WEBVTT - NBA's Byron Scott on Leadership On and Off The Court 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P M L 0:00:20.840 --> 0:00:32.160 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Well, 0:00:32.200 --> 0:00:34.120 you know, Lisa, when I think of slam dunk, I 0:00:34.120 --> 0:00:36.599 think really only a basketball, but I guess you can 0:00:36.640 --> 0:00:39.559 apply it to a variety of different business techniques. And 0:00:39.640 --> 0:00:42.720 here to help us understand sort of the convergence of 0:00:43.440 --> 0:00:45.239 what you learn on the court and what you can 0:00:45.320 --> 0:00:49.320 learn in the office is Byron Scott. Thank you very 0:00:49.360 --> 0:00:52.080 much for being here. He is an NBC studio analyst, 0:00:52.080 --> 0:00:54.800 but of course he is known as h. Yes, I 0:00:54.880 --> 0:00:57.680 was gonna was gonna give the whole record, you know, 0:00:57.760 --> 0:01:01.560 I was gonna tell everybody about his what three NBA champions, 0:01:02.040 --> 0:01:07.039 uh NBA All Rookie first Team, also coach to the 0:01:07.160 --> 0:01:09.640 l A. I mean, just you're thank you for being here. 0:01:09.680 --> 0:01:11.720 Thank you guys for having me all right. And in 0:01:11.760 --> 0:01:13.920 the in the other corner is Charles Norris. He is 0:01:13.959 --> 0:01:16.959 the chairman of Fresh Pet and he is the former 0:01:17.000 --> 0:01:21.800 chief executive of McKesson Water and deer Park Spring Water. Charles, 0:01:21.880 --> 0:01:25.319 thanks for being here. Okay, so this is the obvious question, 0:01:25.360 --> 0:01:30.360 what do you two gentlemen have in common? We were 0:01:30.440 --> 0:01:34.600 just talking about that, even though we don't look alike, 0:01:35.080 --> 0:01:37.720 we have a lot in common. We're separated by at 0:01:37.800 --> 0:01:43.240 least a couple inches, a little page, a little bit 0:01:43.280 --> 0:01:47.200 of hair, but uh, we have a lot in common. 0:01:47.400 --> 0:01:51.280 And uh it was remarkable as we got to know 0:01:51.320 --> 0:01:54.080 each other and spend time together how much we had 0:01:54.120 --> 0:01:58.040 in common. And we learned it because Byron invited me 0:01:58.080 --> 0:02:00.280 to work out with him at the Laker facility when 0:02:00.280 --> 0:02:03.280 he was coaching, and he invited me to go into 0:02:03.720 --> 0:02:08.800 coaches meetings, film sessions with players, watch practices. And I 0:02:08.880 --> 0:02:12.280 in turn invited Byron to come to bank meetings and 0:02:12.360 --> 0:02:16.080 board meetings and really get involved in the businesses I 0:02:16.160 --> 0:02:20.320 was in. And we then started talking about the techniques 0:02:20.360 --> 0:02:24.359 we used in leadership, and lo and behold we found 0:02:24.400 --> 0:02:27.960 that they were very similar. Well and Byron, so you 0:02:28.000 --> 0:02:31.679 coached the Sacramento Kings, New Jersey Nets, New Orleans Hornets. 0:02:31.680 --> 0:02:35.320 I could go on and on what one skill do 0:02:35.400 --> 0:02:40.119 you think sort of connects both the corporate world and 0:02:40.440 --> 0:02:43.760 the bull Well, I think Lisa, from a leadership standpoint 0:02:44.200 --> 0:02:47.960 in Charlie's taught me this, you know, in various ways, 0:02:48.000 --> 0:02:49.800 and I was doing it and really didn't know I 0:02:49.840 --> 0:02:52.040 was doing it. But you really got to get to 0:02:52.120 --> 0:02:54.520 the heads and hearts of the people that you're that 0:02:54.639 --> 0:02:57.080 you're that you're dealing with and basketball that is the 0:02:57.120 --> 0:02:59.639 players you know in the business world. In the corporate world, 0:02:59.680 --> 0:03:02.919 he's deal with his employees. So it just taught me that, 0:03:03.280 --> 0:03:04.639 you know, you have to ask that second and that 0:03:04.720 --> 0:03:06.960 third question because one thing that you want them to 0:03:07.000 --> 0:03:09.200 know is that you're very interested in the things that 0:03:09.240 --> 0:03:11.399 they want to bring to the table. And we both 0:03:11.440 --> 