WEBVTT - Hunter Biden, Eli Lilly, CAVA, and Geopolitics (Podcast) 0:00:00.840 --> 0:00:02.560 Welcome to the Bloomberg Markets Podcast. 0:00:02.720 --> 0:00:03.480 I'm Paul Sweeney. 0:00:03.520 --> 0:00:05.280 Alongside my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day, we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.640 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.360 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com Slash podcast. 0:00:21.160 --> 0:00:23.520 A lot of news out of Washington, DCT on the 0:00:23.640 --> 0:00:26.640 legal front. I mean we started off the day looks 0:00:26.640 --> 0:00:30.440 like President Trump faces an August twenty twenty three trial 0:00:30.440 --> 0:00:33.280 in the classified documents case, so we've got some clarity there. 0:00:33.920 --> 0:00:36.239 Then just breaking recently, Hunter Biden de plete guilty to 0:00:36.320 --> 0:00:38.680 tax charges. So we want to get to the bottom 0:00:38.720 --> 0:00:41.080 of this news coming out of Washington. Nick Ackerman, former 0:00:41.080 --> 0:00:43.599 assistant special Watergate prosecutor, joins us. 0:00:43.800 --> 0:00:43.959 Nick. 0:00:44.040 --> 0:00:47.480 Let's start with the news first on President Trump. If 0:00:47.479 --> 0:00:51.520 nothing else, it's he's going to receive a speedy trial, 0:00:51.520 --> 0:00:53.880 if you will. I mean, this is happening very quickly. 0:00:54.640 --> 0:00:57.480 Yeah, no, I mean Florida, the southern district of Florida 0:00:57.560 --> 0:01:00.760 is known for its rocket dockets, and clearly he's on there, 0:01:01.640 --> 0:01:03.600 and I think it answers a lot of questions that 0:01:03.640 --> 0:01:07.520 people were concerned about with this particular Judge Cannon, who 0:01:07.600 --> 0:01:10.560 wasn't a Trump appointee, that somehow she would drag this 0:01:10.720 --> 0:01:13.399 out and delay it for Trump. That is not going 0:01:13.440 --> 0:01:17.160 to happen. I think one of the overriding themes that 0:01:17.240 --> 0:01:20.080 comes out of our news this morning is really the 0:01:20.160 --> 0:01:23.480 rule of law and how it has been enforced with 0:01:23.600 --> 0:01:26.600 both of these developments today. One you've got a Trump 0:01:26.680 --> 0:01:30.160 appointee as a judge who is moving this case along 0:01:30.240 --> 0:01:33.480 and bringing it to trial. And two you've got the 0:01:33.560 --> 0:01:37.720 Hunter Biden a guilty plead that was done and overseen 0:01:37.959 --> 0:01:42.040 by a former Trump appointee as US Attorney in Delaware 0:01:42.280 --> 0:01:45.640 who was purposely kept on in order to deal with 0:01:45.680 --> 0:01:49.880 this matter, and he had the final ultimate decision as 0:01:49.880 --> 0:01:53.160 to how it would be taken care of. The Attorney 0:01:53.200 --> 0:01:56.160 General kept himself out of it for fear of some 0:01:56.360 --> 0:01:58.720 kind of a conflict between the fact that he was 0:01:58.760 --> 0:02:03.960 appointed by President Biden and he would be making the decision. Instead, 0:02:04.280 --> 0:02:10.040 he delegated it completely to this Trump appointed US attorney, 0:02:10.680 --> 0:02:14.480 And in the same way, the decision to indict Donald 0:02:14.520 --> 0:02:19.040 Trump on the classified document case was delegated to a 0:02:19.080 --> 0:02:23.720 special prosecutor that was totally out of the politics and 0:02:24.520 --> 0:02:28.040 was removed from the attorney general. So I think today 0:02:28.160 --> 0:02:29.720 was a good day for the rule of law. 0:02:30.840 --> 0:02:34.839 So, Nick, has the Biden administration responded to either case yet? 0:02:36.160 --> 0:02:38.600 I know, and there's no reason for them to. I mean, 0:02:38.639 --> 0:02:43.160 they have should have absolutely nothing to do with either case. 0:02:43.200 --> 0:02:46.960 It's important that they keep their distance and that the 0:02:47.000 --> 0:02:51.000 public understands that the decisions being made on this case 0:02:51.040 --> 0:02:56.080 are being made by totally independent individuals, whether the prosecutors 0:02:56.240 --> 0:02:57.000 or the judges. 