WEBVTT - Surveillance: Marriott Sees Travel Rebound 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownowitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, sun Cloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.639 and of course on the Bloomberg terminal. Right now, Lisa 0:00:30.680 --> 0:00:33.199 Bramins and Tom keenan we digress, and we digress to 0:00:33.280 --> 0:00:37.600 corporate management in moving forward in this pandemic, Anthony Kapjanos, 0:00:37.640 --> 0:00:41.879 with Marriott the CEO and Tony Capiano out of Cornell Hotel, 0:00:42.280 --> 0:00:45.080 has had the toughest task in management of any corporate 0:00:45.120 --> 0:00:48.680 officer in America, filling his shoes of the great Arne 0:00:48.680 --> 0:00:51.360 Soords and I'm gonna go to Cornell Hotel and Arne 0:00:51.400 --> 0:00:54.760 Soords and life is service. How have you managed this 0:00:54.840 --> 0:00:57.440 tough task? Well? I had the first of all, thanks 0:00:57.440 --> 0:00:59.840 for having me. It's great to be back in per 0:01:00.040 --> 0:01:03.320 sin In Studio. I had the good fortune of working 0:01:03.320 --> 0:01:05.800 with Arnie for almost a quarter of a century. I 0:01:05.840 --> 0:01:09.040 think the easiest way to manage through the grief that 0:01:09.040 --> 0:01:12.480 that the Marriott family has experienced is to honor his 0:01:12.560 --> 0:01:15.120 legacy by continuing all the great work he had done 0:01:15.400 --> 0:01:18.039 and continuing the company down the path that he had 0:01:18.040 --> 0:01:20.720 set forth for us. Cornell Hotel didn't have a course 0:01:20.760 --> 0:01:24.560 pandemic one oh one. They may now what they may now? 0:01:24.640 --> 0:01:27.440 What have you learned? A few things? I think I've 0:01:27.560 --> 0:01:31.760 learned how valuable our culture is. I've found how resilient 0:01:32.120 --> 0:01:36.120 and adaptable are people are around the world. I've learned 0:01:36.160 --> 0:01:40.760 how much people miss travel, and I've learned how responsive 0:01:40.840 --> 0:01:43.160 we need to be to these sorts of crises. We 0:01:43.200 --> 0:01:46.399 had to not only stabilize the company's balance sheet in 0:01:46.400 --> 0:01:49.520 a matter of weeks, but roll out all new operating 0:01:49.600 --> 0:01:53.880 and um cleanliness protocols in a hundred and thirty three 0:01:53.880 --> 0:01:56.520 countries around the world in a matter of weeks, Tony, 0:01:56.720 --> 0:01:59.680 How difficult is it to hire enough personnel to meet 0:01:59.680 --> 0:02:01.960 the credible demand of people who do want to get 0:02:02.000 --> 0:02:04.920 back on the road. It varies by market, Lisa. In 0:02:05.200 --> 0:02:07.600 the markets here in the US where we've seen demands 0:02:07.640 --> 0:02:12.280 spike most rapidly California, Texas, Florida, it is challenging, and 0:02:12.280 --> 0:02:15.680 we're competing for labor not only with other hospitality and 0:02:15.720 --> 0:02:19.360 travel companies, but with those industries that have thrived, some 0:02:19.440 --> 0:02:22.840 of the online retailers and the like. We really have 0:02:22.919 --> 0:02:26.680 to be much more proactive and deliberate about reminding folks 0:02:26.720 --> 0:02:31.600 about the appeal and the opportunities that exist in traveling tours. Meanwhile, 0:02:31.680 --> 0:02:34.120 as we're dealing with a number of supply chain kinks 0:02:34.120 --> 0:02:37.400 and certainly labor market frictions, were also dealing with a 0:02:37.520 --> 0:02:41.679 different international backdrop, and we had President Biden come out 0:02:41.680 --> 0:02:45.160 and warned companies about doing business in Hong Kong. How 0:02:45.160 --> 0:02:48.519 are you dealing with these types of saber rattling warnings 0:02:48.520 --> 0:02:52.160 and possibly even more than saber rattling, particularly with respect 0:02:52.200 --> 0:02:54.000 to China, where I know that you guys were planning 0:02:54.000 --> 0:02:57.000 to expand. Well, we continue to expand in China. It's 0:02:57.000 --> 0:03:00.920 our biggest, second biggest market globally. We've got four hundred 0:03:00.919 --> 0:03:04.280 hotels open, another four hundred in the pipeline. I think 0:03:04.320 --> 0:03:07.800 we're helped a bit Virtually the entirety of our footprint 0:03:07.800 --> 0:03:11.400 and pipeline are owned by Chinese owners, and so we 0:03:11.480 --> 0:03:14.639 are viewed a bit more as a Chinese company versus 0:03:14.639 --> 0:03:17.560 an American company in terms of the ownership of the 0:03:17.600 --> 0:03:21.280 assets there um. But again we've got to navigate these 0:03:21.320 --> 0:03:24.560 complexities in a hundred and thirty three countries around the world. 