Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. You know what I
Speaker 1: like to do on the Bloomberg terminals, Look at the
Speaker 1: league tables, Matt, You know for the investment banks, and
Speaker 1: you know who's doing what in equity underwriting? Don't you
Speaker 1: get bored of that? It's always Goldman Stacks right at
Speaker 1: the top. What's not this time, big guy? It is
Speaker 1: China has an investment called citic C I T I
Speaker 1: C and they're kind of number one interns of equity issuance.
Speaker 1: I want to figure out what's going on there? So
Speaker 1: what are we doing? When we want to talk about
Speaker 1: Wall Street, we go to Alison Williams. She's been covering
Speaker 1: the investment banks on Wall Street for decades, first at
Speaker 1: Morgan Stanley Investment Management and for the last i'm gonna
Speaker 1: say thirteen years. She was one of our absolute first hires.
Speaker 1: At Bloomberg Intelligence. Umus Williams, Senior Global Banks and Asset
Speaker 1: Manager Analysts for Bloomberg Intelligence. Allison talk to us about
Speaker 1: CITIC securities. Who are they? What are they? And boy
Speaker 1: they got they're pretty big here there. They beat up
Speaker 1: Goldman Sacks, so they are. But there's two key things
Speaker 1: going on, which is UM. You know, there's no denying
Speaker 1: the slump here in the US in terms of I
Speaker 1: P O S. And really Asia is the big driver
Speaker 1: of of issuance that we're seeing here to date. CIDEC
Speaker 1: is a key player in their local market, and so
Speaker 1: UM to some extent. If we take a step back
Speaker 1: and we look at equity issuance excluding Asia, you would
Speaker 1: still see Golden Sacks at the top of that table.
Speaker 1: So Goldman Sacks and Morgan Stanley City JP, Morgan Bank
Speaker 1: America if we sort of exclude the Asia market, but
Speaker 1: definitely in Asia, some of the local players doing very
Speaker 1: well there. And given that that is where we're seeing
Speaker 1: UM the majority of the action this year, it's not
Speaker 1: surprising that that those local players are sort of topping
Speaker 1: the global table. So Alison, with the SMP down this year,
Speaker 1: no surprise that there having been a lot of new
Speaker 1: equity issuance or equity issuance issues in general. Here is
Speaker 1: there a sense that there's a huge backlog out there
Speaker 1: and when the market, you know, rallies off the bottom,
Speaker 1: that will see more activity. How does that typically work?
Speaker 1: That's been the hope, and so I think for most
Speaker 1: of this year what we've heard from the global investment
Speaker 1: banks is that pipelines are stalled, and so we hadn't
Speaker 1: necessarily seen pulling of deals. We've just seen sort of
Speaker 1: the backlogs sitting there, and so it really has um
Speaker 1: come down to lack of execution. UM. But I think
Speaker 1: that some of the banks may have been sort of
Speaker 1: holding out September and October sort of the key months
Speaker 1: or you know, the key busiest and says, we get
Speaker 1: into this second half UM, and with the tougher markets
Speaker 1: in September, we wonder if we're going to be hearing
Speaker 1: in a couple of weeks some of the decaying of
Speaker 1: those pipelines from the investment banks. Alison, how important are
Speaker 1: the league tables? I never worked at a bank. I
Speaker 1: did cold calls at a bucket shop for a while,
Speaker 1: and then I interned at a broker dealer. But in
Speaker 1: terms of um, the IB guys how much and and
Speaker 1: gals how much do they care about the league tables
Speaker 1: and their their ranks? Well, two things they do care
Speaker 1: very much. Um, they care about the bragging rights. Of course,
Speaker 1: you know we do want to be the bankers, want
Speaker 1: to be the ones getting deals. Um, they do care
Speaker 1: about having the bragging rights. But as Paul will tell
Speaker 1: you as someone who helped to drive the numbers behind
Speaker 1: those league tables, is that you know, the league tables
Speaker 1: can show any given bank as number one depending on
Speaker 1: how you formulate the bad league table. Yes, you massage
Speaker 1: those and the mom in the number of deals priced
Speaker 1: between Tuesday and Thursday. You know that's how we did.
Speaker 1: But a bank will a bank or us will you
Speaker 1: walk in? Will you you walk into your boss's office
Speaker 1: with the league table and say like, give me more money?
Speaker 1: You know I moved us to number two from number
Speaker 1: five or no. I usually just would just say pay
Speaker 1: me more money. I'm walking across the street. But those
Speaker 1: days are long gone. Allison remembers those days. Alison, let's
Speaker 1: switch gears here. My good friends at Credit Swiss. Boy,
Speaker 1: we were awesome back in the day, but they cannot
Speaker 1: get out of their way. Here is there any future
Speaker 1: for the Credit Swiss investment bank maybe outside of Switzerland?
Speaker 1: What is it? What is it? We saw the cost
Speaker 1: to ensure Credit Swiss debt rise fifteen percent, like over
Speaker 1: the weekend, we saw the shares um you know, collapse
Speaker 1: this morning. I don't know why, Alison, what, What's what's
Speaker 1: driving that? What's driving that is that we have number one,
Speaker 1: a tough global market, right and then on top of that,
Speaker 1: we have a bank that has said they're considering their options.
Speaker 1: There's a lot of uncertainty around what those options might be. UM.
Speaker 1: If one of the options includes a capital raise, it's
Speaker 1: always going to be tough UM for a stock to
Speaker 1: study when the amount of potential issuance and delusion is unknown.
