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Speaker 2: This is the way it works, Folks at Bloomberg News.
Speaker 2: When a story gets a green bee next to it,
Speaker 2: that's a good thing. That means it's exclusive or as
Speaker 2: those newsgeeks call it, a scoop, and this is a
Speaker 2: good one. Wow. Treasury Secretary Scott Bessen and feder Reserve
Speaker 2: Chair Drome Palce summoned Wall Street leaders to an urgent
Speaker 2: meeting on concerns that the latest artificial intelligence model from
Speaker 2: Anthropic we'll usher in an era of greater cyber risk.
Speaker 2: Great Our finance team Todd Gillespie, Katanga Gants, Jack Johnson,
Speaker 2: Hannah Levitt, and shrinanarajen Co wrote that and the editor
Speaker 2: is with us on this story. Katherine Chiglinsky, US finance
Speaker 2: team leader for Bloomberg News, What was this meeting and
Speaker 2: why was it like so urgently called?
Speaker 3: I guess well, it's really interesting because obviously, like Besstt
Speaker 3: and Pale are always meeting with bank CEOs and sort
Speaker 3: of staying in touch with the financial system. But to
Speaker 3: have them both sort of in on this meeting in which, yes,
Speaker 3: they called the bank CEOs, who many of which were
Speaker 3: in town for sort of a lobbying meeting, they called
Speaker 3: them in for this urgent meeting. And I think what's
Speaker 3: really interesting is it really is about this Anthropic Mythos
Speaker 3: model and what it really pretends for the industry. And
Speaker 3: I think that's key. You know, it sounds like obviously
Speaker 3: Anthropic is trying to be very thoughtful on sort of
Speaker 3: releasing it to select few companies to sort of be
Speaker 3: able to test their systems. And I think banks obviously
Speaker 3: are kind of a key source that we need to
Speaker 3: needs to make sure that they can sort of batten
Speaker 3: down the hatches and make sure they're ready for this
Speaker 3: next era of cyber risk.
Speaker 4: How unusual is this, Catherine for bank leaders to be
Speaker 4: summoned on such short notice over the potential stemic risk
Speaker 4: of a private company to their industry.
Speaker 3: Yeah, well, and I think it's it's interesting because they
Speaker 3: you know, they'll meet on macro events, they'll meet on larger,
Speaker 3: broader trends in the industry. I think this is a
Speaker 3: little bit interesting in that I'm not sure that there's
Speaker 3: exactly been like an AI prompt before that has spurred
Speaker 3: them all to come together and come together quickly. You know.
Speaker 3: AI has been like definitely a risk factor that all
Speaker 3: the companies are talking about and have been talking about
Speaker 3: for many years at this point. But for them to
Speaker 3: sort of come together and say, listen, this is to
Speaker 3: get a warning from the Fed and the Treasury that
Speaker 3: says this is a big risk and you need to
Speaker 3: be preparing is like a very big statement.
Speaker 2: What the banks. Have the banks acknowledged this risk or
Speaker 2: how have the banks responded to some of these AI
Speaker 2: risk that may be out there as a release to cybersecurity.
Speaker 3: Well, I think honestly, in the past few years banks
Speaker 3: have really ramped up their cybersecurity protocols. I think AI
Speaker 3: is a new challenge obviously, because it just it makes
Speaker 3: it quicker that these these attacks and these risks can evolve.
Speaker 3: So I do think that you know, banks have been
Speaker 3: responding already and are already sort of quickly on this.
Speaker 3: Like you look at Project class Wing, which is that
Speaker 3: sort of anthropic lad limited release to certain companies to
Speaker 3: protect their defenses, and JP Morgan is already on that list,
Speaker 3: So it's it's clear that they're quickly trying to get
Speaker 3: involved and to make sure that they can sort of
Speaker 3: ready their systems as best you possibly can in this
Speaker 3: sort of new age. But I do think it's interesting
Speaker 3: that like this is enough of a you know, as
Speaker 3: we're sort of questioning, you know, how good really is
Speaker 3: meet those I think this is a real indicator that
Speaker 3: regulators are taking it seriously.
