Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is the Bloomberg Daybreak Europe podcast, available every morning
Speaker 2: on Apple, Spotify or wherever you listen. It's Tuesday, the
Speaker 2: twenty ninth of October in London. I'm Stephen Carroll. Coming
Speaker 2: up today HSBC's profits beat estimates. Is the bank's new
Speaker 2: CEO an ences a three billion dollars share buy back.
Speaker 2: In an exclusive interview, Golben Sachs CEO David Solomon reveals
Speaker 2: he's bullish on the outlook for M and A, plus
Speaker 2: the UK's energy industry prepares to do battle over free electricity.
Speaker 2: We have a special report. Let's start with a roundup
Speaker 2: of our top stories. HSBC is reported better than estimated
Speaker 2: earnings and a fresh stock buyback just days after unveiling
Speaker 2: a major restructuring plan. Third quarter pre tax profit rows
Speaker 2: by nine point nine percent from a year earlier to
Speaker 2: just under eight and a half billion dollars. Europe's largest
Speaker 2: bank says it will now reph heart just shares worth
Speaker 2: up to three billion dollars. Jamana Versecci breaks down the
Speaker 2: rest of the numbers.
Speaker 1: Third quarter revenue coming in at seventeen billion dollars versus
Speaker 1: these sixteen billion estimates or thereabouts. CT one ratio sitting
Speaker 1: quite healthy at fifteen point two percent versus fourteen point
Speaker 1: nine percent, is still sitting on a ton of capital.
Speaker 1: In terms of their guidance CT one, they see it
Speaker 1: within the medium term target range of fourteen to fourteen
Speaker 1: and a half percent target cost rows of about five
Speaker 1: percent for twenty twenty four versus twenty twenty three. A
Speaker 1: lot of focus, of course on HSBC cost suidence given
Speaker 1: the restructuring announcent that they came up with.
Speaker 2: Jamana Versecci speaking there CEO Jangel Hedri, presiding over his
Speaker 2: first set of earning since taking up the job, said
Speaker 2: in a statement the results show the bank's strategy is working.
Speaker 2: HSBC last week unveiled its biggest revamp and at least
Speaker 2: a decade, including merging its global commercial and investment banking
Speaker 2: divisions and making the Hong Kong and UK businesses into
Speaker 2: standalone units. One of Europe's other biggest lenders, Santander, also
Speaker 2: posted better than expected earnings with continued growth and interest
Speaker 2: income and rising revenue from fees. The Spanish bank posted
Speaker 2: third quarter net income of three point twenty five billion
Speaker 2: euros versus estimates of three point one seven billion. Net
Speaker 2: interest income came in slightly below expectations at eleven point
Speaker 2: two three billion euros. The bank says it's confident it
Speaker 2: will deliver on all targets for the year. A growing
Speaker 2: number of money managers are watching metrics on social instability
Speaker 2: in China to try to predict how far President Cheating
Speaker 2: Ping will go to stimulate growth. In September, Morgan Stanley
Speaker 2: debuted a new distress gauge that could be used to
Speaker 2: predict policy swings. The bank says the measure is currently
Speaker 2: nearing the low levels reached at two previous junctures. Those
Speaker 2: are in twenty fifteen, when Beijing took drastic steps to
Speaker 2: end a seven trillion dollar stock market route, and in
Speaker 2: twenty twenty two when the country abruptly dropped its COVID
Speaker 2: control rolls. Goldman Sachs top executive Saturday bullish note on
Speaker 2: the outlook for deal making, singling out investments in technology
Speaker 2: is a bright spot. David Solomon has told Bloomberg that
Speaker 2: AI is likely to power a new wave of deal making.
Speaker 3: I think the regulatory environment has been a headwind to
Speaker 3: some deal making. Obviously, with an election, we could see
Speaker 3: a change in that context. But there's no question the
Speaker 3: deal making environment is improving. And when you look at
Speaker 3: what's going on with technology and the investments, it's necessary,
Speaker 3: you know the power AI. I think that's a tail
Speaker 3: one for deal making over a period of time too.