0:03:24.880 --> 0:03:28.480 And it's really I think starts with being good corporate citizens. 0:03:28.520 --> 0:03:30.520 Best thing you ever did was restore the old King 0:03:30.600 --> 0:03:33.280 cole mural at the St. Regis Hotel in New York. 0:03:33.440 --> 0:03:35.520 You don't have to restore it in Hong Kong. You 0:03:35.600 --> 0:03:38.360 have a Saint Regis in Hong Kong that is an 0:03:38.400 --> 0:03:42.040 absolute palace. The reality is you've got to get fat 0:03:42.120 --> 0:03:45.480 cat bankers into that St. Regis and Hong Kong. How 0:03:45.520 --> 0:03:49.080 are you going to do that given the politics of Beijing, Well, 0:03:49.240 --> 0:03:52.120 it will certainly be a challenge. What's interesting is, at 0:03:52.200 --> 0:03:55.440 least through the pandemic, given the condition of borders in China, 0:03:55.920 --> 0:03:59.760 UM China is relying almost entirely on domestic demand. But 0:04:00.120 --> 0:04:03.480 we look at corporate business travel in China in market 0:04:03.600 --> 0:04:06.040 right now, we were six percent ahead of where we 0:04:06.040 --> 0:04:09.560 were in March of nineteen. So the volume is there, 0:04:09.640 --> 0:04:12.520 the pricing powers there, but the mix is different because 0:04:12.520 --> 0:04:15.600 it's largely domestic demand. Tony, what about globally, are you 0:04:15.600 --> 0:04:18.960 starting to see global travel wax or Wayne? Given the 0:04:19.080 --> 0:04:22.840 increase in delta variant around the world, it varies by market, 0:04:22.839 --> 0:04:24.839 and one of the nice things about our businesses we 0:04:24.960 --> 0:04:29.000 track and analyze the data in real time. When the 0:04:29.040 --> 0:04:32.680 EU came out with a fairly opaque statement about borders 0:04:32.720 --> 0:04:36.960 opening to international travel, we saw booking volume jump for 0:04:37.960 --> 0:04:41.480 in two weeks. When Greece came out with more specific 0:04:41.560 --> 0:04:44.120 details on what was going to be required to enter 0:04:44.120 --> 0:04:48.080 the country, we immediately exceeded demand booking volumes from two 0:04:48.080 --> 0:04:51.360 thousand nineteen. Then you shift to other parts of the world, 0:04:51.600 --> 0:04:55.120 countries like India that are still struggling mightily with the pandemic, 0:04:55.480 --> 0:04:59.279 we see really muted demand patterns. Honestly, I just actually 0:04:59.279 --> 0:05:01.720 traveled interne nationally and it was amazing to see how 0:05:01.720 --> 0:05:03.919 everyone felt like they were getting in just into the wire, 0:05:04.200 --> 0:05:06.159 and they were all checking the news to see what 0:05:06.279 --> 0:05:09.400 additional restrictions might be in place. On the way back, 0:05:09.720 --> 0:05:13.080 things were different, including the number of times a housekeeper 0:05:13.080 --> 0:05:15.520 would come into your hotel room to change the towels, 0:05:15.560 --> 0:05:17.480 the concern about being in the same room at the 0:05:17.520 --> 0:05:20.400 same time, buffets that would not be out there for 0:05:20.440 --> 0:05:22.920 you to take the way that they previously were. How 0:05:23.000 --> 0:05:25.080 much of this is going to be the new normal 0:05:25.120 --> 0:05:29.119 going forward? I think There will be changes we've made 0:05:29.200 --> 0:05:33.039 that will endure through the beyond the pandemic. Some of 0:05:33.040 --> 0:05:36.719 the contactless technology we've put in place, the ability to 0:05:36.800 --> 0:05:39.440 check in, check out on the app, chat with the 0:05:39.480 --> 0:05:43.080 hotel staff through your device. We've got mobile key and 0:05:43.160 --> 0:05:46.120 more than four thousand hotels around the world. I think 0:05:46.160 --> 0:05:49.680 a lot of that will continue. Things like housekeeping, how 0:05:49.760 --> 0:05:52.760 we deliver food and beverage service will evolve on a 0:05:52.839 --> 0:05:55.480 market by market basis. If you were in China today, 0:05:55.839 --> 0:05:59.880 the buffets which are so popular, they're back. I look 0:06:00.080 --> 0:06:03.440 at Goldman Sachs arguing about raising pay of junior bankers. 