0:02:58.080 --> 0:03:00.960 So all right, Nick, let's I guess focus on, presumably 0:03:01.080 --> 0:03:02.799 what is the more important case here. 0:03:03.320 --> 0:03:04.440 What is your expectation. 0:03:04.560 --> 0:03:06.160 I mean, this is going only going to be They 0:03:06.200 --> 0:03:10.720 announced a two week trial, so that seems very expeditious 0:03:10.720 --> 0:03:13.800 if nothing else, How do you expect this to play out? 0:03:14.760 --> 0:03:14.919 Oh? 0:03:15.200 --> 0:03:17.040 I think it's likely to play out just the way 0:03:17.080 --> 0:03:18.600 she's got it set up. I mean, there may be 0:03:18.639 --> 0:03:21.840 a little bit of a delay in here, but this 0:03:21.919 --> 0:03:25.760 is not a difficult case. It's fairly straightforward. The number 0:03:25.760 --> 0:03:28.840 of classified documents I think is somewhere around thirty that 0:03:28.919 --> 0:03:32.960 are an issue here. There's testimony by witnesses, there's going 0:03:33.000 --> 0:03:36.400 to be pre trial motions, all of which are, for 0:03:36.440 --> 0:03:38.000 the most part, as far as I can tell, it 0:03:38.040 --> 0:03:40.760 pretty frivolous and will take no time to dispose of. 0:03:41.320 --> 0:03:44.200 So there's no reason why this case can't be put 0:03:44.280 --> 0:03:48.360 on trial in August. I mean, this judge is spot on. 0:03:48.480 --> 0:03:50.320 This is the way the case ought to be handled. 0:03:50.520 --> 0:03:55.280 Nick, Should we expect a plea deal from president former 0:03:55.320 --> 0:03:57.960 president Trump's campus that's something that we should expect, or 0:03:58.000 --> 0:04:00.800 do you think he prefers or he should go to trial? 0:04:01.760 --> 0:04:03.800 Well, I think he's a fool to go to trial 0:04:03.920 --> 0:04:06.960 because the evidence, at least as it's set forth in 0:04:07.000 --> 0:04:13.160 the indictment, is extraordinarily powerful, and his statements, even his 0:04:13.240 --> 0:04:16.360 statement last night on Fox News, he keeps digging himself 0:04:16.440 --> 0:04:20.600 in deeper to this and creating more fodder for the 0:04:20.760 --> 0:04:24.680 prosecution in the case. The best thing that I would 0:04:24.720 --> 0:04:27.640 advise any client to do under these circumstances is to 0:04:27.680 --> 0:04:31.480 somehow get a plea deal. But knowing Donald Trump, I'd 0:04:31.480 --> 0:04:32.720 say that's pretty unlikely. 0:04:33.200 --> 0:04:36.000 How does this affect the election. 0:04:37.440 --> 0:04:39.799 Well, that's the whole point. If this case is done 0:04:40.040 --> 0:04:43.960 by early September, it's not going to affect the election 0:04:44.080 --> 0:04:47.520 at all. I mean, if he's convicted. You know, good 0:04:47.600 --> 0:04:50.400 luck to the Republican Party if they want to nominate 0:04:50.520 --> 0:04:58.880 somebody for president who's convicted for mishandling and obstructing classified documents. 0:04:58.880 --> 0:05:02.080 I mean, I just don't see that happening here, so 0:05:02.120 --> 0:05:06.080 I think it by doing this on this schedule, this, 0:05:06.080 --> 0:05:08.880 this is a good thing in terms of the election. 0:05:09.480 --> 0:05:10.599 Nick, thanks so much for joining us. 0:05:10.640 --> 0:05:12.400 Really appreciate it. Jumping on with us. 0:05:12.600 --> 0:05:16.600 Nick Ackerman, former assistant special Watergate prosecutor, giving us his 0:05:16.720 --> 0:05:20.279 thoughts and analysis on what's been some pretty busy news front. 0:05:20.279 --> 0:05:24.080 This morning, you're listening to the Team Ken's are Live 0:05:24.160 --> 0:05:27.600 program Bloomberg Markets weekdays at ten am Eastern. 0:05:27.360 --> 0:05:30.440 On Bloomberg dot Com, the iHeartRadio. 