Speaker 2: Solomon was speaking to Bloomberg on the sidelines of the
Speaker 2: Saudi Flagship Future Investment Initiative and readd the Global bank
Speaker 2: boss was there to open a new office in the capital,
Speaker 2: deepening its presence in the largest Middle Eastern economy. Volkswagen
Speaker 2: plans to close at least three factories in Germany. The
Speaker 2: unprecedented move is part of a wide ranging cost cutting push,
Speaker 2: which also includes a ten percent across the board paycott
Speaker 2: at its main VW brand, Boomberg's Oliver Crook is more
Speaker 2: from Berlin.
Speaker 4: This is a company that has never in its history
Speaker 4: once closed a factory in Europe. We're talking about closing
Speaker 4: three in its home country right now of Germany, potentially
Speaker 4: one in Belgium as well, and of course this will
Speaker 4: mean potentially tens of thousands of job cuts. So again,
Speaker 4: just to reiterate, Volkswagen talking about closing three German factories
Speaker 4: for the very first time in his ninety year history
Speaker 4: in Germany.
Speaker 2: That's Binberg's Oliver Krook. He says the announcement kicks off
Speaker 2: a tough week for Volkswagen. The carmaker is expected to
Speaker 2: post declining sales and profits when it reports third quarter
Speaker 2: earnings tomorrow. The European Center Banks vice president sees substantial
Speaker 2: risks to the inflation outlook for the euro Area despite
Speaker 2: significant progress, so Leastigindos says policymakers can't declare victory just yet.
Speaker 2: He added that geopolitical conflicts threatening to push up energy
Speaker 2: and freight costs, and that extreme weather and sticky wage
Speaker 2: growth all have the potential to keep price pressures higher
Speaker 2: for longer. To gain US was just one of a
Speaker 2: few ECB officials who hadn't commented on the future interest
Speaker 2: rate path after the Central Bank lowered borrowing costs in
Speaker 2: mid October for a third time this year. In a moment,
Speaker 2: we'll have the latest on all the morning's earnings, plus
Speaker 2: bring you an exclusive interview with the Gulben Sachs CEO
Speaker 2: David Solomon, and look at why some companies are against
Speaker 2: plans for free electricity in the UK. But first, another
Speaker 2: story that caught my eye this morning. Have we reached
Speaker 2: peak Kroc? This is an increasing number of schools in
Speaker 2: the United States are banning the shoes for what they
Speaker 2: say is safety reasons. Our colleagues have tracked this in
Speaker 2: at least twelve states. The head of the CrOx brand,
Speaker 2: so they're not aware of any data showing that bans
Speaker 2: have increased, but it could be a key factor when
Speaker 2: the company reports earnings later today. Sales more than tripled
Speaker 2: over the past three years, boosted in particular by demand
Speaker 2: for children's shoes during the pandemic, but that estimate or
Speaker 2: that growth has slowed. Bloomberg estimates come piled show that
Speaker 2: growth expects to slow just to zero point four percent
Speaker 2: in this quarter, which includes the keyback skill periods. That
Speaker 2: could be an interesting test for what some consider fashion
Speaker 2: like on others a fashion menace. Well, let's turn now
Speaker 2: to some of the complete results we've had out this morning.
Speaker 2: Our ecuerdy supported Joe Easton is with us for more.
Speaker 5: Joe.
Speaker 2: Let's start with HSBC. We heard from the earlier this morning,
Speaker 2: shares in Hong Kong reacting positively.
Speaker 6: Yes, a pretty decent game for those shows up around
Speaker 6: three and a half percent, as you said a moment ago.
Speaker 6: Now HSBC doing another big buyback, three billion dollars worth
Speaker 6: of stock they're going to buy back That've reported at
Speaker 6: tencent jump in pre text profit from a year earlier
Speaker 6: to around eight and a half billion dollars in the
Speaker 6: last quarter, mostly driven by the wealth business benefiting from
Speaker 6: more money being put into that unit from Asian clients,
Speaker 6: and also the FX business of the trading business, which
Speaker 6: is one of the biggest FX trading units in the world,
Speaker 6: doing really strong earnings as well for that business. That
Speaker 6: share price actually risen around twenty percent over the past
Speaker 6: year already, so it's looking to add on to those
Speaker 6: games today. We wait to see if they continue in
Speaker 6: London this morning.