0:06:03.560 --> 0:06:06.200 Do you have to raise the pay of your line 0:06:06.360 --> 0:06:10.640 employees because of employers like Amazon competing at a lower 0:06:10.640 --> 0:06:14.520 wage in an all in benefit package in some markets? Absolutely, 0:06:14.960 --> 0:06:20.279 Amazon and Jesse and Bezos, they're affecting your base way. 0:06:20.320 --> 0:06:23.360 I think they're affecting to me this entirely of travel 0:06:23.480 --> 0:06:26.600 on tourism, how doing What is what is Amazon doing 0:06:26.839 --> 0:06:30.080 in a juggernaut to affect your employee pay Stork, I 0:06:30.080 --> 0:06:33.560 think their entry level wage rates are putting pressure on 0:06:33.600 --> 0:06:38.040 wage rates in certain markets. Um and I I think 0:06:38.880 --> 0:06:41.360 one of the things we're wrestling with a bit. The 0:06:41.920 --> 0:06:45.360 employment market at large has often viewed travel on tourism 0:06:45.440 --> 0:06:47.880 as a bit of a safe harbor industry, and I 0:06:47.880 --> 0:06:50.200 think some of that confidence has been rattled a bit 0:06:50.520 --> 0:06:53.719 when you look at global occupancies dropping down into the 0:06:53.760 --> 0:06:57.200 low teens at the outset of the pandemic, all of 0:06:57.200 --> 0:06:59.760 that travel on tourism companies had to make heart wrenching 0:06:59.760 --> 0:07:03.440 to visions around furloughs and job eliminations, and I think 0:07:03.480 --> 0:07:05.279 we've got to do a lot of work to restore 0:07:05.400 --> 0:07:07.960 confidence that this is an industry that you can build 0:07:07.960 --> 0:07:10.920 a long term career, get to work. I need lobster 0:07:11.040 --> 0:07:13.920 role in all right Coast to Coast, Tony Cupiano with 0:07:14.000 --> 0:07:17.240 us their chief executive officer, arguably the CEO of the 0:07:17.320 --> 0:07:26.360 year on the death of Earning Sorensen as well Kenner 0:07:26.400 --> 0:07:28.040 Leon with us, and I do want to say, folks, 0:07:28.040 --> 0:07:30.000 and it's just an opinion, but when we look at 0:07:30.000 --> 0:07:33.560 four or five, six, seven banks, the chart presentation a 0:07:33.600 --> 0:07:35.880 Bank of America and the heat of an earnings release 0:07:36.360 --> 0:07:40.120 is absolutely best in class. There's no other way to 0:07:40.200 --> 0:07:41.960 put it. Ken Ley on where Us was c f 0:07:42.120 --> 0:07:44.720 R A. Ken Brian moynann has a courage to put 0:07:44.720 --> 0:07:49.240 the efficiency ratio up in a gorgeous chart before the pandemic. 0:07:49.280 --> 0:07:53.000 The number was a brilliant six. After the pandemic and 0:07:53.000 --> 0:07:55.960 in the pandemic, it's not do you have a belief 0:07:56.040 --> 0:07:58.920 that the bank can you get back to the constructive 0:07:58.960 --> 0:08:02.800 efficiency ratios of the past or is that day's gone by. 0:08:05.040 --> 0:08:08.680 It's only for the problem banks where the efficiency ratios 0:08:08.720 --> 0:08:12.160 will stay elevated, and that would be perhaps City Group 0:08:12.200 --> 0:08:15.840 and Wells Fargo. But for Bank America JP Morgan, the 0:08:15.880 --> 0:08:18.240 answer is yes. And then you've got to look at 0:08:18.280 --> 0:08:21.840 what is the efficiency UM it's essentially and how they 0:08:21.960 --> 0:08:26.840 operate and with their investments in digital and technology and 0:08:27.120 --> 0:08:29.960 enables them to improve that ratio. So it's a semple 0:08:30.040 --> 0:08:34.080 ratio that captures their whole business. UM. It's kind of 0:08:34.080 --> 0:08:37.440 a second derivative for analysts as as we look at 0:08:37.480 --> 0:08:40.520 what is performance, I see a moonshot on the chart 0:08:40.600 --> 0:08:43.000 kenn Ley on and it's what John Farrow was talking about. 