Speaker 4: Have there been certain banks within that group that are
Speaker 4: more proactive about mitigating these AI and cybersecurity risks than others?
Speaker 4: Any kind of standouts in terms of what they're doing.
Speaker 3: Well, I think you have all the especially the big
Speaker 3: Wall Street banks, I think have been ramping up that
Speaker 3: a lot, and part of it is honestly cyber risk,
Speaker 3: you know, actual reputation and if you're JP Morgan, the
Speaker 3: top us bank, you've got a lot to protect. I
Speaker 3: do think what's going to be really interesting is like
Speaker 3: how regionals handle this. You know, a smaller bank that
Speaker 3: maybe doesn't have as much of the flexibility and the
Speaker 3: capital to sort of support large scales sort of cyber initiatives.
Speaker 3: It is going to be really important how the big
Speaker 3: giants JP Morgan Morgan Stanley City Group addressed this, because
Speaker 3: I think it'll sort of set the tone for the
Speaker 3: rest of the industry.
Speaker 2: Anthropic. You're reporting shows Anthropic has separately been battling the
Speaker 2: Trump administration in court that Peddicon had labeled the company
Speaker 2: Anthropic as a supply a chain risk, a designation that
Speaker 2: Anthropic has opposed. Here, So the government's definitely looking at
Speaker 2: this stuff from a lot of different angles, aren't they definitely?
Speaker 3: And you know, I think right now, whenever anyone sees
Speaker 3: Anthropic and the government and you're grown, you're thinking about
Speaker 3: this sort of political battle that they're in over the
Speaker 3: Pentagon's designation. And I do think though the fact that
Speaker 3: Jerome pal was in this meeting, you know, he's obviously
Speaker 3: trying to be very careful. They don't want to be,
Speaker 3: you know, seen as a very political institution. But I
Speaker 3: think the fact that the Federal Reserve was in this
Speaker 3: meeting really understates the fact that this is less of
Speaker 3: a political thing and this is really more of a
Speaker 3: you know, as a top banking regulator, the FED is
Speaker 3: concerned about sort of cyber risks and how the industry
Speaker 3: is doing it, and the FED knows banks well, I
Speaker 3: mean they have the examiners who are going in routinely
Speaker 3: to sort of supervise operations. So yeah, I think a
Speaker 3: little less of a political bent for this meeting in particular,
Speaker 3: just really underscores sort of how cyber becomes a top
Speaker 3: topic for them.
Speaker 4: We have bank earnings coming up. We're going to hear
Speaker 4: from a lot of these executives on earnings calls next week.
Speaker 4: Do you expect that they'll address this at all?
Speaker 3: It would be shocking if they don't, mostly because we're
Speaker 3: always talking about AI. I feel like every earnings call,
Speaker 3: you know, everyone wants to know how are you using it?
Speaker 3: What does it mean for your employees? And I think
Speaker 3: a natural extension is sort of what are you doing
Speaker 3: for the risks of cyber especially? You know, you see
Speaker 3: with escalating global conflicts like the Iran War. We just
Speaker 3: had you know, a fintech chime got hacked, So I think,
Speaker 3: you know, there's some there's definitely an impetus for them
Speaker 3: to address this next week.
Speaker 2: What is the expectation of earnings next week?
Speaker 3: Well, a blowout quarter for trading, It's going to be
Speaker 3: like potentially across all of the five biggest trading desks.
Speaker 3: We're expecting stock trading to set records and fixed income
Speaker 3: trading good at most of the banks. I think that'll
Speaker 3: be up M and A. It's kind of interesting because
Speaker 3: you would think that geopolitics really put a damper on it,
Speaker 3: but most of what we've seen so far and what
Speaker 3: they've been signaling is that it's really held up. So
Speaker 3: that'll be interesting. I think another wild card in addition
Speaker 3: to sort of how they address the AI though, is
Speaker 3: private credit, Like how do they address it? Investors are
Speaker 3: very want details on what are their exposures, and so
Speaker 3: we'll be monitoring that pretty closely.
Speaker 4: With us More from Bloomberg Intelligence coming up after this.
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Speaker 2: Let's talk about the consumer. Let's talk about the consumer.
