets a green bee next to it,

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Speaker 2: that's a good thing. That means it's exclusive or as

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Speaker 2: those newsgeeks call it, a scoop, and this is a

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Speaker 2: good one. Wow. Treasury Secretary Scott Bessen and feder Reserve

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Speaker 2: Chair Drome Palce summoned Wall Street leaders to an urgent

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Speaker 2: meeting on concerns that the latest artificial intelligence model from

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Speaker 2: Anthropic we'll usher in an era of greater cyber risk.

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Speaker 2: Great Our finance team Todd Gillespie, Katanga Gants, Jack Johnson,

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Speaker 2: Hannah Levitt, and shrinanarajen Co wrote that and the editor

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Speaker 2: is with us on this story. Katherine Chiglinsky, US finance

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Speaker 2: team leader for Bloomberg News, What was this meeting and

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Speaker 2: why was it like so urgently called?

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Speaker 3: I guess well, it's really interesting because obviously, like Besstt

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Speaker 3: and Pale are always meeting with bank CEOs and sort

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Speaker 3: of staying in touch with the financial system. But to

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Speaker 3: have them both sort of in on this meeting in which, yes,

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Speaker 3: they called the bank CEOs, who many of which were

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Speaker 3: in town for sort of a lobbying meeting, they called

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Speaker 3: them in for this urgent meeting. And I think what's

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Speaker 3: really interesting is it really is about this Anthropic Mythos

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Speaker 3: model and what it really pretends for the industry. And

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Speaker 3: I think that's key. You know, it sounds like obviously

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Speaker 3: Anthropic is trying to be very thoughtful on sort of

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Speaker 3: releasing it to select few companies to sort of be

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Speaker 3: able to test their systems. And I think banks obviously

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Speaker 3: are kind of a key source that we need to

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Speaker 3: needs to make sure that they can sort of batten

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Speaker 3: down the hatches and make sure they're ready for this

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Speaker 3: next era of cyber risk.

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Speaker 4: How unusual is this, Catherine for bank leaders to be

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Speaker 4: summoned on such short notice over the potential stemic risk

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Speaker 4: of a private company to their industry.

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Speaker 3: Yeah, well, and I think it's it's interesting because they

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Speaker 3: you know, they'll meet on macro events, they'll meet on larger,

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Speaker 3: broader trends in the industry. I think this is a

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Speaker 3: little bit interesting in that I'm not sure that there's

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Speaker 3: exactly been like an AI prompt before that has spurred

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Speaker 3: them all to come together and come together quickly. You know.

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Speaker 3: AI has been like definitely a risk factor that all

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Speaker 3: the companies are talking about and have been talking about

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Speaker 3: for many years at this point. But for them to

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Speaker 3: sort of come together and say, listen, this is to

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Speaker 3: get a warning from the Fed and the Treasury that

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Speaker 3: says this is a big risk and you need to

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Speaker 3: be preparing is like a very big statement.

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Speaker 2: What the banks. Have the banks acknowledged this risk or

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Speaker 2: how have the banks responded to some of these AI

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Speaker 2: risk that may be out there as a release to cybersecurity.

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Speaker 3: Well, I think honestly, in the past few years banks

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Speaker 3: have really ramped up their cybersecurity protocols. I think AI

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Speaker 3: is a new challenge obviously, because it just it makes

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Speaker 3: it quicker that these these attacks and these risks can evolve.

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Speaker 3: So I do think that you know, banks have been

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Speaker 3: responding already and are already sort of quickly on this.

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Speaker 3: Like you look at Project class Wing, which is that

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Speaker 3: sort of anthropic lad limited release to certain companies to

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Speaker 3: protect their defenses, and JP Morgan is already on that list,

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Speaker 3: So it's it's clear that they're quickly trying to get

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Speaker 3: involved and to make sure that they can sort of

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Speaker 3: ready their systems as best you possibly can in this

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Speaker 3: sort of new age. But I do think it's interesting

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Speaker 3: that like this is enough of a you know, as

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Speaker 3: we're sort of questioning, you know, how good really is

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Speaker 3: meet those I think this is a real indicator that

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Speaker 3: regulators are taking it seriously.

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Speaker 4: Have there been certain banks within that group that are

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Speaker 4: more proactive about mitigating these AI and cybersecurity risks than others?