0:08:43.080 --> 0:08:46.360 We're using digital, we're using our phones, the zell z 0:08:46.559 --> 0:08:48.839 E L L E. Folks, we all move money around 0:08:48.880 --> 0:08:51.880 to our kids on it um Kenner Leon, what does 0:08:52.000 --> 0:08:55.120 zel mean for Brian moynihan James Diamond and the rest 0:08:55.480 --> 0:08:59.880 just up up we go. In cell phone payments, you 0:09:00.040 --> 0:09:02.840 want to definitely be a player and take advantage of 0:09:02.880 --> 0:09:06.480 how society is changing behavior, how they shop and how 0:09:06.520 --> 0:09:10.120 they spend. But don't get distracted, and I don't think 0:09:10.120 --> 0:09:13.840 Brian moynihan and Management is a Bank of America that 0:09:13.960 --> 0:09:17.880 a physical presence will help them now for the delayed 0:09:18.320 --> 0:09:22.560 rebound of the consumer for banking and small business small 0:09:22.679 --> 0:09:26.120 business loans, they come to a local branch or to 0:09:26.160 --> 0:09:30.440 a financial center. So we're also seeing market share gain 0:09:31.320 --> 0:09:36.640 of the large banks in even the top mark metropolitan 0:09:36.679 --> 0:09:39.480 markets in the US. So it's it's kind of a 0:09:39.520 --> 0:09:43.720 boring strategy, but incrementally that's going to help them, especially 0:09:43.800 --> 0:09:47.280 when we see a pickup and loan activity. Unfortunately, Tom, 0:09:47.320 --> 0:09:51.760 I think that's what confidence in not for Q three 0:09:52.080 --> 0:09:54.400 of this year, and maybe we get a glimpse of 0:09:54.440 --> 0:09:57.319 that later this year, and down to what's happened on 0:09:57.360 --> 0:09:59.679 the fiscal side, can for you to get a decent 0:09:59.679 --> 0:10:03.520 read on what was happening with loan growth. You know, 0:10:04.000 --> 0:10:08.000 so much of the catalysts here for for loan growth 0:10:08.200 --> 0:10:11.840 is really the consumer. It's not commercial corporate. Their flush 0:10:11.920 --> 0:10:15.040 with cash or they have access in the US markets 0:10:15.080 --> 0:10:18.720 to the capital markets, and we saw that in fixed 0:10:18.720 --> 0:10:22.960 income underwriting. But you know, for the consumer, it's you 0:10:23.000 --> 0:10:26.200 look at the FED data. Of course, many metrics households 0:10:26.240 --> 0:10:32.160 saving the ratio of debt relative to their to their income, 0:10:32.360 --> 0:10:36.040 and they're at record low. So it might be we 0:10:36.160 --> 0:10:40.120 got technology going, but the consumer is more conservative. It's 0:10:40.160 --> 0:10:43.000 like coming out of the depression of the thirties or 0:10:43.040 --> 0:10:46.160 the financial crisis. They're saying, we're gonna pay our bills 0:10:46.160 --> 0:10:49.280 and we're not gonna let these credit card balances rise 0:10:49.360 --> 0:10:51.880 as much as they can. That's a big story as 0:10:51.920 --> 0:10:53.880 we go into the next quarter because we're going to 0:10:53.920 --> 0:10:56.600 see if that's really true. The big distinction there, of course, 0:10:56.600 --> 0:11:00.160 they've come out of this one. I'm aggregate not pull or. 0:11:00.240 --> 0:11:02.400 That is the big distinction this time around. I know 0:11:02.440 --> 0:11:04.959 Alison Williams and bloom Bag Intelligence, you as well, Lisa, 0:11:04.960 --> 0:11:06.920 have written about this in the last twenty four hours, 0:11:06.960 --> 0:11:10.200 that distinction between main street and Wall Street companies and 0:11:10.280 --> 0:11:13.360 consumers and how that cash is being deployed. The idea 0:11:13.440 --> 0:11:15.240 here that you can bet more reliably, and that's what 0:11:15.240 --> 0:11:18.040 we're seeing in the stock price on banking on mergers 0:11:18.040 --> 0:11:22.120 and acquisitions, deal making, other types of financial markets activity 0:11:22.200 --> 0:11:25.520 than for consumers to be profligate with their spending. Can 0:11:25.600 --> 0:11:29.040 going forward, can we continue to rely? Can investors continue 0:11:29.080 --> 0:11:33.120 to rely on the banking activity to support any lag 0:11:33.360 --> 0:11:37.760 in lending until that picks back up. The banks are 0:11:38.000 --> 0:11:43.240 are strong, the balance sheets are incredibly at great levels, 0:11:43.280 --> 0:11:46.360 and return of capital. So I think for the consumer, 0:11:46.480 --> 0:11:49.439 the banks are solid. And for the investor, uh, there's 0:11:49.520 --> 0:11:52.920 return of capital. We have substantial increases of dividend and 0:11:53.000 --> 0:11:57.000 buy back they could do after the Federal Reserve stress tests. 