0:03:13.960 believe that you have to be able to get delegate 0:03:14.600 --> 0:03:17.000 authority you know two people. In my case it was 0:03:17.040 --> 0:03:20.440 assistant coaches um to give them the right to go 0:03:20.480 --> 0:03:22.200 out and do their job to the best of their 0:03:22.200 --> 0:03:24.799 ability and if they failed, you know, then you kind 0:03:24.800 --> 0:03:26.640 of jump in. But you want to have them have 0:03:26.720 --> 0:03:29.120 that sense of knowing that you know everything they do 0:03:29.200 --> 0:03:31.440 counts as well. And I think that's something that Charlie 0:03:31.480 --> 0:03:34.239 and I both had in common coming from our backgrounds. 0:03:34.600 --> 0:03:37.360 So you co authored a book that was just really 0:03:37.400 --> 0:03:40.840 slam dunk success. Uh. Was published by Center Street on 0:03:40.920 --> 0:03:45.280 April's yesterday. Correct, I just came out what was the 0:03:45.320 --> 0:03:47.880 process of writing it? Like? I mean, Byron, you were 0:03:47.880 --> 0:03:52.480 telling me about the death death like workouts that you 0:03:52.520 --> 0:03:54.680 guys engaged on, and but what was the process of 0:03:54.680 --> 0:03:57.040 writing the book? Like? It was great to be honest with. 0:03:57.120 --> 0:03:59.440 I mean, once we decided that this is something that 0:03:59.520 --> 0:04:01.960 we could really do, and a lot of that was 0:04:02.040 --> 0:04:04.960 because of Charlie's wife, Peggy, who said who used to 0:04:04.960 --> 0:04:07.520 be an editor herself, and said she really thought we 0:04:07.600 --> 0:04:10.000 had something here. Uh. Then we started taking a little 0:04:10.000 --> 0:04:12.520 bit more serious and we contacted her friend of Charlie's name, 0:04:12.560 --> 0:04:15.400 Todd Smith, who took it to a totally different level. 0:04:15.840 --> 0:04:18.480 But in the process of doing it, our writer John Work, 0:04:18.480 --> 0:04:20.320 who was a great writer who did a great job 0:04:20.320 --> 0:04:22.479 of really capturing I think the essence of what this 0:04:22.520 --> 0:04:25.480 book is all about. Uh, And we both speak in 0:04:25.520 --> 0:04:28.040 the first person, and he was really able to kind 0:04:28.040 --> 0:04:31.400 of capture everything that we wanted to really apply to 0:04:31.680 --> 0:04:33.800 to the to the leadership roles and the and the 0:04:33.839 --> 0:04:35.479 other chapters that we have in the book that we 0:04:35.520 --> 0:04:38.160 thought would be very interesting to a lot of our readers. 0:04:38.880 --> 0:04:41.960 If I can add something to that. Byron and I 0:04:42.000 --> 0:04:46.440 sat down and we listed about fifteen leadership qualities that 0:04:46.760 --> 0:04:51.640 we had in common. And when John Worke uh interviewed us, 0:04:51.720 --> 0:04:55.920 he interviewed us thinking specifically about each of those leadership 0:04:56.000 --> 0:05:00.520 qualities as a separate chapter. Now, Charles, I want to 0:05:00.560 --> 0:05:02.000 just put it to you that you know and it's 0:05:02.080 --> 0:05:08.479 your success at McKesson water, Uh, also do your park 0:05:08.640 --> 0:05:12.480 and also fresh Pet. How do you contrast that with 0:05:12.600 --> 0:05:14.760 what perhaps goes on in the court, which is, if 0:05:14.800 --> 0:05:17.880 you don't perform on the court or as a coach, 0:05:18.720 --> 0:05:22.400 your time there is pretty limited. But there are many 0:05:22.520 --> 0:05:26.839 cases in which we see companies run by chief executives 0:05:27.120 --> 0:05:33.280 who get huge pay packets, Uh, and their measurement is, well, 0:05:33.360 --> 0:05:36.559 let's just put it subjective because they might be tied 0:05:36.600 --> 0:05:39.640 to stock performance and that doesn't necessarily I mean, just 0:05:39.680 --> 0:05:41.719 because the stock goes up doesn't mean you're a great CEO. 0:05:42.120 --> 0:05:45.520 How do you sort of have the same incentives for 0:05:45.800 --> 0:05:49.799 figures on the court and figures in the boardroom. Well, Uh, 0:05:50.000 --> 0:05:56.120 we both have to win. And how you define winning obviously, Uh, 0:05:56.120 --> 0:06:02.960 in sport, it's who who gets as points. In business, 0:06:03.480 --> 0:06:08.480 it who gains market share. And uh, it's a very 0:06:08.480 --> 0:06:13.320 easy scorecard if if you're every year you have a budget, 0:06:13.960 --> 0:06:17.680 and that budget is around sales profit, but it's also 0:06:18.279 --> 0:06:21.960 around how you're growing versus your competition in the market. 