Speaker 1: And so I think in general, it's always a tough
Speaker 1: time when a bank says the strategy is coming and
Speaker 1: then there's several weeks ahead of getting the actual effects
Speaker 1: because UM investors getting patient. Tough markets increase the impatience,
Speaker 1: and there's really nothing that management can say or do
Speaker 1: in the meantime to sort of study that. And so
Speaker 1: we've we've been seeing that with Credits Weasis management coming
Speaker 1: out a few times and saying you know, we're working
Speaker 1: on it. We're working on it. But um, as we
Speaker 1: know from prior periods of market stress, UM, it's just
Speaker 1: tough to instill confidence when the markets are behaving, especially um,
Speaker 1: when the global broader market is tough. Alison, I mean,
Speaker 1: is there any scenario where they merge with the ubs
Speaker 1: or the Swiss government just not allow that. I still
Speaker 1: think that's doubtful. UM. I think that probably the more
Speaker 1: likely UM thing that happens is they do have to
Speaker 1: capital intensive businesses, securitized products, trading, credit trading. These are
Speaker 1: sort of less tied to their core wealth business as
Speaker 1: we know, UM, A lot of investors with both UBS
Speaker 1: and credit sweets, the focus is always they want to
Speaker 1: own it for the wealth business. They don't like the
Speaker 1: investment bank. I think that credit suites can, um, you know,
Speaker 1: make a case that they do need like M and
Speaker 1: A and things like that, but it's less likely to
Speaker 1: make a case on those other types of businesses. All right, Allison,
Speaker 1: good stuff as always. Alison Williams, Senior Global Banks Analysts,
Speaker 1: one of the all time great analysts Boomberg Intelligence, and
Speaker 1: there are many of them at the this boom looking
Speaker 1: at the yields. Boy, the two years down twenty one
Speaker 1: basis points four point zero seven percent, So back on
Speaker 1: that four percent watch here after a big, big move
Speaker 1: up in rates, the question is what does the fellow
Speaker 1: reserve do from here? PREA miserable managing director and global
Speaker 1: head of rate strategy at TV Securities joins us P.
Speaker 1: Thanks so much for taking the time here. Really appreciate it. Alright.
Speaker 1: The Fed has been very clear with its messaging it's
Speaker 1: fighting inflation. Um, some folks are saying they need to
Speaker 1: pause here, they need to take a break. What do
Speaker 1: you think is gonna happen? Thanks for having me on,
Speaker 1: so you know, I think it's much too early for
Speaker 1: them to be taking a pause. Um. In fact, we've
Speaker 1: heard from a bunch of FED officials in the last
Speaker 1: week reinforcing the message from Jackson Hole or the September
Speaker 1: FED meeting that they're on a mission. They need inflation
Speaker 1: much lower. Inflation is sticky, inflation is broad based. It's
Speaker 1: just too high. So I think they're still going we're
Speaker 1: looking for another seventy five in November, fifty in December,
Speaker 1: and then continued the hikes next year. I think they
Speaker 1: really want to see inflation monthly prints getting to point
Speaker 1: two point three in that range before they can stop hiking. So,
Speaker 1: you know, we think there's still a long way to go.
Speaker 1: I know, financial conditions have tightened, but inflation is too
Speaker 1: high and the economy is slowing. But they wanted us
Speaker 1: they will be paying ahead, and so I think we
Speaker 1: all should be uh, you know, expecting that pain to
Speaker 1: show up. I think the question is just how much
Speaker 1: pain are they willing to tolerate? And this is just starting. Yeah,
Speaker 1: I was going to ask the same the exact that
Speaker 1: exact question, how much pain are they willing to tolerate,
Speaker 1: especially considering it's going to hit lower income uh families
Speaker 1: and consumers hardest. Um, And we're seeing in the UK
Speaker 1: how bad that plays out. You know, when it's impossible
Speaker 1: for two million people to remortgage or you know, too expensive,
Speaker 1: they're gonna have to be fire sales on homes there.
Speaker 1: And then when you start to see you know, insurance
Speaker 1: markets um start to need a bank ail out. You know,
Speaker 1: how close can we get to that before they back off? Sure?
Speaker 1: So I would say inflation is also highly regressive, meaning
Speaker 1: it hits the lower income parts of the population much harder,
Speaker 1: and so if the FED is just focused on that,
Speaker 1: and they will see the labor market is still strong,
Speaker 1: and they'll see inflation being still too high. So that
Speaker 1: still remains. I think inflation remains public and me number
Speaker 1: one in terms of the insurance market that you're talking about,
Speaker 1: I mean, I think financial stress. We're we're going to
Speaker 1: have to deal with more financial stress. You look at this,
Speaker 1: this is of our shock. We're living through these massive
Speaker 1: moves and rates. I mean, treasury is moving twenty five
Speaker 1: base points a day, the stock market all over the place.
Speaker 1: I think credit spreads um in terms of bail. I mean,
Speaker 1: I don't think the insurance industry in the U S
Speaker 1: or the pension industry is as leveled to that trade
Speaker 1: um as we saw in the UK. And we have
Speaker 1: not had that level of moves in the tenure. I mean,
Speaker 1: I'm shocked with the twenty basis point move, but the
Speaker 1: tenure is still below four percent. We haven't had the
Speaker 1: hundred two hundred basis point more higher. So I don't
Speaker 1: see that particular industry in the US being as vulnerable
Speaker 1: as it is in the UK. But in general, I
Speaker 1: think when you get moves like this and growth is
Speaker 1: slowing without a fit put insight. I think it just
Speaker 1: tells you liquidity is paramount to prevent sort of forced
Speaker 1: being forced to sell at a time when you know
Speaker 1: liquidity is not great. So I think, is there enough
Speaker 1: liquidity to soak up the bonds that are going to
Speaker 1: get unleashed with quantitative tightening? So that's fair. But you know,
Speaker 1: it's been well advertised that the FED is selling or
Speaker 1: effectively letting nine between treasuries and mortgages run off a month. Um.