0:05:29.720 --> 0:05:32.480 App, and the Bloomberg Business App, or listen on demand 0:05:32.520 --> 0:05:34.080 wherever you get your podcast. 0:05:36.080 --> 0:05:38.080 Jess Met and Paul Sweene Here in the Bloomberg Interactive 0:05:38.080 --> 0:05:41.280 Brokers Studio, we're streaming live on YouTube starting today. 0:05:41.279 --> 0:05:44.160 You can go check that out. Jess. 0:05:44.240 --> 0:05:46.560 You know I've said it before, I'll say it again. 0:05:46.600 --> 0:05:47.920 You know, my next life, I want to come back 0:05:47.920 --> 0:05:50.359 as a care m and a bank because this just 0:05:50.520 --> 0:05:54.640 deals left and right. We've got another one today, Lily 0:05:55.000 --> 0:05:57.600 to pay two point four Yeah, two point four billion 0:05:57.640 --> 0:06:01.000 dollars for immune drug developer Dice. Breaking down force is 0:06:01.000 --> 0:06:03.480 our good friend Sam Vizzelli. He's head of European Research. 0:06:03.839 --> 0:06:06.680 He's also got a side hustle where he's presumably reportedly 0:06:06.720 --> 0:06:11.039 a pharmaceuticals analyst for Bloomberg Intelligence. So we'll check in 0:06:11.040 --> 0:06:12.920 with Sam. Sam, thanks so much for joining us here again, 0:06:12.960 --> 0:06:17.080 another deal here for Lily. You know your big farmer companies. 0:06:17.800 --> 0:06:19.599 I know they do a lot of R and D, Sam, 0:06:19.600 --> 0:06:22.279 but boy, they're really active on the M and A front, 0:06:22.320 --> 0:06:25.560 buying drugs and therap therapies. What are they getting here 0:06:25.560 --> 0:06:25.960 with Dice? 0:06:27.080 --> 0:06:29.880 Hey, Paul, just just one comment before we go to Dice. 0:06:30.279 --> 0:06:33.479 I think your life as a media analyst back in 0:06:33.520 --> 0:06:35.080 the days wasn't that bad, was it? 0:06:35.200 --> 0:06:35.640 No? It was. 0:06:36.640 --> 0:06:38.479 We had a good role there for a while. 0:06:39.320 --> 0:06:42.160 Oh yes, No, so Dice. 0:06:43.680 --> 0:06:46.120 Basically, what Lily is doing here is that it's acquiring 0:06:46.240 --> 0:06:53.359 a novel therapeutic approach or novel drug development approach to 0:06:54.040 --> 0:06:58.120 treating dermatological disease. In this particular case, I think the 0:06:58.120 --> 0:07:00.800 target's going to be a psariasis, which I think a 0:07:00.839 --> 0:07:04.599 lot of people are familiar with in which Lily's already active. 0:07:05.080 --> 0:07:06.920 So they have a product called Tolts. 0:07:06.960 --> 0:07:10.480 It's doing really well, but it's coming off patent in 0:07:10.520 --> 0:07:15.000 twenty in the late twenties, let's say, and it does 0:07:15.080 --> 0:07:18.280 make sense for them to be backing into it other products. 0:07:18.280 --> 0:07:22.200 And let's not forget a lot of farmer company products 0:07:22.720 --> 0:07:26.560 to fifty percent of them originate outside of the farmer company. 0:07:26.640 --> 0:07:31.520 You can't own every science, every new methodology for developing drugs, 0:07:31.680 --> 0:07:33.960 which is something that Dice has got a new approach 0:07:34.000 --> 0:07:38.120 to doing small molecule pill type drugs. So that's what 0:07:38.240 --> 0:07:40.560 I think we got. We're seeing and we continue to see. 0:07:41.200 --> 0:07:43.760 Sam. How are investors reacting to this? Because if you 0:07:43.760 --> 0:07:47.480 look at shares of Dice as tickersymbol DIICE up about 0:07:47.520 --> 0:07:51.120 thirty eight percent on Peaceport's best days since October of 0:07:51.280 --> 0:07:54.000 last year. Looking at Eli Lillly tickersymbol l l Y 0:07:54.160 --> 0:07:55.160 up about one percent. 0:07:56.200 --> 0:07:59.080 Yeah, well, so, I mean usually the acquired when they're 0:07:59.080 --> 0:08:01.760 doing such a small de Let's not forget Eli Lee. Now, 0:08:01.800 --> 0:08:04.679 at least last time I checked, was the largest farmer 0:08:04.720 --> 0:08:07.920 company in the world. They overtook Johnson and Johnson. Although 0:08:07.920 --> 0:08:11.040 I think they're vying for that position like who's the 0:08:11.040 --> 0:08:13.000 wealthiest man in the world kind of situation. 