0:11:57.200 --> 0:12:00.160 And keep in mind the whole battle here again they 0:12:00.160 --> 0:12:04.440 after capturing wallet share of consumer spending. But we didn't 0:12:04.440 --> 0:12:08.080 talk about today. Uh. The strong results of the asset 0:12:08.200 --> 0:12:11.760 management and wealth management businesses here today for Bank America, 0:12:12.080 --> 0:12:14.800 but all the large banks. UH. And this is great 0:12:14.840 --> 0:12:19.240 because this drives for investors confidence on recurring revenue and 0:12:19.360 --> 0:12:23.160 cash flow. Kenley on CFR right, thank you, sir Kenley 0:12:23.160 --> 0:12:29.800 on that wank in on these numbers. Let's bring it, David, 0:12:29.800 --> 0:12:33.360 George Robert w vad City of Research Analysts for US banks. 0:12:33.520 --> 0:12:36.280 David's your first take on the numbers place. I think 0:12:36.320 --> 0:12:38.480 overall John, it's it's great to be here. I think 0:12:38.480 --> 0:12:41.480 the numbers overall were pretty good and continued to reflect 0:12:42.120 --> 0:12:45.360 an improving economy and that's evident in activity levels as 0:12:45.400 --> 0:12:50.640 well as a very strong credit quality really across the board. So, David, 0:12:50.679 --> 0:12:52.320 when we take a look at these numbers, one thing 0:12:52.360 --> 0:12:54.760 that has popped all of the bank earnings has been 0:12:55.040 --> 0:12:56.960 the lack of loan growth. And I'm wondering to the 0:12:56.960 --> 0:12:59.240 extent that there is loan growth, it is a come 0:12:59.320 --> 0:13:02.640 among the wealth there individuals. How much is that sort 0:13:02.679 --> 0:13:06.040 of keep point here that wealthier individuals are borrowing versus 0:13:06.080 --> 0:13:08.640 their assets that they don't have to liquidate portfolios that 0:13:08.679 --> 0:13:12.360 are currently invested in equity markets. Yeah, we've seen that. 0:13:12.520 --> 0:13:15.680 It's a great point. We've seen fairly significant growth um, 0:13:15.760 --> 0:13:18.319 Lisa in what I would call security spased loans and 0:13:18.520 --> 0:13:22.200 as you as you refer to wealthy individuals basically using 0:13:22.240 --> 0:13:26.280 their stock portfolios and wealth portfolios to uh to use 0:13:26.400 --> 0:13:29.080 a debt for other purposes, could be to buy home 0:13:29.320 --> 0:13:32.360 or other or other measures. So we're also seeing a 0:13:32.400 --> 0:13:35.160 pickup in credit card growth. So Jp Morgan, yesterday I 0:13:35.200 --> 0:13:38.920 had eight percent card growth, and we've seen the card 0:13:38.960 --> 0:13:41.360 stocks are act pretty positively. But other than that, loan 0:13:41.480 --> 0:13:43.720 to make one of demand continues to be pretty soft. 0:13:44.200 --> 0:13:47.160 David George, you want you to parachute in Mackenzie or 0:13:47.280 --> 0:13:51.040 Bain or the other great thinkers out five years Which 0:13:51.040 --> 0:13:55.480 of these banks is best position for five years out? Um? 0:13:55.880 --> 0:13:59.160 I really think that the industry, Uh, Tom, I'm trying 0:13:59.200 --> 0:14:02.720 not to make any headlines. I think that the industry 0:14:03.040 --> 0:14:05.000 in many ways is as in good as shape as 0:14:05.040 --> 0:14:07.720 it's ever been, particularly from a risk perspective. I think 0:14:07.760 --> 0:14:11.520 that the regulatory framework of the c CAR has made 0:14:11.559 --> 0:14:13.800 many of these companies, and I say this as a positive, 0:14:13.920 --> 0:14:18.599 very utility like in nature with respect to the predictability 0:14:18.600 --> 0:14:21.600 of their revenues, predictability