Speaker 1: You know, I I struggled to find the marginal buyer,
Speaker 1: and which is why treasuries have been selling off. But
Speaker 1: at some point longer treasuries are going to be the
Speaker 1: risk asset hedge because we should be pricing in a recession.
Speaker 1: I think the recession is pretty much baked on the
Speaker 1: cake for next year in the US, and I don't
Speaker 1: buy the shallow short recession argument. This could be much
Speaker 1: longer lasting because the FED is going to be reluctant
Speaker 1: to start to ease. They're so worried about the nineties
Speaker 1: seventies that I think they're going to be late on
Speaker 1: the way to easing policy. So you know, if we're
Speaker 1: in a recession, where should the tenure b I would
Speaker 1: say the FED should when maybe it's twenty four or
Speaker 1: twenty five that they start to cut rates, and they'll
Speaker 1: cut I think at that point too well below neutral.
Speaker 1: So the tenure is attractive as a risk hedge, and
Speaker 1: so I think that's where the bias will show up
Speaker 1: against risk castles. Pretty we had some I s M
Speaker 1: manufacturing data today came out weaker than expected and even
Speaker 1: new particularly on the new order side, uh forty seven
Speaker 1: point one showing contraction there. What do you make of that? Yeah,
Speaker 1: so we have been actually looking for the weakening to
Speaker 1: show up because for a couple of reasons. I mean,
Speaker 1: these were numbers were very high given that this was
Speaker 1: a good driven recovery post COVID recovery and goods demand
Speaker 1: we had seen starting to come off sharply. So I
Speaker 1: think that slowing is expected. It's not a huge employe
Speaker 1: mean indicator. So it's what I'm more interested in is
Speaker 1: I s M services. Have we seen the consumer? And
Speaker 1: I think that's going to be the early sign if
Speaker 1: the consumer is reducing spending because real wage growth for
Speaker 1: the U S consumers negative, meaning inflation is higher than
Speaker 1: the average. Early earnings. I think if I s M services,
Speaker 1: which is a huge employment uh early read, if that
Speaker 1: starts to slow down, I think that tells you that
Speaker 1: the economy slowing. I don't think that stops the FED,
Speaker 1: though it gives them probably some caution about the pace
Speaker 1: of hikes, but that endpoint, it's all about inflation in
Speaker 1: the near term. Okay, really appreciate getting your time. Prove
Speaker 1: you know you're busy. Premiser a managing director in Global
Speaker 1: head of Rates Strategy at t D Securities here. So
Speaker 1: some more movement up from the FED. Pre as talking
Speaker 1: about a recession, um, but perhaps you know, not be long,
Speaker 1: but maybe a little bit of a shallow recession there.
Speaker 1: So uh some more. We have to pay attention to
Speaker 1: this feed, of course, as it continues its fight against inflation.
Speaker 1: I want to get to our next guest right away.
Speaker 1: Jonathan Webb. He's the CEO and founder of app Harvest.
Speaker 1: They are building some of America's largest greenhouses, combining conventional
Speaker 1: agricultural techniques with today's technology to grow non gmo chemical
Speaker 1: free produce. Jonathan, thanks so much for taking the time
Speaker 1: to join us here. Talk to us about what you
Speaker 1: guys are doing at APP Harvest. I know you're in
Speaker 1: Kentucky and that Appalachia area there. Talk to us about
Speaker 1: what you guys are up to. Yeah, So we're building
Speaker 1: some of the world's largest controlled environment agriculture facilities to
Speaker 1: grow fruits and vegetables with less land and less water.
Speaker 1: And if you look at the US today, we imported
Speaker 1: about two thirds of our fruits and vegetables UH into
Speaker 1: the US and then the rest that we do grow
Speaker 1: here are mainly grown in grouch drought stricken areas of
Speaker 1: the Southwest in California. So UH, climate disruption continues to
Speaker 1: impact farmers not just in the US but around the world.
Speaker 1: So we we have to use technology, build infrastructure and
Speaker 1: UH and be able to grow food year round with
Speaker 1: with less water and less land. And that's ultimately what
Speaker 1: we're doing doing here at a Harvest in Kentucky. So,
Speaker 1: I know, your first greenhouse in Morehead, Kentucky, it's going
Speaker 1: to span sixty acres and use less water. How do
Speaker 1: you do that? Yes, So we by the end of
Speaker 1: the year, we'll have four facilities operating um of about
Speaker 1: eight million square feet in total. So just scale size
Speaker 1: and we'll be across strawberries, salad, greens and tomatoes. But
Speaker 1: ultimately we're we're using a host of different technologies that
Speaker 1: we combine into one system. Um and you mentioned if
Speaker 1: we we use about nine less water than open field
Speaker 1: agriculture and can get to about thirty times yield per acre,
Speaker 1: and we can do that no matter what the climate
Speaker 1: is outside. So our general thesis is, you know, this
Speaker 1: is the third wave of sustainable infrastructure. Twenty years ago
Speaker 1: was renewable energy, ten years ago it was Tesla with
Speaker 1: electric vehicles, and then right now it's controlled environment agriculture.
Speaker 1: We're going to have to bring most of our fruit
Speaker 1: and vegetable production around the world into a controlled environment.