0:08:14.480 --> 0:08:17.160 But so, really, what difference does it make to them? 0:08:17.240 --> 0:08:19.280 Yes, it changes a little bit of the dynamics of 0:08:19.640 --> 0:08:26.040 potential downside in their immunology franchises and rices franchise seven 0:08:26.160 --> 0:08:26.640 years at. 0:08:26.520 --> 0:08:28.000 Down the road. Great planning. 0:08:28.320 --> 0:08:30.720 But what really is driving in the stock today is 0:08:30.720 --> 0:08:33.640 the excitement around as we all know, obesity, diabetes, and 0:08:33.679 --> 0:08:37.840 Alzheimer's disease. So this is not surprising to me the 0:08:37.840 --> 0:08:40.680 way the share prices that mod What is interesting is 0:08:40.679 --> 0:08:42.280 that the share price I'm just watching it now on 0:08:42.320 --> 0:08:43.840 my screen here for Dyce. 0:08:44.080 --> 0:08:45.720 This company presented. 0:08:45.360 --> 0:08:49.120 Data for this drug way back in nine months ago 0:08:49.160 --> 0:08:52.240 October last year, and it's interesting that it's taken this 0:08:52.440 --> 0:08:54.480 long for them to be taken out. And I have 0:08:54.520 --> 0:08:56.880 to also say it's not the biggest premium I've seen 0:08:57.440 --> 0:08:58.400 with recent deals. 0:08:58.400 --> 0:09:00.240 So Mark bought Prometheus for. 0:09:00.240 --> 0:09:03.960 Around a seventy seventy five percent premium, and the Chinook 0:09:04.400 --> 0:09:07.120 was acquired or at least announced to be acquired by 0:09:07.160 --> 0:09:10.480 Novartists just a few days ago last week for a 0:09:10.559 --> 0:09:14.040 sixty six percent premium or sixty percent premium depending on 0:09:14.080 --> 0:09:16.720 where you start so at this thirty eight percent premium 0:09:16.800 --> 0:09:19.839 is not the biggest we've seen, and it does make 0:09:19.880 --> 0:09:22.800 me wonder how why this it took so long for 0:09:22.840 --> 0:09:26.160 somebody like Lily to actually close the deal, and perhaps 0:09:26.160 --> 0:09:27.240 they could have paid less. 0:09:27.280 --> 0:09:28.000 Who knows? 0:09:28.280 --> 0:09:30.720 Hey, Sam, talk to us about kind of that risk 0:09:30.840 --> 0:09:34.320 for patent expirations. I mean, I know you guys as 0:09:34.400 --> 0:09:37.280 analysts and investors, you probably follow that closely, are there. 0:09:38.000 --> 0:09:39.599 Do you have a pretty good certainty. 0:09:39.240 --> 0:09:42.200 When drugs come off patent and then when that revenue 0:09:42.240 --> 0:09:45.280 may be a risk, And are certain companies more vulnerable 0:09:45.320 --> 0:09:46.960 to that risk than than others? 0:09:47.840 --> 0:09:50.880 Yeah, I think, Paul, it happens that sometimes some companies 0:09:50.920 --> 0:09:53.760 go through a wave of them and then others are 0:09:53.800 --> 0:09:55.920 pretty immune for a while to go yet, and I 0:09:55.960 --> 0:09:59.600 think Lily is one of those that's relatively immune. Pfizer, 0:09:59.640 --> 0:10:03.480 I think, more exposure than others currently, But then of 0:10:03.520 --> 0:10:05.440 course they come and go and then they move on 0:10:05.480 --> 0:10:10.040 to a new base. And with patterns, yes, it's relatively 0:10:10.400 --> 0:10:14.360 relatively easy because you can get fantastic pattern analysts like 0:10:14.440 --> 0:10:17.920 our own old Girsbacker who digs deep on these things 0:10:17.960 --> 0:10:20.560 to try and guestimate when the patent expirer would come. 0:10:20.840 --> 0:10:23.000 What has muddied the water here. 0:10:22.840 --> 0:10:27.360 Of course, is the Inflation Reduction Act, which is saying 0:10:27.800 --> 0:10:30.920 that some of your drugs, especially these small molecules, these 0:10:30.920 --> 0:10:34.800 pills that I've been talking about, will be negotiated in 0:10:34.880 --> 0:10:37.120 terms of price to get them into a world that 0:10:37.200 --> 0:10:39.640 looks