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Speaker 4: Any kind of standouts in terms of what they're doing.

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Speaker 3: Well, I think you have all the especially the big

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Speaker 3: Wall Street banks, I think have been ramping up that

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Speaker 3: a lot, and part of it is honestly cyber risk,

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Speaker 3: you know, actual reputation and if you're JP Morgan, the

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Speaker 3: top us bank, you've got a lot to protect. I

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Speaker 3: do think what's going to be really interesting is like

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Speaker 3: how regionals handle this. You know, a smaller bank that

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Speaker 3: maybe doesn't have as much of the flexibility and the

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Speaker 3: capital to sort of support large scales sort of cyber initiatives.

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Speaker 3: It is going to be really important how the big

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Speaker 3: giants JP Morgan Morgan Stanley City Group addressed this, because

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Speaker 3: I think it'll sort of set the tone for the

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Speaker 3: rest of the industry.

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Speaker 2: Anthropic. You're reporting shows Anthropic has separately been battling the

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Speaker 2: Trump administration in court that Peddicon had labeled the company

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Speaker 2: Anthropic as a supply a chain risk, a designation that

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Speaker 2: Anthropic has opposed. Here, So the government's definitely looking at

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Speaker 2: this stuff from a lot of different angles, aren't they definitely?

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Speaker 3: And you know, I think right now, whenever anyone sees

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Speaker 3: Anthropic and the government and you're grown, you're thinking about

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Speaker 3: this sort of political battle that they're in over the

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Speaker 3: Pentagon's designation. And I do think though the fact that

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Speaker 3: Jerome pal was in this meeting, you know, he's obviously

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Speaker 3: trying to be very careful. They don't want to be,

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Speaker 3: you know, seen as a very political institution. But I

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Speaker 3: think the fact that the Federal Reserve was in this

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Speaker 3: meeting really understates the fact that this is less of

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Speaker 3: a political thing and this is really more of a

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Speaker 3: you know, as a top banking regulator, the FED is

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Speaker 3: concerned about sort of cyber risks and how the industry

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Speaker 3: is doing it, and the FED knows banks well, I

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Speaker 3: mean they have the examiners who are going in routinely

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Speaker 3: to sort of supervise operations. So yeah, I think a

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Speaker 3: little less of a political bent for this meeting in particular,

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Speaker 3: just really underscores sort of how cyber becomes a top

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Speaker 3: topic for them.

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Speaker 4: We have bank earnings coming up. We're going to hear

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Speaker 4: from a lot of these executives on earnings calls next week.

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Speaker 4: Do you expect that they'll address this at all?

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Speaker 3: It would be shocking if they don't, mostly because we're

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Speaker 3: always talking about AI. I feel like every earnings call,

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Speaker 3: you know, everyone wants to know how are you using it?

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Speaker 3: What does it mean for your employees? And I think

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Speaker 3: a natural extension is sort of what are you doing

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Speaker 3: for the risks of cyber especially? You know, you see

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Speaker 3: with escalating global conflicts like the Iran War. We just

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Speaker 3: had you know, a fintech chime got hacked, So I think,

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Speaker 3: you know, there's some there's definitely an impetus for them

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Speaker 3: to address this next week.

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Speaker 2: What is the expectation of earnings next week?

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Speaker 3: Well, a blowout quarter for trading, It's going to be

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Speaker 3: like potentially across all of the five biggest trading desks.

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Speaker 3: We're expecting stock trading to set records and fixed income

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Speaker 3: trading good at most of the banks. I think that'll

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Speaker 3: be up M and A. It's kind of interesting because

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Speaker 3: you would think that geopolitics really put a damper on it,

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Speaker 3: but most of what we've seen so far and what

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Speaker 3: they've been signaling is that it's really held up. So

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Speaker 3: that'll be interesting. I think another wild card in addition

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Speaker 3: to sort of how they address the AI though, is

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Speaker 3: private credit, Like how do they address it? Investors are

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Speaker 3: very want details on what are their exposures, and so

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Speaker 3: we'll be monitoring that pretty closely.

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Speaker 4: With us More from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App, Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 2: Let's talk about the consumer. Let's talk about the consumer.