Speaker 1: Uh and and and ultimately were one solution, but there
Speaker 1: are a lot of different solutions that are coming out
Speaker 1: of the market. When I grew up in Ohio, so, um,
Speaker 1: when I think of Kentucky and when I think of
Speaker 1: controlled environment farming, I think of the weed they grew
Speaker 1: there was very good. Reportedly, are you just doing um
Speaker 1: produced Are you also in the cannabis business now we're
Speaker 1: we're focused on fruits and vegetables. I mean the the
Speaker 1: convergence of technologies that can be somewhat similar the LED
Speaker 1: lighting Uh, that that's benefitted any any grower is something
Speaker 1: that we're benefiting from. But ultimately, we're building facility US
Speaker 1: to supply fruits and vegetables to the largest grocers, so
Speaker 1: our our customers or Costco, Walmart, Cromer, Publics, um and
Speaker 1: and a whole host of variety of fast food chains
Speaker 1: and and just our focus as fruits and vegetables. But
Speaker 1: you'll see those technologies kind of go back and forth
Speaker 1: depending on on what the industry is. But we're we're
Speaker 1: focused on bringing fruit and vegetable production back to the
Speaker 1: US and doing it in control environment. Why do you think, Jonathan,
Speaker 1: the stock price has suffered so severely? I mean a
Speaker 1: year ago, um, app Harvest was trading for over six
Speaker 1: and now we're looking at a dollar a D nine.
Speaker 1: What what are investors misunderstanding? Yeah? In a year and
Speaker 1: a half, we went to forty five bucks share forty
Speaker 1: down to two bucks. Um Yeah, I mean, look, we're
Speaker 1: we're investing and and and the long long term here
Speaker 1: at app Harvest. We're building facilities that will operate twenty
Speaker 1: thirty years. Uh E. Those four facilities are not operational yet,
Speaker 1: they'll be operational later this year and you know, we
Speaker 1: we had a couple of stumbles last year. It was
Speaker 1: our first first crop, first season producing and selling to
Speaker 1: a grocure and we we went public via SPACK. I mean, ultimately,
Speaker 1: you know, you look at why are we down? Well,
Speaker 1: you know, SPACs are down, Tech growth futures down, uh
Speaker 1: E s G down. I mean, everything is down. We're
Speaker 1: just on top of that. We're a little worse than others.
Speaker 1: And I've talked to the founders of CEOs of a
Speaker 1: lot of good companies that went public last year, and
Speaker 1: we're focused on building a good business that will be
Speaker 1: here the next twenty years. And you know, we have
Speaker 1: to weather the storm the next two years with incredibly
Speaker 1: terrible public mark. But do you have all the capital
Speaker 1: you need? I'm you know you're not generating cash right,
Speaker 1: so you need to invest in this business. As you said,
Speaker 1: do you have everything or do you need to go
Speaker 1: to the market again, Well, we're weighing our options and
Speaker 1: and you know we're building facilities, so utimately, how we
Speaker 1: finance those facilities could be private and you know, doing
Speaker 1: a sale lease back type model for each facility. So
Speaker 1: you know, every growth company is going to need capital.
Speaker 1: It's for us how do we get the capital. We've
Speaker 1: been able to secure attractive debt financing from JP Morgan
Speaker 1: U s D, a robo bank, So you know, we're
Speaker 1: constantly trying to field how to get capital at the
Speaker 1: most attractive price. And obviously if the stock was at
Speaker 1: fifty bucks, that would be ideal, but there's there's other
Speaker 1: ways for us to access capital, and we'll do whatever
Speaker 1: is prudent to do that to funder growth. Jonathan, I
Speaker 1: spent a lot of time in central California, and there
Speaker 1: are agricultural farms, you know, spending as far as I
Speaker 1: can see, But also as far as I can see
Speaker 1: are the irrigation systems that have the sprinklers just going
Speaker 1: on forever into the horizon. You just got to think
Speaker 1: that that the water issue is probably the biggest issue
Speaker 1: facing agriculture in this country. What do you guys do
Speaker 1: that's that's different, that tries to address that. I mean,
Speaker 1: this will be the collapse and lifetime. I'm I'm thirty
Speaker 1: seven years old. I grew up in Kentucky. I saw
Speaker 1: the collapse of the coal industry when people said there
Speaker 1: was no way you talk to any coal minor. Fifteen
Speaker 1: years ago, Peabody Energy. Anyone couldn't get their head out
Speaker 1: of the sand. Uh, and we saw a collapse of
Speaker 1: an industry that people thought there was no way it
Speaker 1: would collapse. We will not be farming leafy greens in California.
Speaker 1: We're not going to be farming the way we're farming
Speaker 1: in the southwest of the US. I mean, it is
Speaker 1: an existential threat to those cities. We do not have
Speaker 1: enough water. Eight of the water that's being consumed in
Speaker 1: the West is consumed by agriculture. So you can talk
Speaker 1: about like Kim Kardashian, you know, reducing her shower time.
Speaker 1: I know it's made a lot of headlines in California
Speaker 1: where cities have tried to restrict shower time or bout
Speaker 1: that it's irrelevant. That's agriculture. So we're not going to
Speaker 1: be growing leafy greens in Salinas, Cally Valley, California in
Speaker 1: my lifetime. We we solve it by using facility like ours.
Speaker 1: We're using less water. So you do the back back
Speaker 1: to the envelope math. It's pretty simple. I mean, we're
Speaker 1: close with Tom Vilsack. We knew the last at Secretary Purdue.
Speaker 1: You know, there's a real lack of leadership in d
Speaker 1: C on either side of the aisle. I mean, no
Speaker 1: one wants to touch this topic. Which politician would want
Speaker 1: to touch this topic and try to get reelected anywhere?