like as if they're becoming generic in terms of 0:10:39.679 --> 0:10:43.600 pricing way before the patent expires. And so that creates 0:10:43.720 --> 0:10:47.360 an extra layer of uncertainty, which is why I'm actually 0:10:47.480 --> 0:10:50.000 quite interested in this deal today because it is a 0:10:50.040 --> 0:10:52.600 small molecule dealer, it is a pill, and it does 0:10:52.679 --> 0:10:53.839 fall into the IRA. 0:10:53.760 --> 0:10:58.160 Trap, same with healthcare. Deer deals on a tear this year. 0:10:58.679 --> 0:11:00.960 Is this a sign of optimist in the M and 0:11:01.000 --> 0:11:01.480 A market? 0:11:02.920 --> 0:11:04.280 Yeah, it's interesting, isn't it? 0:11:05.080 --> 0:11:07.360 If you think back to last year interest rates pretty 0:11:07.400 --> 0:11:10.000 much close to zero here and there, it was a 0:11:10.040 --> 0:11:13.360 deal that these are not big numbers. You know, three 0:11:13.400 --> 0:11:16.320 billion dollars. What's that to a four hundred billion dollar company? 0:11:16.760 --> 0:11:19.880 But it does it's make me kind of chuck a 0:11:19.920 --> 0:11:22.559 little bit when interest rates are shooting up, But you 0:11:23.000 --> 0:11:26.200 think that MNA would be less likely. These companies are 0:11:26.200 --> 0:11:28.559 stepping in into introduers, which of course, it's telling you 0:11:28.840 --> 0:11:31.320 that they don't need any debt to do this. I mean, 0:11:31.960 --> 0:11:33.440 Lily is very clear. He said, we're just going to 0:11:33.440 --> 0:11:36.880 finance this through our massive cash flow. So what is 0:11:36.960 --> 0:11:38.880 happening though, is that I think they're coming to a 0:11:38.880 --> 0:11:41.000 point of thinking more and more. 0:11:41.240 --> 0:11:44.000 Valuations are where they are. They haven't moved very much. 0:11:44.080 --> 0:11:46.559 They've taken their time, and they're finding the assets that 0:11:47.000 --> 0:11:49.840 they feel are the right quality for their pipelines. 0:11:50.200 --> 0:11:53.840 Hey, Sam, as analysts and investors in these pharma companies, 0:11:54.080 --> 0:11:58.360 does a market care whether you know, the the Lilies 0:11:58.400 --> 0:11:59.800 of the world, the marks of the world, whether they 0:11:59.840 --> 0:12:02.920 do all of their therapeutics and drugs internally via R 0:12:02.960 --> 0:12:04.680 and D or they go out and buy it, do 0:12:04.720 --> 0:12:05.440 you guys even care? 0:12:06.240 --> 0:12:07.960 No, not really at the end of the day. 0:12:08.120 --> 0:12:10.280 I mean, obviously, if the R and D engine of 0:12:10.320 --> 0:12:12.120 the company they were spending ten billion a year and 0:12:12.120 --> 0:12:14.440 they were getting nothing out of it, that's not a 0:12:14.440 --> 0:12:17.320 good thing. But let's not forget this product isn't done yet. 0:12:17.440 --> 0:12:19.600 It still needs to go through. What a lot of 0:12:19.600 --> 0:12:23.760 people don't think about or contemplate is that it's not 0:12:23.840 --> 0:12:27.040 just about discovering a molecule. It's about then manufacturing it. 0:12:27.120 --> 0:12:29.440 Make sure you've got the right manufacturing footprint, make sure 0:12:29.440 --> 0:12:31.640 you've got the right package. 0:12:31.240 --> 0:12:33.160 To go to the FDA, et cetera, et cetera. 0:12:33.520 --> 0:12:35.400 So there's a lot of R and D that still 0:12:35.440 --> 0:12:37.840 needs to go in here that Lily will be spending 0:12:38.240 --> 0:12:42.920 on this product. So but nobody really cares as long 0:12:42.960 --> 0:12:46.199 as internal R and D, which is where the Munjaro 0:12:46.320 --> 0:12:49.360 drug there's appetite has come from, which is where there 0:12:49.360 --> 0:12:52.240 alzhemazrugs have come from, are delivering something. 0:12:53.200 --> 0:12:56.680 Any chatter of other companies that Eli Lilly might be 0:12:56.840 --> 0:13:00.720 potentially in the sort of looking here to see potential 0:13:00.840 --> 0:13:04.840 buying as far as wor could potentially obviously continue this 0:13:04.920 --> 0:13:06.960 behemoth of a company that we've been seeing. 