Speaker 2: Okay, and staying with banks then Santander also a Bee's
Speaker 2: not quite as dramatic though, Yeah.
Speaker 6: So Santander numbers coming in better and expected now. This
Speaker 6: is due to mostly their fixed income and also their
Speaker 6: interest income both rising, so fixed income in terms of
Speaker 6: the fees they make in that unit and also just
Speaker 6: the higher lending profits due to the higher rates boosting
Speaker 6: that stock. But the interesting thing to note is the
Speaker 6: company saying that they've delayed the UK part of their
Speaker 6: earnings because of Friday's motor finance ruling, which we covered yesterday.
Speaker 6: So this is a ruling where a court said that
Speaker 6: lenders hadn't been transparent enough when at brokering at these
Speaker 6: deals for people to take out car loans, and therefore
Speaker 6: there are expected to be significant compensation pals, one analyst
Speaker 6: saying Santander could be on the hook for around a
Speaker 6: billion pound worth of compensation. For Santander saying in a
Speaker 6: statement that they haven't been able to work out in
Speaker 6: time for the results how much this is going to
Speaker 6: cost them, so delaying that part of the report.
Speaker 2: Yeah, very interesting. I'll be watching with interest to see
Speaker 2: what those numbers reveal as well. You've plenty more company
Speaker 2: results to pick from, Joe, what else are you watching?
Speaker 6: Yeah, so I've got my eye on Deutsche Liftanza. Those
Speaker 6: numbers actually just coming out a few moments ago. Liftanza
Speaker 6: does look like a beat on the headline profits, but
Speaker 6: some weakness in some of the EBIT numbers of some
Speaker 6: specific earning examples that we look at dropping slightly. Passenger
Speaker 6: numbers seem to have actually dropped a little bit in
Speaker 6: the last period as well, potentially maybe due to the
Speaker 6: high affairs that we've seen, though we are expecting fairs
Speaker 6: to start coming down, thankfully. The other one I've got
Speaker 6: my eye on was Novartis now that does look strong. Actually,
Speaker 6: Novartis over in Switzerland, one of Europe's biggest pharmaceutical companies,
Speaker 6: do a lot of respiratory drugs, looking like they're beating
Speaker 6: and all of the top lines in terms of the
Speaker 6: report that's just hit the wise for that one, So
Speaker 6: that could be a strong one in the farmer space
Speaker 6: this morning.
Speaker 2: Yeah, indeed, looking at those into the details that have
Speaker 2: Hansa results it it's inting to see that. In terms
Speaker 2: of future looking they're talking about passenger demand being above
Speaker 2: levels seen last year. They're planning to increase capacity in
Speaker 2: the fourth quarter, and the company expecting to report positive
Speaker 2: operating profit for the final three months of twenty twenty
Speaker 2: four as well, and they're expecting air travel demand to
Speaker 2: remain strong. So some positive signals the future coming out
Speaker 2: of that major airline group. Joe Eastern, our equities reporter,
Speaker 2: thank you very much for joining us, and of course
Speaker 2: will have plenty more on those throughout the program as well.
Speaker 2: Let's turn out to one of our top interviews this
Speaker 2: morning from Saudi Arabia's Future Investment Initiative summ At Bloomberg
Speaker 2: has been speaking to CEO of Goldblin Sachs, David Solomon.
Speaker 2: Our Horizon's Middle East Africa anchor, Jimani Brossecci has been
Speaker 2: speaking to him. Here is the exclusive interview in full,
Speaker 2: starting with David Solomon's thoughts on Saudi as an investment destination.
Speaker 3: We are excited to be opening up a new office
Speaker 3: in the financial district, and I would say we are
Speaker 3: committed to our presence here in Saudi Arabia. I was reflecting,
Speaker 3: you know, last night, around the past eight years, seven
Speaker 3: or eight years that I've been coming to this event
Speaker 3: and just watching the progress, you know, and the progress
Speaker 3: has been meaningful, and we've participated in that progress. It's
Speaker 3: interesting to watch our clients here on the ground participate
Speaker 3: in that progress and be.
Speaker 5: In a position to try to help them. But also
Speaker 5: as you look at the international.