of their earnings, and the general 0:14:21.960 --> 0:14:25.400 um lower risk um perspective of these business models. They've 0:14:25.440 --> 0:14:28.840 all got a ton of capital, significant access liquidity, and 0:14:28.880 --> 0:14:31.760 we've obviously this industry has been part of the solution 0:14:31.800 --> 0:14:34.680 to the pandemic rather than the problem like it was. 0:14:34.880 --> 0:14:36.600 As you know, Tom and the O eight oh nine 0:14:36.680 --> 0:14:38.840 time frame. What do you make of this argument that 0:14:38.880 --> 0:14:41.280 the consumer is really strong coming out of this pandemic, 0:14:41.280 --> 0:14:43.560 coming out of this crisis this time, But that's going 0:14:43.600 --> 0:14:45.760 to generate some rewards when it comes to loan growth 0:14:45.960 --> 0:14:49.560 further down the road. Do you buy into that? I do. 0:14:49.720 --> 0:14:53.120 I I'm a little worried that that consensus expectations for 0:14:53.200 --> 0:14:56.520 loan growth are overly optimistic. That the I continue to 0:14:56.520 --> 0:14:59.680 get questions from investors and and and the like about 0:15:00.000 --> 0:15:02.480 at lack of loan growth, and the story really is 0:15:02.920 --> 0:15:05.560 deposit growth. So Bank of America, as an example, had 0:15:05.600 --> 0:15:08.640 fourteen percent deposit growth and BA base got over two 0:15:08.680 --> 0:15:11.760 trillion in deposits with the T so that there is 0:15:11.840 --> 0:15:15.080 significant deposits coming into the system. So it's simply not 0:15:15.840 --> 0:15:19.400 intuitive from our perspective to expect a lot of loan 0:15:19.480 --> 0:15:23.360 growth until you see deposits start to leave the system. 0:15:23.440 --> 0:15:25.920 Once we get some sense on that, then I think 0:15:25.960 --> 0:15:28.320 you'll see loan growth improved. Now on the corporate side, 0:15:28.320 --> 0:15:31.840 I think supply chain disruptions are definitely playing a role 0:15:31.880 --> 0:15:34.640 because companies simply can't get inventory. So I do think 0:15:34.680 --> 0:15:38.960 you'll see a small step function higher once the once 0:15:39.000 --> 0:15:43.480 some of those um supply chain issues become resolved. But 0:15:43.480 --> 0:15:45.120 but but in the meantime, I think it's going to 0:15:45.200 --> 0:15:47.320 be pretty slow going. David, can you build on this 0:15:47.360 --> 0:15:50.520 idea of deposits increasing at such a quick pace given 0:15:50.520 --> 0:15:53.600 that people have been expending so much spending, is there 0:15:53.720 --> 0:15:56.720 an incoherence here and the fact that people are still 0:15:56.760 --> 0:16:01.280 stashing so much away in their savings. Well, um, it's 0:16:01.280 --> 0:16:02.800 a great question. I think part of it is just 0:16:02.840 --> 0:16:05.920 simply the government crowding out the banks. A lot of 0:16:05.960 --> 0:16:10.760 this deposit growth is simply government stimulus money finding its 0:16:10.760 --> 0:16:15.400 way into uh into bank accounts, and um, I don't 0:16:15.440 --> 0:16:18.640 really see uh um that changing much in the near 0:16:18.760 --> 0:16:21.440 term now. I think in two we should see loan 0:16:21.520 --> 0:16:23.840 growth start to get better, but it's not going to 0:16:23.920 --> 0:16:26.360 be nearly as stronger growth is maybe what we've gotten 0:16:26.360 --> 0:16:28.800 accustomed to over the last twenty to twenty five years. 0:16:28.840 --> 0:16:34.840 Do we have to give them the toaster? That's actually, John, 0:16:35.000 --> 0:16:39.560 that's a really really sophisticated question. We've given them the 0:16:39.560 --> 0:16:42.120 toast that we have to pike the toasters called John 0:16:42.120 --> 0:16:45.760 the toaster David, This is really important, John, David a 0:16:45.920 --> 0:16:49.440 firm and square, they're the toaster is a firm in 0:16:49.520 --> 0:16:53.400 those people changing the debate. What's the fear level on 0:16:53.600 --> 0:16:58.000 modern fintech for these bankers? Yeah, it's it's a good question. 