Speaker 2: What are they buying? And one of the great places
Speaker 2: to look is sneakers and you look at Nike and
Speaker 2: you can do that with Punham Boyle Senior US e
Speaker 2: commerce and retail analyst at Bloomberg Intelligence. There's so many
Speaker 2: puts and takes for the Nike because, I mean, it's
Speaker 2: a product everybody knows, it's a global product, but that
Speaker 2: has pluses and minuses. Put him, what's the Nike story here?
Speaker 2: I know they've had a lot of challenges with China.
Speaker 2: They've had a lot of challenges managing their inventory, tariffs
Speaker 2: like a lot of other companies. What's the Nike story
Speaker 2: right now?
Speaker 5: Pooham.
Speaker 6: Yeah, So Nike is basically going on or a turnaround.
Speaker 6: There's a lot of things that they need to fix,
Speaker 6: but there are things that they have fixed. So let's
Speaker 6: start with the biggest piece of the business, which is
Speaker 6: North America. In North America, since Ali A. Hill has
Speaker 6: taken helm, they have made improvements and fact sales have
Speaker 6: turned positive there and that's a sign that the initiatives
Speaker 6: put in place, getting the right product back in, working
Speaker 6: on speed, clearing out old product, reducing inventory. It's all
Speaker 6: paying off and we expect that to continue. The challenge, however,
Speaker 6: has been China. You know, as we know we spoke
Speaker 6: about this earlier. China is a market that not just Nike,
Speaker 6: but every at leisure company is eyeing for growth, for
Speaker 6: long term growth, and in China, Nike has had major hiccups.
Speaker 6: So the playbook there is to repeat what they did
Speaker 6: in North America to fix the business. But it's not
Speaker 6: going to happen overnight. It is going to take time,
Speaker 6: and I think it's just about being patient and watching
Speaker 6: them execute against China as well.
Speaker 4: Chinese consumer broadly have just been shifting two more local brands.
Speaker 4: What will it take for Nike to recapture their appetite boonem.
Speaker 6: I think it's building brand heat right. The first thing
Speaker 6: they have to do is get the right product in
Speaker 6: So when you look at the product that's being sold
Speaker 6: in China, it's heavily discounted. In fact, Nike's perceived as
Speaker 6: an off price label in China, so they need to
Speaker 6: flip that image. They need to move the discounting because
Speaker 6: that's clearly not good. They need to introduce premium product
Speaker 6: into the Chinese marketplace and then have local ambassadors, local
Speaker 6: clubs really validate the brand for them, and all that
Speaker 6: will start with product first and then after and we
Speaker 6: do think it's possible, but it's just there's so much
Speaker 6: old inventory there still right now that needs to be discounted.
Speaker 6: It's going to take I think at least twelve to
Speaker 6: eighteen months.
Speaker 2: If I'm an investor, that's twelve eighteen month timeframe. I'm
Speaker 2: not sure I'm that interested in it. How's the company
Speaker 2: trying to position and it's turnaround here to appeal to investors?
Speaker 6: I mean, look, people, investors are not being patient and
Speaker 6: we can see that with the reaction and the shares.
Speaker 6: Shares are down year to date, and Nike is just
Speaker 6: reiterating exactly what it's doing, and it's talking about its playbook,
Speaker 6: gloring inventory, is taking out discounts, getting the right product in.
Speaker 6: I think the next catalyst for Nike, in my mind,
Speaker 6: is going to be its analyst Day. It's a day
Speaker 6: that we've been waiting for for years. They postponed the
Speaker 6: last one they announced a few years ago. It'll take
Speaker 6: place in the fall, and we think that's when Nike
Speaker 6: will be able to really highlight the success it's had
Speaker 6: and also show its path forward with new inventory, new product,
Speaker 6: new collaborations, et cetera.
Speaker 4: Punam, how does this war and any disruptions from a
Speaker 4: higher oil, the risk of inflation and make Nike's turn
Speaker 4: around even more difficult. What challenges does it pose?