Speaker 1: So it's a hot button issue. We're not talking about it.
Speaker 1: The water issues of Colorado, River Lake, pal Lake Mead,
Speaker 1: all through California. It's only going to get worse here
Speaker 1: over a year. Uh. And maybe you'll have to get
Speaker 1: really bad before it gets better. But the good thing
Speaker 1: is there's technology and we can use that technology and
Speaker 1: grow with less water. And the private markets can help
Speaker 1: solve this. But ultimately we're going to need d C
Speaker 1: to incentivize the private markets to put capital to work
Speaker 1: across farms in the US. All right, good stuff, Jonathan
Speaker 1: Johnson Webb. We appreciate you taking the time here, CEO
Speaker 1: and founder of app Harvests symbol a p p H
Speaker 1: and put that into a Bloomberg terminal. Uh. And you know,
Speaker 1: talking about sustainable farming going farther into the future. When
Speaker 1: we move over to M and A into the power
Speaker 1: generation space, we had a German power generator r w
Speaker 1: E announced today a six point eight billion dollar purchase
Speaker 1: of Khan Edison assets. UM, I want to get to
Speaker 1: the you know what's going on. We don't talk about
Speaker 1: the green unit of Yeah, the green unit of CONDAD.
Speaker 1: Let's bring in Patricia Alvarez, Equity research Channels for Bloomberg Intelligency,
Speaker 1: joins us from the our Bloomberg's London studio. Patricia talk
Speaker 1: to us about r w E. Who are they, what
Speaker 1: are they? And talk to us about this deal. Sure so,
Speaker 1: um are do we E is one of Europe's largest
Speaker 1: coal fire generators of power, but as well they're also
Speaker 1: one of the fastest growing renewable asset operators in the region,
Speaker 1: with exposure to previous exposure to the US and the
Speaker 1: UK UM and with their headquarters and sort of their
Speaker 1: their core market in Germany UM. In terms of the acquisition,
Speaker 1: we see this as part of their their longer term
Speaker 1: strategy UH into pivoting into the US UM And while
Speaker 1: it may surprise some investors to see r w E
Speaker 1: sort of spending money outside of of Europe amid the
Speaker 1: current energy crunch we're having here, we see this as
Speaker 1: as a structurally sound strategic move for them, especially now
Speaker 1: with the policy support coming in with the Inflation Reduction Act.
Speaker 1: And considering that Conddition's assets are mostly solar assets, which
Speaker 1: are the ones that are poised to benefit the most
Speaker 1: from this policy shift. We see this as um as
Speaker 1: as a sound sort of a strategic move for for
Speaker 1: our W. So Patricio, um, you know, I've lived in
Speaker 1: Germany the past five or six years. They were constantly
Speaker 1: talking about reducing their reliance on coal. That is, until
Speaker 1: um the Russians invaded Ukraine. Does that mean and now
Speaker 1: of course they've had to go to coal because they
Speaker 1: don't have as much gas they had previously. Does that
Speaker 1: mean that our w is flush with cash as those
Speaker 1: plants are just generating so much electricity and I guess
Speaker 1: then revenue that they can use it in acquisitions like this,
Speaker 1: So that that's an interesting point. Um so are do
Speaker 1: we has has done well compared to other UM German utilities.
Speaker 1: It's no surprise that other utilities that are more reliant
Speaker 1: on both gas supply and also gas fire generations, such
Speaker 1: as Uniper, which is now the poster child of the
Speaker 1: energy crisis, being bailed out by by the German government
Speaker 1: UM bought out. Yes, um UM of of the equity
Speaker 1: is now going to be nationalized. But our do WE
Speaker 1: does not have this type of exposure. Are do We
Speaker 1: does have a significant fleet of gas fired power, but
Speaker 1: at the same time it has the largest lg nite
Speaker 1: fired power generation fleet. So in that sense they are
Speaker 1: both covered from from the suppliers side, from Russia being
Speaker 1: a thing supplies, but at the same time they have
Speaker 1: been benefiting from from higher prices on their dispatchable power,
Speaker 1: which is mainly lignite, which is also important important to
Speaker 1: note that is mostly mined within Germany UM, which is
Speaker 1: which is interesting to see because most of the hard
Speaker 1: core coming into Europe comes from Russia UM, so, so
Speaker 1: in that way are WE so it's sort of in
Speaker 1: the sweet spot where it has been mining that lignite
Speaker 1: as well, or they have to buy it from minors
Speaker 1: before they burn in their plants. I most of their
Speaker 1: of their lignite is is procured from their own minds
Speaker 1: and uh or from domestic from domestic producers, so they
Speaker 1: are not exposed to to any supply disruptions, which is interesting,
Speaker 1: and they they're sort of an outsized and an outlier
Speaker 1: i'd say within the energy crisis because they are both
Speaker 1: fetching capturing these higher power prices. But at the same
Speaker 1: time they're not having the same struggles as as other utilities. Alright, Patricia,
Speaker 1: good stuff. We appreciate you hopping on the line with this,
Speaker 1: Patricia Abas these equity research channels covering all that power
Speaker 1: generation utility stuff across Europe for Bloomberg Intelligence. Uh, we've
Speaker 1: got Kick Knolan who covers it here in the US.
Speaker 1: We've got Patricio uh in all of Europe as well,
Speaker 1: So we've got it covered for you from a Bloomberg
Speaker 1: Intelligence perspective. We appreciate getting his thoughts there. So a
Speaker 1: green deal, Yeah, I'm wondering why Conde. I wonder why
Speaker 1: Conde isn't selling I mean, who sells green assets these days?