0:16:58.160 --> 0:17:02.280 I think that that the industry, these these behemoth banks 0:17:02.320 --> 0:17:05.679 continue to be infringed upon really from all angles. And 0:17:05.720 --> 0:17:09.080 you you mentioned obviously some of the the fintech companies 0:17:09.080 --> 0:17:11.080 of the Firm and the like, and I think that's 0:17:11.119 --> 0:17:15.120 going to continue. UM. Where banks really differentiate themselves from 0:17:15.119 --> 0:17:18.800 my perspective UM as a longtime bank analyst seeing a 0:17:18.840 --> 0:17:21.600 lot of different cycles, is their ability to underwrite risk 0:17:21.960 --> 0:17:24.119 as well as their funding. They've got all of the 0:17:24.200 --> 0:17:28.160 same products that these fintech model line companies, but also 0:17:28.240 --> 0:17:33.400 have we think much more sophisticated credit modeling, capability, scale 0:17:33.840 --> 0:17:36.640 and funding. David love catching up with you in earning season. 0:17:36.680 --> 0:17:39.960 It's good to see it than wity of research analysts 0:17:39.960 --> 0:17:49.040 on the U S banks. Steve Major, HSBC global head 0:17:49.040 --> 0:17:51.240 of fixed Income Research joins us, and I'm pleased to 0:17:51.240 --> 0:17:52.800 say it's going to be with us for the next 0:17:52.800 --> 0:17:54.960 five ten minutes. Steven want to start that with the 0:17:55.000 --> 0:17:57.560 provocative question, if I may, do you think we might 0:17:57.600 --> 0:18:01.400 have already seen the peak in this yield curve for 0:18:01.440 --> 0:18:05.439 this cycle. Yeah. I think we saw the peak of 0:18:05.520 --> 0:18:10.960 yields at the end of March, John, And what's happened 0:18:11.000 --> 0:18:15.399 since then is the market just repricing to the reality 0:18:16.240 --> 0:18:20.320 rates aren't going up anytime soon. To me, I wonder 0:18:20.400 --> 0:18:23.919 what's happened to the two percent and and and above 0:18:24.040 --> 0:18:29.000 consensus forecast because to me, to me, that wasn't particularly 0:18:29.720 --> 0:18:34.400 robust in the first place. So so so I think 0:18:34.440 --> 0:18:38.280 that there could be a scrambling of people's forecasts, as 0:18:38.320 --> 0:18:41.480 you have seen some people scramble to cover their shorts, 0:18:41.520 --> 0:18:45.040 so you know, pushed if yields are going to move 0:18:45.080 --> 0:18:47.720 towards one percent or two percent through the rest of 0:18:47.760 --> 0:18:51.760 the year, I go for one, Steve Major. We've got 0:18:51.800 --> 0:18:55.320 an awful large audience of listeners and viewers that don't 0:18:55.400 --> 0:18:57.440 have a c f A. They didn't study for bose 0:18:57.640 --> 0:19:00.960 cover to cover like you did, and they're going wait 0:19:01.000 --> 0:19:04.480 a minute, debt up, debt up, ever ever higher, and 0:19:04.520 --> 0:19:08.000 as you brilliantly show, yields continue to fall. That is 0:19:08.040 --> 0:19:12.880 the arch conundrum. How can that be? Well, first of all, 0:19:13.080 --> 0:19:18.040 the last twenty years have seen that association of higher 0:19:18.080 --> 0:19:21.080 debt and lower yield in place. Now, of course, the 0:19:21.160 --> 0:19:25.199 correlation is not causality. To go to causality, you need 0:19:25.240 --> 0:19:27.919 to think. We need to think about the debt servicing channel, 0:19:28.640 --> 0:19:31.520 and that's the cash payments that have to go towards 0:19:31.520 --> 0:19:35.320 servicing the debt. The simple point, Tom is, we cannot 0:19:35.359 --> 0:19:39.359 afford higher rates and it's very very unlikely that we 0:19:39.400 --> 0:19:43.440 will reach the height of the last cycle. Now that 0:19:43.440 --> 0:19:46.199 that seems to me to be more important than the 0:19:46.280 --> 0:19:49.960 date of the liftoff. It's it's the destiny that really matters, 0:19:50.800 --> 0:19:53.960 not the departure. Stephen, how much does this rely on 0:19:54.119 --> 0:19:57.800 an ever easy federal reserve versus just the dynamics natural 0:19:57.800 --> 0:20:01.919 in the economy. Well, look, the Feds are easy in 0:20:02.000 --> 0:20:05.439 several ways with forward guidance and the QUEI and the 0:20:05.480 --> 0:20:08.480 interest rate that it sets, and that sets up a 0:20:08.520 --> 0:20:12.159 bit of a trap because it's