Speaker 6: You know, the risks of the war are not specific
Speaker 6: to Nike. I think it's across the consumer space. Oil
Speaker 6: prices means higher gas prices. It impacts low income consumers
Speaker 6: more than it does high income consumers. Thankfully, Nike is
Speaker 6: a brand that probably leans more towards the mid to
Speaker 6: high end than the low end, so they do have
Speaker 6: some buffer compared to a low end retailer. That said,
Speaker 6: you know, if things prolong for a long time and
Speaker 6: inflation continues to take higher, consumers will pull back, and
Speaker 6: the first place they pull back is undiscretionary goods, and
Speaker 6: sneakers is a discretionary purchase.
Speaker 2: Put them just step back a little bit. What's the
Speaker 2: competitive landscape for at leisure because there's so many I mean,
Speaker 2: Nike used to be just to me at least, a
Speaker 2: dominant brand, but it seems like it's gotten more and
Speaker 2: more competitive. I'm seeing brands of sneakers around here that
Speaker 2: I haven't seen before.
Speaker 6: You're absolutely right, Nike is still the dominant sneaker player globally.
Speaker 6: It is the largest footware brand in the world. It
Speaker 6: remains that, but it has lost here over the last
Speaker 6: five years to other brands. Some of the brands that
Speaker 6: you may be referring to include on Hoka, A six
Speaker 6: new Balance. All these brands and some others have gained traction,
Speaker 6: especially in the lifestyle and running space. That said, when
Speaker 6: you look at the size of those brands against Nike,
Speaker 6: there's still a wide gap. So we run a sneaker
Speaker 6: survey twice a year and when we ask consumers, you know,
Speaker 6: what is the choice of brand when it comes to sneakers,
Speaker 6: Nike still number one. So when you look at broadly,
Speaker 6: Nike is still the favorite brand, but when you look
Speaker 6: into niche markets, you are seeing the rise of some
Speaker 6: of these other brands, which is obviously why Nike has
Speaker 6: been losing share.
Speaker 4: Put in very quickly, what else stood out to you
Speaker 4: as some of the key differences in this report compared
Speaker 4: to prior quarters. Any metrics that caught your attention?
Speaker 6: I think I think the biggest metric that caught my
Speaker 6: attention was the inventory levels. They have been dropping, and
Speaker 6: that's a really good sign because that just shows us
Speaker 6: that the efforts that the management team is putting in
Speaker 6: place is bringing a new product, and the new product
Speaker 6: results are actually quite impressive. If you look at the
Speaker 6: sales of their new products, they are up nicely, and
Speaker 6: that reflects that anything that they're putting their mind on
Speaker 6: is working.
Speaker 2: Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 2: The war in Iran is creating obviously some logistic concerns,
Speaker 2: particularly in the energy space, but also some of the
Speaker 2: metals that get that come out of that part of
Speaker 2: the world, and that's a little bit of an issue
Speaker 2: for the auto industry. Checking with Steve Man Bloomberg Intelligence,
Speaker 2: Global Autos and industrials and analysts. Steeve talk to us
Speaker 2: about the global auto companies and are they facing any
Speaker 2: challenges by the unrest the war in the Mid East.
Speaker 5: Yeah, definitely, they are facing a lot of logistic issues.
Speaker 5: You know, gasoline prices are high. But we publish a
Speaker 5: piece of research today focusing on aluminum because aluminum is
Speaker 5: a critical metal for the auto industry. It's a substitute
Speaker 5: for steel and it's supposed to be. It's used to
Speaker 5: make the vehicle a little bit lighter. It's used even
Speaker 5: more so on evs because you know, they want to
Speaker 5: you know, reduce the weight of the vehicle so the
Speaker 5: driving range is longer and extends the battery life. So
Speaker 5: evs typically use about seventy five eighty percent more aluminum,
Speaker 5: around eight hundred pounds per car. Gasoline cars a little
Speaker 5: bit less. It's about four hundred pounds to five hundred
Speaker 5: pounds per vehicle. Doesn't seem like it's significant, but it
Speaker 5: is a big cost for the auto industry.
Speaker 4: Steve, how quickly does the spike and aluminum costs feed
Speaker 4: through to production costs and does that eventually get passed
Speaker 4: onto the consumer.