0:13:08.040 --> 0:13:09.800 Yeah, so I think the best way to figure that 0:13:09.840 --> 0:13:13.160 out is to look at the products that are facing 0:13:13.200 --> 0:13:17.320 competition in the longer term and look at what else 0:13:17.360 --> 0:13:19.840 is available in the biotech sector. So you know, a 0:13:19.840 --> 0:13:22.520 lot of these deals are not coming into the mid 0:13:22.559 --> 0:13:26.800 stage development companies. There was a time where everybody wanted big, 0:13:26.840 --> 0:13:29.480 big revenue generators to basically do a little bit of 0:13:29.480 --> 0:13:32.400 financial engineering on that. But what we're seeing more than 0:13:32.480 --> 0:13:36.600 names I read off to Chinuk Prometheus, this company dies. 0:13:36.960 --> 0:13:41.560 These are more midstage pipeline fillers, which are therefore going 0:13:41.640 --> 0:13:45.000 to be tied to what the company is either developing 0:13:45.040 --> 0:13:48.400 a new therapeutic franchise or it's got a drug like 0:13:48.480 --> 0:13:50.680 Tolts in the case of Lily that's going off pattern. 0:13:51.000 --> 0:13:51.959 What you should really. 0:13:51.800 --> 0:13:54.680 Be looking for is to marry that with good data 0:13:54.720 --> 0:13:58.200 that comes out of the companies as they report them. 0:13:58.400 --> 0:14:00.359 Hey, Sam, thanks so much for joining us. Really preciated 0:14:00.480 --> 0:14:03.600 as always, Sam Fazzelli. He's head of European Research. He's 0:14:03.640 --> 0:14:06.800 also the senior pharmaceuticals analyst, one of the top analysts 0:14:06.800 --> 0:14:07.880 in the city of London. 0:14:08.200 --> 0:14:11.319 You're listening to the tape Cats are live program Bloomberg 0:14:11.400 --> 0:14:14.960 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:14:15.040 --> 0:14:17.120 tune in app, Bloomberg dot Com. 0:14:16.840 --> 0:14:18.280 And the Bloomberg Business App. 0:14:18.280 --> 0:14:21.120 You can also listen live on Amazon Alexa from our 0:14:21.120 --> 0:14:26.160 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:14:27.040 --> 0:14:30.160 Jess Mitt and Paul Sweeney here in the Interactive Brokers studio, 0:14:30.240 --> 0:14:31.880 and we're going to change things up with a C 0:14:32.120 --> 0:14:35.280 suite conversation with someone who I here actually went to 0:14:35.320 --> 0:14:39.160 a school in Texas. Yes, well, so I'm excited. Matt Road, 0:14:39.240 --> 0:14:42.240 chief revenue officer at the auto lending enable to firm 0:14:42.360 --> 0:14:44.800 Open Lending. He's going to chat with us about the 0:14:44.840 --> 0:14:48.320 auto market, carloans, credit crunch, all things about that. Matt, 0:14:48.360 --> 0:14:49.800 thanks so much for joining us. 0:14:50.600 --> 0:14:52.360 Yeah, thank you, guys, Thanks palm Jess. 0:14:52.440 --> 0:14:54.320 I have to get your thoughts when it comes to 0:14:54.440 --> 0:14:56.960 the auto space and with the backdrop obviously with the 0:14:56.960 --> 0:14:59.640 Federal reserve in the direction of the economy. Are you 0:14:59.720 --> 0:15:02.040 noticed seeing any sort of red flags pop up so 0:15:02.160 --> 0:15:05.560 far when it comes to auto lending, you. 0:15:05.520 --> 0:15:07.080 Know, not at this time. 0:15:07.080 --> 0:15:09.920 I mean, I think everybody is curious in watching. You know, 0:15:09.960 --> 0:15:13.080 we've seen used car values over the last couple of years, 0:15:13.440 --> 0:15:15.880 you know, induced by the pandemic and the shortage of 0:15:15.920 --> 0:15:18.920 supply of vehicles, drive car values to the highest we've 0:15:18.920 --> 0:15:20.920 ever seen. And we've seen the biggest drop last year 0:15:20.920 --> 0:15:23.920 in the Mannheim index on records. I think, you know, 0:15:24.320 --> 0:15:27.160 cautiously watching what you use car values are doing, and 0:15:27.200 --> 0:15:30.360 then I'll be ever looming, you know, recession that we 0:15:30.520 --> 0:15:33.840 may or may not be in has lenders thinking about 0:15:33.920 --> 0:15:36.920 you know, from a strategy standpoint, you know, how can 0:15:36.960 --> 0:15:41.360 they still drive some growth but not you know, avoid 0:15:41.400 --> 0:15:43.520 some of the risk that may be out there today. 