Speaker 1: Well maybe it's um just for money. Yeah, you know,
Speaker 1: you might want to take a high price when you
Speaker 1: can get it. And said it's almost seven billion dollar deal.
Speaker 1: I think it's the biggest green deal that I've seen.
Speaker 1: Good stuff. Looking at Credit Swiss the a d r
Speaker 1: s four dollars to share kids, Oh my goodness. Up
Speaker 1: a couple of percent today, but down fifty eight percent
Speaker 1: year today. People are really looking at Credit Swiss. Here
Speaker 1: is you know, real concern for global Wall Street welcome
Speaker 1: Shiney Basket, Wall Street reporter for Bloomberg News and our
Speaker 1: Bloomberg Interactive Broker studio. Paul Daviess, Bloomberg Opinion columnists. I
Speaker 1: believe in our London in studio will find out soon enough.
Speaker 1: Credit Swiss it just seems like I can't get out
Speaker 1: of its own way. What's the latest here from my
Speaker 1: former employer. Listen, so much of this you saw coming
Speaker 1: in the sense that if you were making comparisons to
Speaker 1: Deutsche Bank or other banks here, you end up getting
Speaker 1: into a bit of a vicious cycle when you're funding
Speaker 1: cost rise at the same time your revenue is under pressure,
Speaker 1: and the problem for credit swises. This is all happening
Speaker 1: also when people are very worried about the larger macroeconomic outlook.
Speaker 1: I really like what Boaz Weinstein tweeted about two hours ago,
Speaker 1: and he wrote that I do think that European Bank
Speaker 1: SUBSIDIS is a good catch all tailheage for the myriad
Speaker 1: of problem swirling around, but he hated how this weekend
Speaker 1: was full about Twitter, full of how CS is about
Speaker 1: to go bust, because he doesn't believe that's going to happen. Now.
Speaker 1: This morning I was talking to another large money manager
Speaker 1: who has made the point here that the reason he's
Speaker 1: not worried is because this is as a diamond of Switzerland.
Speaker 1: No one's worried. Literally, no, everyone I've talked too said
Speaker 1: Credit Sweez is fine, There're no liquidity problems. Paul Davis,
Speaker 1: your story the title no Credit Sweez isn't on the brink.
Speaker 1: I don't know who's aimed at, because I've heard no
Speaker 1: one say that there are real problems here. And yet
Speaker 1: the shares fell eleven and a half percent at the
Speaker 1: start of trading today and it costs fifteen percent more
Speaker 1: to ensure the bonds against default. Why is that? Why
Speaker 1: is the market freaking out? Yeah, well I think that.
Speaker 1: I mean there are people who are, you know, worried
Speaker 1: about what's going on there. I don't think there are
Speaker 1: people there are, not sensible people worried about it actually
Speaker 1: falling over in you know, the coming days or weeks,
Speaker 1: because like you say, it does have plenty of capital,
Speaker 1: and it does have plenty of liquidity, but you know,
Speaker 1: it has a real issue in that it's got to
Speaker 1: work out how to restructure itself. It really wants to
Speaker 1: change its investment banks significantly and This is a very
Speaker 1: expensive thing to do in terms of how you deal
Speaker 1: with assets that you're carrying, all the people and the
Speaker 1: systems that you have. So you know Rose column the
Speaker 1: other week saying you can either do it slowly and
Speaker 1: expensively or quickly and expensively. It's you know, it's it's
Speaker 1: just and for investors, for credit investors, quicker would be
Speaker 1: better to pay for it. I have a question for you,
Speaker 1: because you know, Deutsche Bank when they did this restructuring,
Speaker 1: they did it generally into an upmarket, which means when
Speaker 1: they sold assets they were probably able to get higher
Speaker 1: evaluations for them. It means that they were able to
Speaker 1: generate revenue at a at a faster pace because the
Speaker 1: market was more normal. And so how much is this
Speaker 1: broader macro environment going to burn cut it, sweetz as
Speaker 1: it makes this restructuring work for them. It's going to
Speaker 1: be really difficult for them. And it's and it's you know,
Speaker 1: if they'd have if they'd have tried to do this
Speaker 1: year eighteen months ago, it would have been so much easier.
Speaker 1: And that's and that's because the two key areas where
Speaker 1: they are biggest and most concentrated in, which is leverage
Speaker 1: finance funding, private exty buyouts and what they call the
Speaker 1: Security sized Products division, which is also do with packaging
Speaker 1: up mortgages and leverage loans and this sort of stuff
Speaker 1: and sending them into the market. Those things were so
Speaker 1: much better. Those markets was so much better eighteen months ago.
Speaker 1: Now they are really unattractive, I think unattractive businesses. Everybody's
Speaker 1: been taking write downs on their liverage, blown positions, and
Speaker 1: on top of all of that, you know, what we
Speaker 1: saw in UK guilt market last week with with you know,
Speaker 1: pension funds running up against problems with their with their
Speaker 1: investing strategies illustrates a broader problem that we're going to
Speaker 1: have continually in markets with rising interest rates, higher volatility,
Speaker 1: and you know, more chance of you know, unexpected problems
Speaker 1: emerging and just kind of you know, growth in exposure
Speaker 1: between counter parties, more collateral calls, more margin calls, all
Speaker 1: of this sort of stuff, and that is just a
Speaker 1: much costlier environment in which the trade and what we're
Speaker 1: seeing with credit sweezes, you know, CDs prices, credit folts,
Speaker 1: what price which is one of the things that people
Speaker 1: were getting very excited about over the weekend is is
Speaker 1: a rise in the cost of guarding against the risk
Speaker 1: of that bank as a counterparty. And again this is
Speaker 1: what which banks or when it just lost revenues because
Speaker 1: it became expensive to trade with. So you know, it
Speaker 1: just speeds into credit sweet problems. The fact that everything
Speaker 1: is more volatile, everything is more difficult, everything is more
Speaker 1: uncertain h and everything is just more expensive to do.