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Speaker 2: What are they buying? And one of the great places

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Speaker 2: to look is sneakers and you look at Nike and

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Speaker 2: you can do that with Punham Boyle Senior US e

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Speaker 2: commerce and retail analyst at Bloomberg Intelligence. There's so many

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Speaker 2: puts and takes for the Nike because, I mean, it's

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Speaker 2: a product everybody knows, it's a global product, but that

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Speaker 2: has pluses and minuses. Put him, what's the Nike story here?

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Speaker 2: I know they've had a lot of challenges with China.

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Speaker 2: They've had a lot of challenges managing their inventory, tariffs

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Speaker 2: like a lot of other companies. What's the Nike story

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Speaker 2: right now?

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Speaker 5: Pooham.

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Speaker 6: Yeah, So Nike is basically going on or a turnaround.

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Speaker 6: There's a lot of things that they need to fix,

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Speaker 6: but there are things that they have fixed. So let's

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Speaker 6: start with the biggest piece of the business, which is

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Speaker 6: North America. In North America, since Ali A. Hill has

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Speaker 6: taken helm, they have made improvements and fact sales have

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Speaker 6: turned positive there and that's a sign that the initiatives

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Speaker 6: put in place, getting the right product back in, working

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Speaker 6: on speed, clearing out old product, reducing inventory. It's all

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Speaker 6: paying off and we expect that to continue. The challenge, however,

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Speaker 6: has been China. You know, as we know we spoke

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Speaker 6: about this earlier. China is a market that not just Nike,

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Speaker 6: but every at leisure company is eyeing for growth, for

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Speaker 6: long term growth, and in China, Nike has had major hiccups.

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Speaker 6: So the playbook there is to repeat what they did

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Speaker 6: in North America to fix the business. But it's not

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Speaker 6: going to happen overnight. It is going to take time,

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Speaker 6: and I think it's just about being patient and watching

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Speaker 6: them execute against China as well.

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Speaker 4: Chinese consumer broadly have just been shifting two more local brands.

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Speaker 4: What will it take for Nike to recapture their appetite boonem.

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Speaker 6: I think it's building brand heat right. The first thing

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Speaker 6: they have to do is get the right product in

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Speaker 6: So when you look at the product that's being sold

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Speaker 6: in China, it's heavily discounted. In fact, Nike's perceived as

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Speaker 6: an off price label in China, so they need to

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Speaker 6: flip that image. They need to move the discounting because

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Speaker 6: that's clearly not good. They need to introduce premium product

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Speaker 6: into the Chinese marketplace and then have local ambassadors, local

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Speaker 6: clubs really validate the brand for them, and all that

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Speaker 6: will start with product first and then after and we

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Speaker 6: do think it's possible, but it's just there's so much

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Speaker 6: old inventory there still right now that needs to be discounted.

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Speaker 6: It's going to take I think at least twelve to

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Speaker 6: eighteen months.

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Speaker 2: If I'm an investor, that's twelve eighteen month timeframe. I'm

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Speaker 2: not sure I'm that interested in it. How's the company

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Speaker 2: trying to position and it's turnaround here to appeal to investors?

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Speaker 6: I mean, look, people, investors are not being patient and

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Speaker 6: we can see that with the reaction and the shares.

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Speaker 6: Shares are down year to date, and Nike is just

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Speaker 6: reiterating exactly what it's doing, and it's talking about its playbook,

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Speaker 6: gloring inventory, is taking out discounts, getting the right product in.

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Speaker 6: I think the next catalyst for Nike, in my mind,

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Speaker 6: is going to be its analyst Day. It's a day

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Speaker 6: that we've been waiting for for years. They postponed the

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Speaker 6: last one they announced a few years ago. It'll take

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Speaker 6: place in the fall, and we think that's when Nike

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Speaker 6: will be able to really highlight the success it's had

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Speaker 6: and also show its path forward with new inventory, new product,

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Speaker 6: new collaborations, et cetera.

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Speaker 4: Punam, how does this war and any disruptions from a

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Speaker 4: higher oil, the risk of inflation and make Nike's turn

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Speaker 4: around even more difficult. What challenges does it pose?