0:15:44.080 --> 0:15:47.640 Hey, Matt, we may be in a recession or coming 0:15:47.680 --> 0:15:49.560 into recession. People have been talking about it for more 0:15:49.600 --> 0:15:51.080 than a year. What are you seeing in terms of 0:15:51.080 --> 0:15:54.560 the credit quality of your portfolio? Are are your borrowers 0:15:54.560 --> 0:15:56.040 are there? Are they struggling? 0:15:57.360 --> 0:16:00.360 You know, so we tend to focus more on the 0:16:00.400 --> 0:16:04.280 near prime consumer, and what we have typically seen even 0:16:04.320 --> 0:16:07.800 through the Great Recession is that near prime consumers can 0:16:08.080 --> 0:16:11.880 weather you know, economic storms better than than prime consumers. 0:16:11.920 --> 0:16:14.520 And so, you know, from a from a risk standpoint, 0:16:14.560 --> 0:16:17.720 we encourage you know, banks and in any auto lender 0:16:18.520 --> 0:16:22.720 to diversify their portfolio because you know, again typically you know, 0:16:22.760 --> 0:16:25.400 what we saw in the in the Great Recession was 0:16:25.400 --> 0:16:31.080 that prime consumers defaulted at a much higher anticipated rate 0:16:31.720 --> 0:16:34.280 than the near prime consumers. So, you know, we have 0:16:34.360 --> 0:16:37.800 not seen anything out of the norm as of yet 0:16:37.840 --> 0:16:41.680 as it relates to higher than expected delinquency at this 0:16:41.720 --> 0:16:44.760 point in time, but it's something that we continue to monitor. 0:16:44.840 --> 0:16:45.040 Matt. 0:16:45.080 --> 0:16:47.600 Do you guys lend directly to borrowers or do you 0:16:47.720 --> 0:16:49.800 provide financing for the dealerships? 0:16:50.040 --> 0:16:51.320 How does your business model work. 0:16:52.160 --> 0:16:55.560 Yeah, So so we actually are lending enablement platform solution 0:16:55.720 --> 0:17:01.560 that allows auto lenders to better assess risk at origination. 0:17:01.680 --> 0:17:04.920 So we work directly with the banks, credit unions, any 0:17:04.960 --> 0:17:09.199 auto lender on their near prime auto lending strategy to 0:17:09.200 --> 0:17:11.840 help them price and assess risk better at the time 0:17:11.880 --> 0:17:14.080 of origination of that of that auto loan. 0:17:14.680 --> 0:17:18.440 Something that struck me is the car shopping website Edmunds 0:17:18.520 --> 0:17:22.240 was talking about how the thousand dollars auto loan payment 0:17:22.320 --> 0:17:25.560 is actually becoming more common. In about seventeen percent of 0:17:25.560 --> 0:17:27.480 people who bought new cars in the first three months 0:17:27.480 --> 0:17:29.480 of the year have an auto loan payment of about 0:17:29.520 --> 0:17:35.600 one thousand dollars or more. How is that possible? You know, 0:17:36.119 --> 0:17:37.200 it's even sustainable. 0:17:38.080 --> 0:17:39.520 Yeah, it's pretty wild. 0:17:39.560 --> 0:17:41.320 I mean I think, you know, obviously a lot of 0:17:41.359 --> 0:17:45.240 that was driven by the shortage of car car vehicles 0:17:45.240 --> 0:17:48.639 out there, right, So, I mean, when the pandemic, you know, 0:17:48.720 --> 0:17:53.239 caused the auto manufacturers to stop making new cars the 0:17:53.240 --> 0:17:55.840 cars that were available, the price of those just obviously 0:17:55.880 --> 0:17:58.520 went up. So you know, coupled that with you know, 0:17:58.880 --> 0:18:03.040 rising indust rates over the last year, it's just exacerbated 0:18:03.119 --> 0:18:06.520 some of the affordability issues that the consumers are having 0:18:06.520 --> 0:18:08.520 out there today. So so from