Speaker 3: Community, the international community is more interested in what's going
Speaker 3: on from an economic development perspective here, and we're delighted
Speaker 3: to be positioned to help our clients in this region.
Speaker 1: Yeah, and it feels like there is so much dealmaking
Speaker 1: even IPOs last year. It was a great year in
Speaker 1: terms of activity across all these exchanges. This means also
Speaker 1: more and more banks are looking to get involved in
Speaker 1: the action. Are you finding it difficult to retain an
Speaker 1: attract talent given increasing amount of competition.
Speaker 3: We have a very very deep bench of bankers around
Speaker 3: the globe, including here in the region. We have a
Speaker 3: number of bankers from the region that base out of
Speaker 3: London and sometimes move back to this region. We've been
Speaker 3: able to attract talent were golden Sacks. We've been able
Speaker 3: to track talent here in this region all other places
Speaker 3: in the world. I do agree there's more competition here,
Speaker 3: but that's positive. Actually, the levels of activity are picking
Speaker 3: up and I feel very very confident and our ability
Speaker 3: to have really extraordinary people on the ground here to
Speaker 3: serve our clients very well.
Speaker 1: One of the stories that our Bloomberg News team have
Speaker 1: been reporting on is the fact that the PIF have
Speaker 1: been sort of refocusing some of their investment efforts domestically,
Speaker 1: which means that in terms of the relationship with asset
Speaker 1: managers in the region, there's been a lot more focus
Speaker 1: on or questions asked about what some of these asset
Speaker 1: managers are delivering on the ground within Saudi Arabia. How
Speaker 1: do you think that is going to shape up the
Speaker 1: asset management ambitions within the region and specifically with the science.
Speaker 3: It's a very very natural progress and we've been talked
Speaker 3: about what's going on here in the kingdom, but the
Speaker 3: level of investment in diversifying the economy here in the
Speaker 3: kingdom is significant, and of course that's a significant focus
Speaker 3: of the PIF. For a firm like Goldman Sachs, where
Speaker 3: we're well positioned to serve as an investment banker, to
Speaker 3: serve as a trader, to serve as an asset and
Speaker 3: wealth manager, I think the firm is incredibly well positioned
Speaker 3: to help in this part of the world, regardless of
Speaker 3: the trajectory.
Speaker 5: So we're excited about what's going on here.
Speaker 3: I'm excited about the opportunities we'll have to help serve
Speaker 3: our clients here.
Speaker 1: I can ask you what your level of concern is.
Speaker 1: Who's the geopolitical situation in the region right now.
Speaker 3: I'm concerned about the geopolitical situation in the region. It's
Speaker 3: not good for security, it's not good for safety, it's
Speaker 3: not good for economic growth and I'm hopeful that leaders
Speaker 3: both in the region and around the world, and important
Speaker 3: governments around the world will be edible to find a
Speaker 3: path to settle it down as we move forward. But
Speaker 3: of course, anytime you have geopolitical uncertainty, that's not good
Speaker 3: for economic growth and prosperity.
Speaker 5: And one of the things I just noticed I.
Speaker 3: Spend time with people here on the ground, people want
Speaker 3: to find a path to a secure, prosperous economically vibrant
Speaker 3: in Middle least.
Speaker 1: Has it impacted business trading in.
Speaker 3: The region, You know, it's interesting. People are obviously concerned
Speaker 3: and very very focused, but it's not had a significant
Speaker 3: impact on activity up to this point, on activity in
Speaker 3: this part of the region.
Speaker 7: Yeah.
Speaker 1: Well, let's just talk more broadly. Your earnings came out
Speaker 1: very strong, so fascinating expectations. Obviously, the stock has had
Speaker 1: a good run this year. You must be feeling good.
Speaker 1: But let me just ask you how you're feeling about
Speaker 1: the outlook in general.
Speaker 5: I feel good about the outlook. I think you know,
Speaker 5: if you took a tour around the world, the US
Speaker 5: economy is actually doing quite well. It's been very very resilient.
Speaker 3: I'm a little bit more concerned about European growth and
Speaker 3: also the economic situation in China.
Speaker 5: But overall, the engine of the.
Speaker 3: US has been quite powerful, and our building our business.
Speaker 5: While global, is quite correlated to US growth.