0:06:22.839 --> 0:06:29.200 And it's honestly surprisingly as competitive in business as it 0:06:29.279 --> 0:06:33.799 is in sport. To that end, Byron, you talked about 0:06:33.839 --> 0:06:36.560 how each chapter in the book is a different leadership quality. 0:06:36.640 --> 0:06:39.720 Is there one leadership quality that stands out to you 0:06:39.880 --> 0:06:43.880 is the most counterintuitive? Well, for me, again on a 0:06:43.880 --> 0:06:47.719 basketball court, I've always been a guy is believe that 0:06:47.720 --> 0:06:49.160 if you're going to lead her, if you're gonna be 0:06:49.160 --> 0:06:51.360 a leader, you got to lead by example. You know. 0:06:51.400 --> 0:06:54.000 So if if I'm going to lead by example, I 0:06:54.000 --> 0:06:55.720 want to be at the gym early, you know, I 0:06:55.760 --> 0:06:57.159 want to I want the players to come in and 0:06:57.200 --> 0:06:59.359 see me on the trap me you'll see me in 0:06:59.360 --> 0:07:01.919 the weight room and be able to also go on 0:07:01.920 --> 0:07:03.800 the floor and be able to show them certain things 0:07:03.839 --> 0:07:06.320 that I want to be done. Because it's it's kind 0:07:06.320 --> 0:07:07.720 of hard as a coach when you say I want 0:07:07.720 --> 0:07:09.159 you to do it this way, but you can't show 0:07:09.200 --> 0:07:11.040 them how to do it. You know, you can tell them, 0:07:11.040 --> 0:07:13.600 but you can't show them. So I still really believe 0:07:13.640 --> 0:07:16.000 that's one of the most important things, especially in my field, 0:07:16.600 --> 0:07:19.640 is being able to go out there and participate and 0:07:19.640 --> 0:07:22.360 to show the guys exactly what you mean, uh. And 0:07:22.400 --> 0:07:24.400 I think a lot of guys really enjoy that when 0:07:24.400 --> 0:07:26.240 a coach can get out there and kind of play 0:07:26.240 --> 0:07:28.280 around a little bit with them as well. Charlie, what 0:07:28.320 --> 0:07:32.600 about in the corporate boardroom, Well, what I find counter 0:07:32.840 --> 0:07:40.720 intuitive is celebrating risk and learning from failure. Uh. To 0:07:40.840 --> 0:07:44.400 be successful in business and to be successful in life, 0:07:44.800 --> 0:07:48.080 you've got to get outside your box. And I look 0:07:48.160 --> 0:07:51.920 for people uh to surround me who are willing to 0:07:52.000 --> 0:07:57.920 take risk. And if we don't encourage that, ultimately, people 0:07:57.920 --> 0:08:01.200 are going to get nervous if they're um uh, they 0:08:01.240 --> 0:08:05.040 take a risk, and then they're punished for having failed 0:08:05.080 --> 0:08:08.760 in the risk they take. So the counterintuitive aspect of 0:08:08.880 --> 0:08:12.240 that is to celebrate the fact that you're willing to 0:08:12.280 --> 0:08:16.600 go out and take calculated risk. Thank you so much 0:08:16.640 --> 0:08:19.080 both of you for joining us today. Truly a pleasure. 0:08:19.480 --> 0:08:23.720 Byron Scott is NBA studio analyst for ESPN and longtime 0:08:24.280 --> 0:08:27.480 NBA champion and coach of a number of the top 0:08:27.640 --> 0:08:30.920 NBA teams, as well as Charlie Norris, who is the 0:08:31.040 --> 0:08:34.680 chairman of Fresh Pet also the former head of McKesson 0:08:34.800 --> 0:08:39.320 Water and deer Park Spring Water. Their book is currently 0:08:39.440 --> 0:08:55.560 on the bookstand Slam Dunk Success. Loneliness is a killer. 