a from a bank 0:18:08.560 --> 0:18:11.320 and a credit union standpoint, we advise them to take 0:18:11.359 --> 0:18:15.600 ways to to although payments have gone up, you know, 0:18:15.680 --> 0:18:18.760 how can they protect themselves from a risk standpoint of 0:18:18.800 --> 0:18:22.520 that of that increased payment. But you know a lot 0:18:22.560 --> 0:18:25.280 of times, you know, from a from a near prime consumer, 0:18:26.040 --> 0:18:28.280 you know, payment is everything, and so as long as 0:18:28.280 --> 0:18:34.240 they're assessing the collateral value and that residual value appropriately 0:18:34.359 --> 0:18:36.920 on the front end, it puts the bank and the 0:18:37.240 --> 0:18:39.879 credit union in a better position to withstand some of 0:18:39.880 --> 0:18:42.840 this some of these things that we are seeing, you know, 0:18:42.840 --> 0:18:44.960 as it relates to affordability in the economy. 0:18:45.480 --> 0:18:48.040 Hey man, I seem to remember in the news in 0:18:48.040 --> 0:18:50.480 the last several weeks a bank or multiple banks just 0:18:50.560 --> 0:18:54.200 kind of pulling back from the auto lending business. What 0:18:54.240 --> 0:18:55.560 do you what are you seeing in the marketplace in 0:18:55.600 --> 0:18:58.440 terms of the number of lenders actually out there providing 0:18:58.440 --> 0:19:00.920 credit to this segment of the economy. 0:19:00.960 --> 0:19:03.480 You know, I think today, you know, I think what 0:19:03.600 --> 0:19:05.840 most banks and credit unions are trying to do from 0:19:05.840 --> 0:19:10.479 an asset liability management perspective is focus on shorter duration 0:19:10.680 --> 0:19:14.080 loans obviously, given what's happened with you know, Silicon Valley 0:19:14.080 --> 0:19:18.440 banks collapse, you know, they need to focus on lending 0:19:18.800 --> 0:19:22.280 to those consumers that you know have a greater value. 0:19:22.280 --> 0:19:27.160 So are they achieving a return that exceeds. 0:19:26.680 --> 0:19:27.600 Their cost of capital? 0:19:27.640 --> 0:19:32.480 Because of what's happened with interest rates, obviously, everybody's cost 0:19:32.520 --> 0:19:35.720 of capital has gone up, and so you know, maintaining 0:19:35.760 --> 0:19:39.200 balance sheets is what's the most important things and pricing 0:19:39.200 --> 0:19:43.120 those loans correctly, you know, and that really ties back 0:19:43.160 --> 0:19:45.399 to using correct data and to be able to predict 0:19:45.400 --> 0:19:50.440 loan performance ahead of time and ensuring that they're again 0:19:50.680 --> 0:19:55.520 hitting those yield targets that that that they need to 0:19:55.640 --> 0:19:56.320 hit today. 0:19:56.560 --> 0:19:59.840 Right, What indicator are you watching to see if more 0:20:00.000 --> 0:20:02.800 Americans are falling behind on their car loans? 0:20:03.680 --> 0:20:09.160 Yeah, so we we obviously monitor sixty day delinquencies very closely. 0:20:09.240 --> 0:20:11.200 I mean, that is sort of the standard for any 0:20:11.200 --> 0:20:15.200 auto lender out there today in terms of monitoring risk. 0:20:15.320 --> 0:20:17.639 And you know, is that that that's kind of the 0:20:17.720 --> 0:20:21.600 leading indicator for you know, what is my defaults or 0:20:21.800 --> 0:20:25.040 is this barwer's ability actually going to make their next payment? 0:20:26.440 --> 0:20:28.679 And so I think that's that's obviously one that that 0:20:28.840 --> 0:20:31.399 most of the industry watches just as a sort of 0:20:31.440 --> 0:20:34.120 the leading indicator for future losses. 0:20:34.800 --> 0:20:37.560 And Matt just about thirty seconds here. Just overall, I mean, 0:20:37.920 --> 0:20:41.800 it looks like Detroit settled on this annual manufacturing figure 0:20:41.800 --> 0:20:44.679 of maybe fifteen million vehicles per year versus maybe the 0:20:44.720 --> 0:20:46.520 seventeen or seventeen million plus before. 0:20:47.119 --> 0:20:48.240