Speaker 1: But when do you know, Um, I was thinking when
Speaker 1: I was reading these stories over the weekend, man, I
Speaker 1: want to sell the insurance or maybe by the stock
Speaker 1: because clearly they're well capitalized and a lot of this
Speaker 1: is just market noise. So when do you see a turnaround? Uh? So, well,
Speaker 1: they've got to come up with a good plan. They've
Speaker 1: got to come exactly so I mean, I mean hopefully
Speaker 1: if they were, if they could, they would be really
Speaker 1: good to do it sooner than that, because um, you know,
Speaker 1: the pressure is only going to build and and things.
Speaker 1: Your panic has a way of feeding on itself and
Speaker 1: that's that's that's the kind of a worrying thing. So
Speaker 1: if they could come down it, that would be great. Well,
Speaker 1: really quick question here, I know, and we don't have
Speaker 1: a lot of time, laugh, But how quickly can a
Speaker 1: third teen ct ratio falls to ten or even fifteenth
Speaker 1: gotta fall to I mean, I don't have the numbers
Speaker 1: off stuff my head that you would need to suffer
Speaker 1: billions and billions and billions of dollars in losses, you know,
Speaker 1: And this is why credit Swiss size losses well much
Speaker 1: bigger than much bigger than ones that they've already suffered.
Speaker 1: But I think you know, this is where Crede is
Speaker 1: now is different from Deutsche Bank in twenty sixteen. Deutsche
Speaker 1: Bank then had very same capital based and threats of
Speaker 1: huge fines coming at it, and was was was in
Speaker 1: a much weaker position, but still wasn't really in danger
Speaker 1: of falling over credit sweezes. I mean it would take
Speaker 1: it would take, would take more artgos and green sales, right, exactly,
Speaker 1: all right, Paul Davis, thank you so much for joining us.
Speaker 1: Paul Davis, Bloomberg Opinion joining us from our London offices
Speaker 1: and chios actually covers all things Wall Street for Bloomberg
Speaker 1: News here in New York. What do you talk to
Speaker 1: her about league tables? We'll talk to her about league tables.
Speaker 1: We have her on more often. You can always talk
Speaker 1: about L E A G go on your Bloomberg terminal.
Speaker 1: I want to get over to our Bloomberg intelligence analysts.
Speaker 1: Who knows the most about cars? I'm pretty sure, both
Speaker 1: in UH financial analysis terms and in actual UH motor terms. UM,
Speaker 1: Kevin Tynan, We've got a lot to talk about with you,
Speaker 1: but I want to start with Tesla Um. They made
Speaker 1: three hundred and sixties six thousand vehicles in the quarter,
Speaker 1: but they only sold three forty three thousand in a
Speaker 1: time when people are waiting six, eight, twelve months for vehicles.
Speaker 1: Why are they selling so many fewer than they produce. Well,
Speaker 1: you could argue there's demand issue there, you know. And
Speaker 1: I look, it's not just them. I think we're we're
Speaker 1: in this little window here where UM. You're you know
Speaker 1: that consuemer is a little bit is a little bit tentative. Um.
Speaker 1: And you're going to see this from other automakers too.
Speaker 1: But supply has been constrained to the point where you're
Speaker 1: just not gonna throw good money after bad anymore. UM.
Speaker 1: And I would think that they want this sorted out
Speaker 1: and balance between supply and demand by Black Friday sales,
Speaker 1: you know, November sales, end of the year clearance sales,
Speaker 1: kind of thing. UM. So there's this little period I think,
Speaker 1: you know, September October, maybe even the first half of November,
Speaker 1: where UM, the automakers will let demand fall where it
Speaker 1: will not chase it with incentives and discounting UM, and
Speaker 1: then make a push towards the end of the year.
Speaker 1: I mean that's what I was in Detroit last week,
Speaker 1: and I sat down with Mark Royce Um, the president
Speaker 1: of General Motors, drove around the Silverado EV, drove around
Speaker 1: in the new Corvette zero six that was sick, flat
Speaker 1: plane crank um. He was saying, you know there or
Speaker 1: her book is full. Their pipeline is deep, um and
Speaker 1: you know, going going into next year, and they had
Speaker 1: a fantastic third quarter as well, but at some point,
Speaker 1: you know, it can't continue to demand now GM, I
Speaker 1: feel like it's not the high end for the most part.
Speaker 1: That well, I say that and their truck selfer sometimes
Speaker 1: over a hundred thousand dollars. But so that that we
Speaker 1: imagine Tesla as more of a luxury car maker, right,
Speaker 1: but GM brings out new models Tesla, I feel like
Speaker 1: they've been making the same old tired designs for a decade.
Speaker 1: My alone on that Kevin well again, you know, it's
Speaker 1: more of a device maker than an automaker. And it's
Speaker 1: and I've said this a million times, you know, and
Speaker 1: from in the mindset of Tesla, it's not so much
Speaker 1: about the vehicle right about um, what it looks like.