0:08:55.640 --> 0:08:57.920 As Pim was saying, a lot of older people are 0:08:57.960 --> 0:09:02.160 increasingly living alone and this is an increasing problem for many. 0:09:02.600 --> 0:09:05.840 Doors Schooler might have the answer Door School or as 0:09:05.880 --> 0:09:08.880 chief executive Officer of Intuition Robotics, which is an Israeli 0:09:09.240 --> 0:09:14.080 start up focused on creating electronic companions for people who 0:09:14.080 --> 0:09:18.000 perhaps live alone. Door thank you so much for joining us. Uh. 0:09:18.200 --> 0:09:21.319 First of all, just let's start with what is ellie 0:09:21.400 --> 0:09:25.280 q Hi Lisa, thanks for having me on. Yeah. Eli 0:09:25.360 --> 0:09:28.880 Que is an active aging companion. She's a social robot 0:09:28.920 --> 0:09:32.040 that actually um lives in the home of the older adult, 0:09:32.120 --> 0:09:34.760 usually in the living room, and it helps them be 0:09:34.880 --> 0:09:37.800 more connected and engage. It helps them to simplify the 0:09:37.800 --> 0:09:40.280 way to communicate with their family by bridging the digital 0:09:40.360 --> 0:09:42.360 to five, and it helps them meet their own goal 0:09:42.440 --> 0:09:46.400 towards an active aging lifestyle by helping them implotting them 0:09:46.400 --> 0:09:49.360 to go for a walk or take their medication on time, 0:09:49.720 --> 0:09:52.839 learn new things every day and so on. Okay, and 0:09:52.840 --> 0:09:55.160 and the door. Just in the interest of full disclosure, 0:09:55.160 --> 0:09:56.520 I just want to say that you've raised what a 0:09:56.520 --> 0:09:59.320 total of six million dollars from investors that include the 0:10:00.240 --> 0:10:03.400 Rumba maker, I Robot, as well as Terra Venture partners, 0:10:03.760 --> 0:10:07.640 uh man, Ive Mobility, and Bloomberg Beta. Just in terms 0:10:07.640 --> 0:10:11.120 of fair disclosure there uh and also on the crowdfunding 0:10:11.160 --> 0:10:15.240 platform our crowd. What are you using the money for? 0:10:15.400 --> 0:10:18.600 What's the next step? Yeah, the next step is really 0:10:18.600 --> 0:10:22.440 funding research and development and also manufacturing UM and user 0:10:22.480 --> 0:10:24.520 trials as we plan to bring this product to market 0:10:24.640 --> 0:10:27.400 UM hopefully within the next twelve months. Because I was 0:10:27.400 --> 0:10:30.320 watching your video that you have online in which you 0:10:30.440 --> 0:10:35.280 have an example of this device and it's paired with 0:10:35.440 --> 0:10:38.280 some kind of tablet. I guess that's where the software runs. 0:10:38.320 --> 0:10:40.959 Maybe you could describe, how did you It almost looks 0:10:41.000 --> 0:10:42.880 like a I don't know, I don't know how to 0:10:42.880 --> 0:10:49.520 describe it, Almost like a multi stacked flower vase. That's 0:10:49.559 --> 0:10:51.320 one way of putting it. Yeah, there are two components 0:10:51.360 --> 0:10:54.559 to the solution. One part is a screen or removable 0:10:54.600 --> 0:10:57.480 tablet that we provide to our users. UM. And the 0:10:57.559 --> 0:11:00.880 main part is l Q, which is the the social robot. 0:11:00.920 --> 0:11:04.040 And she does look kind of like, UM, I don't know, 0:11:04.080 --> 0:11:07.120 a new uh physical presence in the home. She's very 0:11:07.240 --> 0:11:10.120 beautifully designed by eve Bihar. But it's it sits on 0:11:10.160 --> 0:11:11.800 a table. I mean, this is not something This is 0:11:11.840 --> 0:11:14.440 not a life size thing. This is something that's that 0:11:14.480 --> 0:11:17.440 sits on a table. Correct, she sits on the table. 0:11:17.480 --> 0:11:20.480 But she does have automatronic capability, so she we use 0:11:20.520 --> 0:11:23.080 body language essentially, which we are humans are kind of 0:11:23.120 --> 0:11:25.720 programmed to understand. So she will look to the side, 0:11:25.760 --> 0:11:28.760 you look up, she'd lean forward to make a point. UM. 0:11:28.760 --> 0:11:31.320 When we connect with families and lets they send a 0:11:31.360 --> 0:11:34.280 picture over a we make it super simple for them 0:11:34.320 --> 0:11:36.440 to do that and for the older adults do it, 0:11:36.679 --> 0:11:39.360 but they also elak. You will turn look at the picture, 0:11:39.800 --> 0:11:42.319 