very, very difficult to 0:20:12.240 --> 0:20:15.359 unwind all of this. So so the death stock is 0:20:15.480 --> 0:20:19.159 huge globally, the indust rates are now and there is 0:20:19.240 --> 0:20:22.320 qui et cetera. So it's going to take a long time. 0:20:22.400 --> 0:20:26.280 Think about a super tanker turning around the Cape of 0:20:26.320 --> 0:20:28.360 Good Hope. I mean it looks it looks to me 0:20:28.560 --> 0:20:31.479 it's going to take a very long time. And that 0:20:31.520 --> 0:20:35.960 speaks to today's testimony. At best, you might get an 0:20:35.960 --> 0:20:41.119 iterative shift at some point, but nothing dramatic is going 0:20:41.160 --> 0:20:44.480 to happen today. It can't steve a lot of conversation 0:20:44.520 --> 0:20:47.159 about the reaction function over the Federal Reserve. Let's talk 0:20:47.160 --> 0:20:50.080 about the reaction function of the market. Participant to data 0:20:50.520 --> 0:20:52.600 yesterday morning got a lot of attention from a lot 0:20:52.640 --> 0:20:54.399 of people. It wasn't just a cp I print, it 0:20:54.440 --> 0:20:56.639 was how the market responded to. The cp I print 0:20:56.840 --> 0:20:58.639 didn't last too long because, as you know, we had 0:20:58.640 --> 0:21:01.080 a messy thirty year issue a little bit later in 0:21:01.080 --> 0:21:03.119 the afternoon that changed things up. But you'll read just 0:21:03.200 --> 0:21:05.800 in that period, those several hours after that inflation print, 0:21:05.840 --> 0:21:09.360 what did that tell you? Well, I think the market 0:21:09.440 --> 0:21:12.919 is displaying a sort of Pavlovian response to all of this, 0:21:13.560 --> 0:21:17.760 in that it knows that if the probability of rates 0:21:17.800 --> 0:21:20.520 going up is to increase, as it seemed to have 0:21:20.640 --> 0:21:24.439 done at the June f m C, then equally the 0:21:24.440 --> 0:21:28.040 probability of reaching the heights of the last of the 0:21:28.119 --> 0:21:32.680 last cycle I'm also going down. So so so to me, 0:21:33.200 --> 0:21:35.679 the earlier they hike that the less room they have 0:21:35.760 --> 0:21:38.439 to go up, they'll have to stop earlier. And I 0:21:38.480 --> 0:21:41.520 think that that's how the market is now understanding the 0:21:41.560 --> 0:21:46.760 Fed's reaction function. They have this flexible average inflation targeting, 0:21:47.000 --> 0:21:50.440 but they've sort of chopped off the right tail by 0:21:50.480 --> 0:21:54.000 indicating that that they may they may hike into thousand 0:21:54.040 --> 0:21:56.919 and twenty three. Steve Manajor, if we have a boom economy, 0:21:57.119 --> 0:21:59.800 whatever the numbers are so goldben Sex as far apart, 0:22:00.000 --> 0:22:03.760 are optimistic than capital economics, which is more cautious hus 0:22:03.880 --> 0:22:06.639 WEC doing their own work as well. If we have 0:22:06.720 --> 0:22:10.679 a truly boom economy, can yields go up with a 0:22:10.720 --> 0:22:16.520 boom g d P and everyone remains happy? Very unlikely 0:22:16.560 --> 0:22:19.119 that yields are going to go up even with strong growth. 0:22:19.560 --> 0:22:22.040 If you if you get a six percent growth this year, 0:22:22.080 --> 0:22:24.920 you have to weigh against the minus two from last year, 0:22:25.040 --> 0:22:28.960 so the average is plus two. And look, as your 0:22:29.000 --> 0:22:32.040 show has been pointing out, real yields have been falling 0:22:32.480 --> 0:22:36.040 because they are the shock resorver that comes through. Nominal 0:22:36.119 --> 0:22:40.640 yields are being controlled. If inflation expectations and risk premium rise, 0:22:40.760 --> 0:22:43.640 the real yield can only go down. That's all. That's 0:22:43.640 --> 0:22:47.840 all that's happening, Stephen. If you see the bond yields 0:22:47.840 --> 0:22:51.080 can remain low, well, this is a boom economy. Does 0:22:51.119 --> 0:22:53.760 that mean that bonds have lost their signaling power, that 0:22:53.840 --> 0:22:56.679 they don't have the same kind of predictive view on 0:22:56.720 --> 0:23:00.640 the economy that they've traditionally had. Yeah, that that that's 0:23:00.680 --> 0:23:05.760