Speaker 5: Well, Fortunately, the aluminum costs is more of an inflationary,
Speaker 5: you know, the aluminum supply chain issues that we're seeing.
Speaker 5: It's more of an inflationary for the automaker, less so
Speaker 5: of a supply crunch. Now, aluminum coming from the Middle East,
Speaker 5: it's about fifteen percent coming into into the US, it's
Speaker 5: about fifteen percent. It's significant. But if you look at
Speaker 5: the auto industry alone, actually mostly aluminum is actually produced
Speaker 5: locally in the US, and about half is coming from
Speaker 5: from Canada. Now even though it's locally produced, it's under
Speaker 5: the USMCA realm. But the prices the global press is rising,
Speaker 5: and that's that's what's causing the inflationary impact on the automakers.
Speaker 2: Steve, can you give us an update on tariffs? Where
Speaker 2: are we with tariffs at the audit industry? Quite frankly,
Speaker 2: I can't keep track.
Speaker 5: Yeah, and the terriffs has a huge impact on aluminum,
Speaker 5: the fact that it's produced in the US and in Canada. Uh,
Speaker 5: there's actually no terraf impact. Remember aluminum, there's a there's
Speaker 5: a tariff of fifty percent on illuminum and steel, but
Speaker 5: because they fall under the US MSA, the United States,
Speaker 5: Mexico and Canada Free Trade Agreement, the exchange of metals
Speaker 5: between the two country is not part of that fifty percent.
Speaker 5: So look again, it's uh, you know, we we estimate
Speaker 5: the per vehicle costs. It's around as much as you know,
Speaker 5: three hundred and eighty five dollars for for evs, less
Speaker 5: for for ice vehicles. So again, I think the automakers
Speaker 5: can actually pass on that cost to the consumer or somehow,
Speaker 5: you know, do some cost initiatives initiatives to absorb those costs.
Speaker 4: Higher costs, Steve, you mentioned that Tesla and electric vehicle
Speaker 4: makers specifically are you know, most at risk from higher
Speaker 4: aluminum costs. Are there any automakers that are more insulated
Speaker 4: from this witch companies?
Speaker 5: Yeah, Tesla, Revia and Lucid any any actually, anybody that
Speaker 5: makes e V uh is gonna face higher costs for
Speaker 5: those e vs. But because you know, Tesla, Ravin, Lucid
Speaker 5: A are peer plays, they're gonna face, you know, bigger
Speaker 5: impact than say the GM and the Ford. Now EV,
Speaker 5: do do you use a lot of aluminum, like I
Speaker 5: said earlier, help cut cut cut down costs. There's a
Speaker 5: lot of aluminum. You'll find a lot of alumin in
Speaker 5: the batteries. You'll find a lot of aluminium in the motor,
Speaker 5: in the motor housing. Uh So the intensity is much
Speaker 5: greater on on EV's.
Speaker 2: So you know why I haven't heard of a lot
Speaker 2: from recently is elon musk. What's the up to these days?
Speaker 2: Cvs getting ready for Space X I p O, what's it?
Speaker 2: What's Tesla?
Speaker 5: Yeah, there's a there's a lot of rumbling uh rumors
Speaker 5: in in for Tesla specifically, obviously he is very busy
Speaker 5: with SpaceX. There's a lot of headlines around SpaceX I
Speaker 5: p O SUH. But within Tesla, it seems like, based
Speaker 5: on social media and other media reports that you know,
Speaker 5: Elon Musk is actually revisiting in launching a smaller vehicle,
Speaker 5: and that would be great, especially for emerging markets. We
Speaker 5: are seeing a lot of sales improvement over in South
Speaker 5: Korea and Japan. They're expanding their their network, retail network,
Speaker 5: they're expanding their service network there. So launching a smaller
Speaker 5: vehicle will will be will be really helpful. The other
Speaker 5: thing that the investors are very focused on is the
Speaker 5: robo taxi. The rollout is a little bit slower than
Speaker 5: we initially thought, but we are hearing their testing. Uh
Speaker 5: you know, they're they're putting cyber caps in multiple cities
Speaker 5: across the US to valid date the vehicle.
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