have a comment about it after understanding what's in it, 0:11:42.559 --> 0:11:44.959 and then try to solicit the older adult to respond 0:11:44.960 --> 0:11:48.319 and be part of the conversation on Facebook messenger. Is 0:11:48.400 --> 0:11:52.280 this um? Have you done psychological studies to see whether 0:11:52.559 --> 0:11:57.720 a robotic presence is equal or nearly equal to really 0:11:57.760 --> 0:12:02.080 having another person there A right, it's definitely not the same. 0:12:02.120 --> 0:12:04.120 I mean, look, we would all like to be closer 0:12:04.160 --> 0:12:05.880 to our parents, and we'd all like to visit them 0:12:05.880 --> 0:12:09.040 all the time, but the fact of life is that 0:12:09.160 --> 0:12:11.080 we live further and further away from them, and even 0:12:11.120 --> 0:12:13.040 if we live close, we can't be with them all 0:12:13.080 --> 0:12:15.959 the time. So we're not trying to replace a meaningful 0:12:16.000 --> 0:12:19.320 interaction between humans UM with some kind of a robot. 0:12:19.600 --> 0:12:21.280 What we are trying to do is bring to better 0:12:21.360 --> 0:12:25.560 technology that will help bring people closer together, overcome the 0:12:25.640 --> 0:12:29.839 digital divide, help older and all UM consume music and 0:12:30.160 --> 0:12:33.680 ted talks and other interesting things on the on that 0:12:33.720 --> 0:12:36.080 are available to them, and also be somewhat of a 0:12:36.200 --> 0:12:39.080 nudge or an assistance or coach if you will, UM 0:12:39.160 --> 0:12:41.400 to help convince them to go for walks and to 0:12:41.440 --> 0:12:43.600 take their medications and time and so on. So it's 0:12:43.640 --> 0:12:47.000 not replacements, for sure, but it is better than being alone. 0:12:47.040 --> 0:12:50.760 And let's remember that of older adults live at home, 0:12:51.200 --> 0:12:55.840 about sixty of themselves professed that they're lonely and socially isolated, 0:12:56.160 --> 0:12:59.640 about fifty percent the TVs their main companion, and about 0:12:59.760 --> 0:13:03.400 for percent talk to one person or less week. So 0:13:03.400 --> 0:13:05.480 so it is what it is, and we're trying to 0:13:05.520 --> 0:13:08.360 do what we can UM to make the situation better 0:13:08.400 --> 0:13:11.840 and help people listful or live. Have you started selling 0:13:11.960 --> 0:13:15.320 l a Q We have not started, telling an she's 0:13:15.400 --> 0:13:18.959 now starting trials in the San Francisco Bay area. UM, 0:13:19.000 --> 0:13:21.880 and you're right said they're good demonstrations and we're starting 0:13:21.880 --> 0:13:24.080 a pilot program, but we still need to learn how 0:13:24.120 --> 0:13:26.880 people react to the product if if it's you know, 0:13:26.920 --> 0:13:29.720 the usabilities the way we hope it will be, and 0:13:30.000 --> 0:13:31.920 we have to do those things before we start selling 0:13:31.960 --> 0:13:37.319 the product. So are you are a serial entrepreneur? Correct? Correct? 0:13:37.720 --> 0:13:40.280 Maybe just give people a little bit of your background 0:13:40.520 --> 0:13:45.040 and why did you choose this as your next project? Sure? Yes, 0:13:45.120 --> 0:13:48.359 I did my first startup straight after leaving military intelligence 0:13:48.360 --> 0:13:51.360 in the Israeli Army at aged three, and this is 0:13:51.400 --> 0:13:55.000 now my fifth venture venture. The last one was actually 0:13:55.000 --> 0:13:58.439 inside a large company UM which is Office Alucan now 0:13:58.480 --> 0:14:02.880 part of Nokia, and my co founders and I decided 0:14:02.920 --> 0:14:04.760 if we really want to do something with high social 0:14:04.800 --> 0:14:08.000 impact this time around and touch people's lives, and you 0:14:08.000 --> 0:14:10.440 know that they are now the rec result proven by 0:14:10.480 --> 0:14:13.640 the Center of Disease Control of loneliness and social isolation 0:14:13.760 --> 0:14:18.120 where um it actually creates accelerated dimensiona depression and even mortality. 