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Speaker 6: You know, the risks of the war are not specific

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Speaker 6: to Nike. I think it's across the consumer space. Oil

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Speaker 6: prices means higher gas prices. It impacts low income consumers

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Speaker 6: more than it does high income consumers. Thankfully, Nike is

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Speaker 6: a brand that probably leans more towards the mid to

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Speaker 6: high end than the low end, so they do have

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Speaker 6: some buffer compared to a low end retailer. That said,

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Speaker 6: you know, if things prolong for a long time and

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Speaker 6: inflation continues to take higher, consumers will pull back, and

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Speaker 6: the first place they pull back is undiscretionary goods, and

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Speaker 6: sneakers is a discretionary purchase.

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Speaker 2: Put them just step back a little bit. What's the

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Speaker 2: competitive landscape for at leisure because there's so many I mean,

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Speaker 2: Nike used to be just to me at least, a

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Speaker 2: dominant brand, but it seems like it's gotten more and

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Speaker 2: more competitive. I'm seeing brands of sneakers around here that

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Speaker 2: I haven't seen before.

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Speaker 6: You're absolutely right, Nike is still the dominant sneaker player globally.

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Speaker 6: It is the largest footware brand in the world. It

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Speaker 6: remains that, but it has lost here over the last

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Speaker 6: five years to other brands. Some of the brands that

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Speaker 6: you may be referring to include on Hoka, A six

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Speaker 6: new Balance. All these brands and some others have gained traction,

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Speaker 6: especially in the lifestyle and running space. That said, when

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Speaker 6: you look at the size of those brands against Nike,

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Speaker 6: there's still a wide gap. So we run a sneaker

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Speaker 6: survey twice a year and when we ask consumers, you know,

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Speaker 6: what is the choice of brand when it comes to sneakers,

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Speaker 6: Nike still number one. So when you look at broadly,

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Speaker 6: Nike is still the favorite brand, but when you look

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Speaker 6: into niche markets, you are seeing the rise of some

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Speaker 6: of these other brands, which is obviously why Nike has

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Speaker 6: been losing share.

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Speaker 4: Put in very quickly, what else stood out to you

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Speaker 4: as some of the key differences in this report compared

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Speaker 4: to prior quarters. Any metrics that caught your attention?

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Speaker 6: I think I think the biggest metric that caught my

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Speaker 6: attention was the inventory levels. They have been dropping, and

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Speaker 6: that's a really good sign because that just shows us

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Speaker 6: that the efforts that the management team is putting in

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Speaker 6: place is bringing a new product, and the new product

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Speaker 6: results are actually quite impressive. If you look at the

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Speaker 6: sales of their new products, they are up nicely, and

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Speaker 6: that reflects that anything that they're putting their mind on

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Speaker 6: is working.

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Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 2: The war in Iran is creating obviously some logistic concerns,

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Speaker 2: particularly in the energy space, but also some of the

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Speaker 2: metals that get that come out of that part of

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Speaker 2: the world, and that's a little bit of an issue

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Speaker 2: for the auto industry. Checking with Steve Man Bloomberg Intelligence,

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Speaker 2: Global Autos and industrials and analysts. Steeve talk to us

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Speaker 2: about the global auto companies and are they facing any

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Speaker 2: challenges by the unrest the war in the Mid East.

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Speaker 5: Yeah, definitely, they are facing a lot of logistic issues.

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Speaker 5: You know, gasoline prices are high. But we publish a

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Speaker 5: piece of research today focusing on aluminum because aluminum is

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Speaker 5: a critical metal for the auto industry. It's a substitute

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Speaker 5: for steel and it's supposed to be. It's used to

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Speaker 5: make the vehicle a little bit lighter. It's used even

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Speaker 5: more so on evs because you know, they want to

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Speaker 5: you know, reduce the weight of the vehicle so the

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Speaker 5: driving range is longer and extends the battery life. So

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Speaker 5: evs typically use about seventy five eighty percent more aluminum,

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Speaker 5: around eight hundred pounds per car. Gasoline cars a little

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Speaker 5: bit less. It's about four hundred pounds to five hundred

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Speaker 5: pounds per vehicle. Doesn't seem like it's significant, but it

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Speaker 5: is a big cost for the auto industry.

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Speaker 4: Steve, how quickly does the spike and aluminum costs feed

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Speaker 4: through to production costs and does that eventually get passed

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Speaker 4: onto the consumer.