Speaker 1: It's just what it can do, sort of the way
Speaker 1: your phone is not about what it looks like. It's
Speaker 1: about all the you know, Angry Birds games you can
Speaker 1: play on it and whatever, um, you know. And I've
Speaker 1: feel like that's where they positioned themselves a little bit
Speaker 1: and then market positions them as a as a tech
Speaker 1: company because it's not so much about changing design and
Speaker 1: changing features and options and colors and content in the vehicle,
Speaker 1: um in the way that we're used to seeing other
Speaker 1: automakers address those issues. Kevin, give us a sense of
Speaker 1: just the landscape here. I mean, you know, when I
Speaker 1: was growing up Detroit and the others, they made seventeen
Speaker 1: million cars every year. Are we going to go and
Speaker 1: there's tons of cars on the lots. You could go
Speaker 1: negotiate a little bit if you felt like it. What's
Speaker 1: the Is that world ever coming back? I don't think so.
Speaker 1: Um And and that's not to say never, but I
Speaker 1: don't think the automakers want it there, The dealers don't
Speaker 1: want it there. The consumer wants it there only because
Speaker 1: of that haggling and the discounting and the incentives that
Speaker 1: were really the way the business in the industry ran was,
Speaker 1: We're going to produce these things to cover fixed costs
Speaker 1: and create generate cash flow, and then we'll figure out
Speaker 1: how to sell it tomorrow by throwing money at the problem,
Speaker 1: which is hey, ten thousand cash back or gero percent
Speaker 1: financing for you know, twenty months or whatever it winds
Speaker 1: up being. And the automakers, now that the costs are rationalized,
Speaker 1: and that's something that's been happening since the bankruptcy period
Speaker 1: of eight oh nine UM through the pandemic, have gotten
Speaker 1: to the point where they don't need to operate in
Speaker 1: that way anymore. So, you know, an unhealthy seventeen million
Speaker 1: is what we were used to and now we're at
Speaker 1: a healthy thirteen, fourteen, fifteen million. And I think, you know,
Speaker 1: from that side of it, from the business perspective of it,
Speaker 1: this is where the industry wants to be and as
Speaker 1: and has actually worked decades to get to. In terms
Speaker 1: of the dealership model, I've never understood why the US
Speaker 1: has this arcane system. How long until that's dead? I
Speaker 1: mean surely Ford and GM and Harley are going to
Speaker 1: sell their products through their own stores eventually. Look, I
Speaker 1: I am on the side of the dealer in this.
Speaker 1: I think if you hate the dealership experience, that means
Speaker 1: that it needs to improve. And I and I don't
Speaker 1: question that. But could you imagine an automaker trying to
Speaker 1: sell what GM sells in the U, say, you know,
Speaker 1: roughly three million vehicles in the US every year. Directly
Speaker 1: they're a manufacturer that people would argue aren't very good
Speaker 1: as a manufacturer. Now all of a sudden, they're going
Speaker 1: to be a great retailer. I just don't understand how
Speaker 1: people think that way, that at volume you're going to
Speaker 1: be a better retailer than a retailer. I mean when
Speaker 1: you need so they're gonna go there, right, I mean
Speaker 1: GM not. It seems like, you know, Royce said, you know,
Speaker 1: we debated this and we're going to stick to our
Speaker 1: guns here. But the but Farley has split off the
Speaker 1: e V s. It seems like that's why he hates
Speaker 1: the dealerships. Um Harley just split off its EV business
Speaker 1: to live Wire, which by the way, is on fire
Speaker 1: today in the markets. I don't know why. I mean,
Speaker 1: it seems they want to go direct to consumer as well,
Speaker 1: but even Farley's model for now is not direct. They're
Speaker 1: just telling dealers that they have to invest in a
Speaker 1: charge point at their store. Uh, they have to train texts,
Speaker 1: they have to train their salespeople to understand the technology.
Speaker 1: They're not saying, we'll do it directly. And what they're
Speaker 1: telling dealers also is if you don't want to invest
Speaker 1: in these things, which the estimate is about one point
Speaker 1: two million dollars per dealership, is to say, well, then
Speaker 1: you can't have e V inventory and you can't have
Speaker 1: EV demos um. So they're sort of forcing the dealers
Speaker 1: into it, but it's not an issue. Or they'll say
Speaker 1: you have to have an order for one before we
Speaker 1: send you one. You can't. You can't have anything sold
Speaker 1: off the lot um. So it's not direct. I mean,
Speaker 1: it's a it's a way of doing it direct, but look,
Speaker 1: it doesn't work at scale. I think you as a consumer,
Speaker 1: we as a consumer, will have horrible experience buying vehicles
Speaker 1: directly and trying to get them serviced um from manufacturers
Speaker 1: if they assume the role of a retailer. I just
Speaker 1: can't imagine having a good experience at a dealership here
Speaker 1: in the US. You know, I've bought a fair amount
Speaker 1: of cars and never enjoyed it. Now, on the other hand,
Speaker 1: go buy a nine eleven at Porsche in Berlin, operated
Speaker 1: directly by the company, and you have a great experience. Right.
Speaker 1: But talk about three million a year though not not
Speaker 1: a niche product or you know, a couple of thousands
Speaker 1: of units a year. It's very different at scale. You
Speaker 1: got I mean, as gmm, gonna go to Paduca, Kentucky
Speaker 1: to sell a car and you gotta put some local
Speaker 1: person here. I don't know. So next time I'm gonna
Speaker 1: figure out what Kevin Tynan is driving because it changes
Speaker 1: like everything. They probably have a fact that they build
Speaker 1: corvettes in your Paduca exactly. Automotive analyst for Bloomberg Intelligence
Speaker 1: Bowling Green is in Great Town. Spend a lot of
Speaker 1: time there. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews a full podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller three on Fall Sweeney. I'm
Speaker 1: on Twitter at pt Sweeney before the podcast. You can
Speaker 1: always catch us worldwide at Bloomberg Radio