Speaker 3: I can give you a list of things to worry about,
Speaker 3: but generally can tell you also a list of things
Speaker 3: that I'm quite optimistic about. The progress around technology and
Speaker 3: AI and the opportunities to increase productivity or real progress
Speaker 3: that we're seeing around healthcare or medical technology or extraordinary
Speaker 3: and the impact that they'll have.
Speaker 5: So there are a lot of reasons to be optimistic.
Speaker 3: About the growth and trajectory of economies around the world,
Speaker 3: but there's also fragility and things can go wrong.
Speaker 1: Well, I was going to pick up on that because
Speaker 1: it's been really difficult to sort of track the narrative
Speaker 1: around the US economy the last few months, because we've
Speaker 1: gone from hard landing to soft lanning. I'll people are
Speaker 1: talking about no lanning. I'm not going to ask you
Speaker 1: for a descriptor of the US economy, but what I
Speaker 1: will ask you is, where are some areas of concern
Speaker 1: that you're seeing right now?
Speaker 3: Well, the base case in the US is certainly at
Speaker 3: this point for a soft landing. That doesn't mean that
Speaker 3: at some point there can't be, you know, some sort
Speaker 3: of a slow down in economic growth. But what I
Speaker 3: would say is the US economy is proving.
Speaker 5: To be incredibly resilient.
Speaker 3: We do have an election in the US, and there'll
Speaker 3: be policy decisions that come out of that election, and
Speaker 3: so you know, certainly those will have an impact of
Speaker 3: a trajectory in twenty twenty five and twenty twenty six.
Speaker 3: With respect to you know, European growth, European growth is.
Speaker 5: More sluggish at the moment.
Speaker 3: And I'm concerned about the same thing that many people
Speaker 3: I know are talking to you about at this event, geopolitics,
Speaker 3: US China relationship, the situation in Ukraine, the situation we
Speaker 3: just touched on in the Middle East. Also concerned, you know,
Speaker 3: broadly about inflation in the world. Concerned about energy policy,
Speaker 3: which is obviously a significant issue. I'm concerned about immigration
Speaker 3: and migration, which is an issue in different parts of
Speaker 3: the world. So these are all issues that require leadership.
Speaker 5: And policy direction.
Speaker 3: And I'm hopeful as we get past the election in
Speaker 3: the US and we continue to move forward, we'll see
Speaker 3: a clear direction of travel on some of these significant
Speaker 3: policy issues.
Speaker 1: Well, I mean the other big development is obviously the
Speaker 1: said have started cutting interest rates. And I think you
Speaker 1: were asked about what your expectations were for the said
Speaker 1: the last I already said a thirty percent chance of
Speaker 1: a fifty basis one cup. So we'll give you that
Speaker 1: one for the fifty. But what matter is more as
Speaker 1: you think for financial markets, how quickly they go or
Speaker 1: where they end up.
Speaker 3: And then I think there's an awful lot of attention
Speaker 3: on short term rates. I'd actually be focused over time
Speaker 3: on longer term rates. And you know, I you know,
Speaker 3: I continue to be concerned about the level of spending and.
Speaker 5: Deficits in the United States.
Speaker 3: I don't think that's a short term you know, crisis factor.
Speaker 3: But unless we have policy change and get our spending
Speaker 3: and our debt under control, you know, ultimately that's kind
Speaker 3: of a bigger impact on long term rates. And I
Speaker 3: think people are anticipating today with respect to the short
Speaker 3: end of the curve. I think it's going to be
Speaker 3: very data dependent, and that data will be driven in
Speaker 3: part by what kind of policy we see coming out
Speaker 3: of the election. Yeah, and so I think it's I
Speaker 3: think it's important to watch carefully. It seems like the
Speaker 3: FED has been relatively transparent that we'll get another interest
Speaker 3: rate cut before the end of the year, But after that,
Speaker 3: I think it will be very data dependent on what
Speaker 3: kind of policy implementation. What happens to growth. Are the
Speaker 3: inflation numbers actually improving further? You know, those are all things.
Speaker 5: I think the FED we'll be watching carefully.
Speaker 1: Can I just circle back to your first point these
Speaker 1: a v spending, the tenure treasuries trading around four point
Speaker 1: three percent, So you think that is adequately pricing in
Speaker 1: the fiscal premium in the years to come to us?