0:14:18.600 --> 0:14:20.640 But the good news is that there are other studies 0:14:20.640 --> 0:14:23.640 that show that when older guls practice active aging, when 0:14:23.680 --> 0:14:26.320 they're actually more active and engaged, they push out they 0:14:26.360 --> 0:14:29.160 mentioned for seven percent of the time, they heal faster 0:14:29.200 --> 0:14:32.000 from illness and disease twenty of the time, and they're 0:14:32.040 --> 0:14:35.760 just happier. So we really are trying to to harness 0:14:35.800 --> 0:14:39.200 the latest technology in artificial intelligence and machine learning and 0:14:39.360 --> 0:14:43.440 voice platforms and robotics to try and bring as many 0:14:43.440 --> 0:14:46.040 older adults with that check in category as possible. I 0:14:46.040 --> 0:14:48.000 want to thank you very much for joining us and 0:14:48.360 --> 0:14:51.920 sharing your thoughts and telling us about this invention. Door 0:14:52.160 --> 0:14:56.560 Schooler is the chief executive officer of Intuition Robotics. They're 0:14:56.600 --> 0:14:59.520 based in Israel. You can follow him on Twitter at 0:14:59.680 --> 0:15:02.680 door d O R school or s k U L 0:15:02.760 --> 0:15:13.120 e E R. We want to take a moment to 0:15:13.200 --> 0:15:16.240 let you know about something new from Bloomberg. Starting right now, 0:15:16.280 --> 0:15:18.440 you can use our I O s app or our 0:15:18.480 --> 0:15:21.520 new Google Chrome extension to scan any news story on 0:15:21.640 --> 0:15:25.040 any website, instantly revealing relevant news and market data from 0:15:25.040 --> 0:15:27.880 Bloomberg and other sources related to the companies and people 0:15:27.920 --> 0:15:30.600 you're reading about. So no matter where you're reading the news, 0:15:30.640 --> 0:15:33.080 you can bring the power of Bloomberg's news and data 0:15:33.120 --> 0:15:36.040 with you. It's pretty amazing. Download our i O s 0:15:36.080 --> 0:15:38.280 app or search for the Bloomberg extension on the Chrome 0:15:38.320 --> 0:15:41.240 Store to try it out. Learn more at Bloomberg dot com, 0:15:41.240 --> 0:15:53.480 slash lens. Well more people are struggling to pay their 0:15:53.520 --> 0:15:56.760 credit card bills. That is what we learned yesterday after 0:15:56.840 --> 0:16:00.920 Capital One Financial and Discover Financial Services reported earnings, showing 0:16:01.160 --> 0:16:04.480 that there were a larger number of credit card charge 0:16:04.520 --> 0:16:08.920 offs in their card units, capital One in particular seeing 0:16:09.160 --> 0:16:12.520 a twenty nine percent increase in the provisions for losses 0:16:12.800 --> 0:16:14.880 in the credit card unit. To make some sense of 0:16:14.880 --> 0:16:17.120 this and to figure out what the broader implications are, 0:16:17.160 --> 0:16:20.000 I want to bring in Ryan O'Connell, senior analysts focusing 0:16:20.000 --> 0:16:22.040 on financials for Bloomberg Intelligence. Thank you so much for 0:16:22.120 --> 0:16:24.520 joining us, Ryan, So what was your biggest takeaway from 0:16:24.520 --> 0:16:27.240 these results, which were really quite disappointing. Well, good morning list, 0:16:27.320 --> 0:16:30.760 Good morning Pim. This is really a pretty ugly earnings report, 0:16:30.800 --> 0:16:32.920 and I think at least with regard to Capital One, 0:16:32.960 --> 0:16:34.840 we've kind of hit a bit of an inflection point 0:16:35.560 --> 0:16:38.320 several reasons. First of all, it just the magnitude of 0:16:38.320 --> 0:16:40.960 the jump in provisions. If you look at their US 0:16:41.040 --> 0:16:44.360 credit card business, which their biggest business, their provisions actually 0:16:44.400 --> 0:16:48.640 went up about sev seven. Oh that's over here, just 0:16:48.680 --> 0:16:50.560 to give some sort of perspective of the dollar amount, 0:16:50.840 --> 0:16:53.040 about one point seven billion dollars. So that means the 0:16:53.080 --> 0:16:55.800 amount of money that they're sitting aside to cover potential 0:16:55.840 --> 0:16:58.120 losses in their card unit has now gone to one 0:16:58.120 --> 0:17:01.360 point seven billion dollars. Right, And that's so that's your year. 0:17:01.400 --> 0:17:04.840 You're absolutely right about the that's it's the quarter, so 0:17:04.960 --> 0:17:07.200 you're a bear. And the other thing is their charge 0:17:07.240 --> 0:17:09.840 off ring went from about four percent to five percent. 