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Speaker 5: Well, Fortunately, the aluminum costs is more of an inflationary,

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Speaker 5: you know, the aluminum supply chain issues that we're seeing.

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Speaker 5: It's more of an inflationary for the automaker, less so

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Speaker 5: of a supply crunch. Now, aluminum coming from the Middle East,

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Speaker 5: it's about fifteen percent coming into into the US, it's

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Speaker 5: about fifteen percent. It's significant. But if you look at

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Speaker 5: the auto industry alone, actually mostly aluminum is actually produced

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Speaker 5: locally in the US, and about half is coming from

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Speaker 5: from Canada. Now even though it's locally produced, it's under

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Speaker 5: the USMCA realm. But the prices the global press is rising,

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Speaker 5: and that's that's what's causing the inflationary impact on the automakers.

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Speaker 2: Steve, can you give us an update on tariffs? Where

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Speaker 2: are we with tariffs at the audit industry? Quite frankly,

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Speaker 2: I can't keep track.

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Speaker 5: Yeah, and the terriffs has a huge impact on aluminum,

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Speaker 5: the fact that it's produced in the US and in Canada. Uh,

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Speaker 5: there's actually no terraf impact. Remember aluminum, there's a there's

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Speaker 5: a tariff of fifty percent on illuminum and steel, but

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Speaker 5: because they fall under the US MSA, the United States,

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Speaker 5: Mexico and Canada Free Trade Agreement, the exchange of metals

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Speaker 5: between the two country is not part of that fifty percent.

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Speaker 5: So look again, it's uh, you know, we we estimate

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Speaker 5: the per vehicle costs. It's around as much as you know,

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Speaker 5: three hundred and eighty five dollars for for evs, less

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Speaker 5: for for ice vehicles. So again, I think the automakers

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Speaker 5: can actually pass on that cost to the consumer or somehow,

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Speaker 5: you know, do some cost initiatives initiatives to absorb those costs.

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Speaker 4: Higher costs, Steve, you mentioned that Tesla and electric vehicle

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Speaker 4: makers specifically are you know, most at risk from higher

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Speaker 4: aluminum costs. Are there any automakers that are more insulated

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Speaker 4: from this witch companies?

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Speaker 5: Yeah, Tesla, Revia and Lucid any any actually, anybody that

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Speaker 5: makes e V uh is gonna face higher costs for

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Speaker 5: those e vs. But because you know, Tesla, Ravin, Lucid

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Speaker 5: A are peer plays, they're gonna face, you know, bigger

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Speaker 5: impact than say the GM and the Ford. Now EV,

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Speaker 5: do do you use a lot of aluminum, like I

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Speaker 5: said earlier, help cut cut cut down costs. There's a

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Speaker 5: lot of aluminum. You'll find a lot of alumin in

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Speaker 5: the batteries. You'll find a lot of aluminium in the motor,

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Speaker 5: in the motor housing. Uh So the intensity is much

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Speaker 5: greater on on EV's.

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Speaker 2: So you know why I haven't heard of a lot

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Speaker 2: from recently is elon musk. What's the up to these days?

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Speaker 2: Cvs getting ready for Space X I p O, what's it?

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Speaker 2: What's Tesla?

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Speaker 5: Yeah, there's a there's a lot of rumbling uh rumors

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Speaker 5: in in for Tesla specifically, obviously he is very busy

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Speaker 5: with SpaceX. There's a lot of headlines around SpaceX I

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Speaker 5: p O SUH. But within Tesla, it seems like, based

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Speaker 5: on social media and other media reports that you know,

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Speaker 5: Elon Musk is actually revisiting in launching a smaller vehicle,

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Speaker 5: and that would be great, especially for emerging markets. We

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Speaker 5: are seeing a lot of sales improvement over in South

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Speaker 5: Korea and Japan. They're expanding their their network, retail network,

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Speaker 5: they're expanding their service network there. So launching a smaller

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Speaker 5: vehicle will will be will be really helpful. The other

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Speaker 5: thing that the investors are very focused on is the

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Speaker 5: robo taxi. The rollout is a little bit slower than

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Speaker 5: we initially thought, but we are hearing their testing. Uh

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Speaker 5: you know, they're they're putting cyber caps in multiple cities

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Speaker 5: across the US to valid date the vehicle.

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