Speaker 3: The market's the market, and so it is absolutely pricing
Speaker 3: in the premium.
Speaker 5: That the market perceives today.
Speaker 3: What I would just say, if you look at the
Speaker 3: trajectory of our spending and our debt and the interest
Speaker 3: burden that we have, I think over time and over
Speaker 3: time is through the rest of the decade, et cetera,
Speaker 3: we'll have to bring new buyers into US treasuries and
Speaker 3: that will potentially have a risk of putting pressure on
Speaker 3: longer rates unless we want to finance the whole treasury
Speaker 3: stack at the front under the curve, which will be
Speaker 3: a very very significant policy shift.
Speaker 1: Yeah, I want to ask you a little bit more
Speaker 1: about your trading numbers, as they came in very stronger
Speaker 1: than expectations, and earlier on you had guided that fixed
Speaker 1: income trading was a gonnessee'sa clients, but overall for the quarter,
Speaker 1: you ended up posting quite strong trading results, namely on
Speaker 1: back of your equity trading business. Was this sort of
Speaker 1: a one off because there was so much volatility and
Speaker 1: equities this quarter, or can we expect that momentum to continue.
Speaker 3: Our equity franchise is performing very, very well. We have
Speaker 3: the leading equity franchise of the big banks. It's something
Speaker 3: we've invested in, it built over a long period of time.
Speaker 3: I can't tell you quarter to quarter what the market
Speaker 3: environment will put up for that franchise, but we were
Speaker 3: our positioned very well to serve our clients that have
Speaker 3: a leading share position in that business. When I commented
Speaker 3: about our trading revenues in early September, at the very
Speaker 3: beginning of September at a conference in New York, the
Speaker 3: business was softer. It had been softer in August, particularly
Speaker 3: in fixed income. We had a very very strong comp
Speaker 3: from the third quarter in twenty twenty three and ultimately
Speaker 3: our fixed income business.
Speaker 5: Was softer year over year.
Speaker 3: But I did say when I made that comment that
Speaker 3: it would be very very dependent on what happened in September,
Speaker 3: and we actually had a more robust September than we expected.
Speaker 1: Yeah, I love well to Marcus said, do you think
Speaker 1: you can continue to gain market share of the trading side.
Speaker 3: We do believe there are opportunities for us to continue
Speaker 3: to take share, although we're operating in a leading share position,
Speaker 3: so those gains will not be as pronounced as they've
Speaker 3: been over the last five years. But we think we
Speaker 3: have a very very powerful ecosystem in our Global Banking
Speaker 3: and Markets franchise. Our one GS operating ethos is helping
Speaker 3: us serve our clients in a very very forward and
Speaker 3: exceptional way. And if you are patient, you take a
Speaker 3: long term view, you earn trust, you show up for
Speaker 3: your clients, and good times and bad over time, you
Speaker 3: gain share.
Speaker 5: In these businesses. And we're very focused on it.
Speaker 3: The outlooks like right now for deal making, yeah, look
Speaker 3: for deal makings improving. You know, I talked I talked
Speaker 3: on earnings on our earnings call about the fact that our.
Speaker 5: M and a backlog had improved.
Speaker 3: I talked about some ahead wins, particularly on the regulatory side.
Speaker 3: I think the regulatory environment has been ahead wind to
Speaker 3: some deal making. Obviously, with an election we could see
Speaker 3: a change in that context, but there's no question the
Speaker 3: deal making environment is improving. And when you look at
Speaker 3: what's going on with technology and the investment that's necessary
Speaker 3: to power AI, I think that's a tailwind for deal
Speaker 3: making over a period of time too. A lot of change,
Speaker 3: a lot of opportunity, and when there's change, leaders are
Speaker 3: constantly looking to make sure that their positions strategically to
Speaker 3: have a leadership position as the world of.
Speaker 1: Offs well, I know you've also been making a big
Speaker 1: push into your alternatives business. Private credits is an area
Speaker 1: of focus. What is the opportunity that you see there,
Speaker 1: because it really feels like that has become the major
Speaker 1: focus of the market. Many many of different players are
Speaker 1: looking to get involved in US.