0:17:10.680 --> 0:17:13.399 And what they also said is folks, you should expect 0:17:13.400 --> 0:17:15.520 five percent for the rest of the year. So this 0:17:15.600 --> 0:17:18.000 isn't just a one quarter of blip. This is a change. 0:17:19.000 --> 0:17:21.639 Is did they give any details as to what is 0:17:21.720 --> 0:17:25.280 behind this? Right? So what I thought was also very 0:17:25.320 --> 0:17:28.359 interesting about this is that cap one is basically changing 0:17:28.359 --> 0:17:31.679 its tune up until now. The reason for you know, 0:17:31.960 --> 0:17:34.880 more bad loans, more chargeots is a lot of loan growth, 0:17:34.960 --> 0:17:38.119 which is true, and the loans are getting older this time. 0:17:38.240 --> 0:17:40.320 What they said is we've changed our view and the 0:17:40.359 --> 0:17:44.520 way consumers are behaving. What does that mean cons change 0:17:44.560 --> 0:17:47.919 their view? I mean it's just because, uh, you know, 0:17:47.920 --> 0:17:50.439 because I mean, if someone doesn't repay a loan, it 0:17:50.480 --> 0:17:52.600 can be because there's something wrong with the way the 0:17:52.640 --> 0:17:55.399 loan was put together in the first place, or the 0:17:55.400 --> 0:17:57.320 person should not have been allowed other company was not 0:17:57.359 --> 0:17:59.800 should have been allowed to actually take out the loan. 0:18:00.080 --> 0:18:02.440 They given credit cards to people that they shouldn't be 0:18:02.480 --> 0:18:05.480 giving them too. Well, that's a great question, I guess. 0:18:05.720 --> 0:18:07.959 Let's let's let's refer to it this way. They are 0:18:08.000 --> 0:18:11.439 referring to higher levels of consumer debt. And again we 0:18:11.520 --> 0:18:13.200 have to bear in mind that they're really talking about 0:18:13.200 --> 0:18:16.240 their subprime customers, right, because that's about a third of 0:18:16.280 --> 0:18:19.520 their business. As to whether or not they made bad loans, 0:18:19.840 --> 0:18:23.040 let's just look at the results. Well, I think though, 0:18:23.080 --> 0:18:25.400 it's important to note if they're saying now, if they're 0:18:25.480 --> 0:18:27.159 changing their tune and they're now saying that there's a 0:18:27.240 --> 0:18:31.040 change in consumer behavior, this is pretty fuzzy. Does this 0:18:31.080 --> 0:18:33.360 mean they really don't have a handle on why there 0:18:33.359 --> 0:18:37.440 has been such an unexpectedly big increase in charge offs. Well, 0:18:37.440 --> 0:18:40.040 what I would say is that they sounded a lot 0:18:40.080 --> 0:18:42.520 more cautious on this call than they have in the 0:18:42.600 --> 0:18:46.720 last several calls, and I think they just see higher 0:18:46.760 --> 0:18:50.280 levels and debtedness. Uh. In hindsight, perhaps they got a 0:18:50.320 --> 0:18:52.560 little bit aggressive on the loan growth, but they've been 0:18:52.560 --> 0:18:56.840 tamping that down. So is Capital One alone in an 0:18:56.880 --> 0:19:00.800 isolated case in this pretty substantial increase in net charge offs? 0:19:00.800 --> 0:19:03.679 I mean, yes, Discover also saw a larger amount of 0:19:03.760 --> 0:19:06.560 charge offs and expected, but still way below Capital One. 0:19:07.200 --> 0:19:09.359 Or does this sort of point to some kind of 0:19:09.359 --> 0:19:13.560 broader weakness in the consumer. Well, uh, we'll have to 0:19:13.800 --> 0:19:17.280 see a Synchronique, which also has a large subprime credit 0:19:17.280 --> 0:19:20.320 card business. They were going to report their earnings on Friday, 0:19:20.359 --> 0:19:22.000 and we'll just have to see how that goes out. 0:19:22.000 --> 0:19:25.640 I'm not judging that to your point, Lisa discovers, Yeah, 0:19:25.640 --> 0:19:27.720 their charge also went up a bit, but it wasn't 0:19:27.720 --> 0:19:30.360 a big deal. And Discover still says that things are 0:19:30.359 --> 0:19:32.840 going pretty much as I expected. Now, again, the big 0:19:32.880 --> 0:19:35.320 difference is Capital One's got about a third of their 0:19:35.320 --> 0:19:40.480 customers and credit cards and subprime and Discover doesn't. Was 0:19:40.560 --> 0:19:45.400 the subprime market a strategic you know position for the bank? 0:19:45.400 --> 0:19:47.680 I mean they say, we want to go after these 0:19:47.720 --> 0:19:51.040 people because this is where we can make the most money, 0:19:51.080 --> 0:19:53.159 even if we do have to do charge offs later on. 0:19:53.200 --> 0:19:55.280 I mean, this can't be something that just happened, right, 0:19:55.320 --> 0:19:58.399 I mean, you don't. It's not like a multi week event. 0:19:58.520 --> 0:20:02.199 This is something that's taken a happen. Capital One has 0:20:02.240 --> 0:20:05.040 been in the subprime credit card business and in the 0:20:05.040 --> 0:20:08.600 subprime auto business for a long time now. To be 0:20:08.680 --> 0:20:12.080 fair to Capital One, they are still expecting seven to 0:20:12.160 --> 0:20:15.720 eleven percent earning his growth this year, but frankly a 0:20:15.760 --> 0:20:18.120 lot of us from cost cuts, and also they're doing 0:20:18.160 --> 0:20:21.000 better in their commercial bank because the energy loan crisis 0:20:21.040 --> 0:20:25.280 is sort of passing. So um, first, I've got two questions. First, 0:20:26.000 --> 0:20:29.720 did we see weakness also among some prime credit card 0:20:29.720 --> 0:20:34.120 customers or is the pain entirely isolated to the subprime customer? Well, 0:20:34.200 --> 0:20:38.160 I think basically we're really talking about the subprime customer here, Lisa, 0:20:38.200 --> 0:20:41.760 because again, if we use Discover or JP Morgan Bank 0:20:41.840 --> 0:20:44.800 of America, they've all had some increases in charge offs, 0:20:45.200 --> 0:20:47.680 but nothing like a hundred basis points okay, and then 0:20:47.960 --> 0:20:50.480 the next point is what about auto loans. Did we 0:20:50.520 --> 0:20:54.480 see the increase in charge offs there too? Actually no 0:20:54.880 --> 0:20:57.320 uh net charge us for the outer loans were flat. 0:20:57.480 --> 0:20:59.840 Your here. You know. One of the things we've also 0:21:00.200 --> 0:21:03.879 trying to track is the correlation between this and what 0:21:04.000 --> 0:21:08.200 happens in the larger economy. Obviously, any prospect of the 0:21:08.200 --> 0:21:11.080 bank say anything about wages or about people being able 0:21:11.119 --> 0:21:14.399 to make more money. Well, again, the tone of the 0:21:14.400 --> 0:21:17.680 commentary was very different. So discover they still see a 0:21:17.760 --> 0:21:20.400 growing economy again they're dealing with and they're still making 0:21:20.440 --> 0:21:22.600 money as you just as you just describe. So maybe 0:21:22.600 --> 0:21:24.440 they're saying, all right, you know, we're willing to take 0:21:24.520 --> 0:21:26.240 this hit. I mean, even though the stock is down 0:21:26.280 --> 0:21:29.520 I think about four percent percent right for three point 0:21:29.560 --> 0:21:31.320 eight percent right now, it's more down more than three 0:21:31.520 --> 0:21:34.160 three dollars a share, they're willing to take that hit 0:21:34.200 --> 0:21:37.720 because they believe that this will you know, they're you 0:21:37.920 --> 0:21:39.720 gonna be able to take this hit and not have 0:21:39.800 --> 0:21:43.679 an effect the bottom line. Uh well, it's certainly infect 0:21:43.720 --> 0:21:45.680 to the bottom line in this quarter. I think their 0:21:45.720 --> 0:21:48.200 expectation is they've been in this businesses for a long time, 0:21:48.280 --> 0:21:51.080 they're gonna ride through different cycles, and again they are 0:21:51.200 --> 0:21:53.520 they are tightening up. Just be clear, they were tightening 0:21:53.560 --> 0:21:56.680 up a loan growth now so they're responding. They are 0:21:56.720 --> 0:21:59.600