Speaker 3: But we've been in the private credit business for over
Speaker 3: thirty years. We have one hundred and forty million dollars
Speaker 3: in private credit assets. We've been a leading private credit
Speaker 3: player since the nineteen nineties. What I would say is
Speaker 3: there continues to be secular growth around the opportunity set
Speaker 3: for additional private credit formation, and we're very very world
Speaker 3: positioned giving way the firm sits to be a very very.
Speaker 5: Unique player in that. Obviously, in our asset management.
Speaker 3: Business, we manage significant private credit assets, but we also
Speaker 3: have one of the leading syndication franchises. We have an
Speaker 3: ability to originate and distribute in addition to be an
Speaker 3: investor through asset management business.
Speaker 5: That's a very unique combination.
Speaker 3: I think it positions our firm very well, and you
Speaker 3: will see, in my opinion, continued secular growth in private
Speaker 3: credit formation. I still think we're early on that cycle.
Speaker 1: What do you think lower interest rates do for the
Speaker 1: private credit landscape? Do you have so much of this?
Speaker 3: I think that private credit it's not immune to lower
Speaker 3: interest rates, but there are different ways that we can
Speaker 3: finance activity, and private credit is a very important part
Speaker 3: of that. People use private credit as a very very
Speaker 3: broad term. Are we talking about insurance companies financing investment
Speaker 3: grade companies? Are we talking about investment grade financing? Are
Speaker 3: we talking about below investment grade corporate financing? Are we
Speaker 3: talking about direct lending to small and medium sized enterprises?
Speaker 3: These are all different forms of private credit and The
Speaker 3: reality of it is, regardless of what the interest rate
Speaker 3: environment is, people need to finance, and so of course,
Speaker 3: in the short term movement to interest rates have an
Speaker 3: impact in short term activity, but we're talking about the
Speaker 3: engines of finance that drive capital structure in a whole
Speaker 3: variety of ways. This is not something that's cyclically tied
Speaker 3: to short term interst rates.
Speaker 1: Yeah, can I just in an updates on how you
Speaker 1: see newer consumer finance business and the pathway ahead from Gorman.
Speaker 3: We've been very clear over the last few years that
Speaker 3: we're narrowing our consumer focus and we've taken active steps
Speaker 3: to do that. We continue to have a very very
Speaker 3: powerful deposit platform under Marcus, but we continue to take
Speaker 3: steps to narrow our consumer activity. We're focused on our
Speaker 3: two big businesses, global banking and markets and asset and
Speaker 3: wealth management, and we feel good about the way we're positioned.
Speaker 1: Well, We've been speaking for I guess like fifteen minutes
Speaker 1: and I still haven't brought off the big US election
Speaker 1: coming off next week. Let me just ask you this,
Speaker 1: because as a bank, I'm sure you would have run
Speaker 1: scenario analysis on what will happen either way. What would
Speaker 1: you say is the biggest risk for your business for
Speaker 1: either outcome, a Harris win or.
Speaker 5: A Trump win.
Speaker 3: We're we're watching the election like everybody else. The good
Speaker 3: news is it's coming up, you know, next week, and
Speaker 3: you know, my hope would be, you know, shortly after
Speaker 3: election night we have a clear, uh direction of travel
Speaker 3: in terms of what the next administration will be. Goldman
Speaker 3: Sachs is set up in position to help and support
Speaker 3: either administration, either outcome, and to support our clients at
Speaker 3: either of those outcomes. And so we're watching like everybody else.
Speaker 3: It's going to be a close election and we'll see
Speaker 3: in the next couple of weeks what the direction of
Speaker 3: travel is.
Speaker 1: So you think it might have a knock on it
Speaker 1: knock on effect on a regulation and some of the
Speaker 1: regulatory stunts have.
Speaker 3: Taken there is there's there's no question that the regulatory
Speaker 3: pendulum this swung, you know, pretty significantly over the last
Speaker 3: few years, and my hope would be an either administration
Speaker 3: there'll be a fresh look at how we can ensure
Speaker 3: regulation is important to keep guardrails in the economy and
Speaker 3: to keep our economy moving in.
Speaker 5: An appropriate way.
Speaker 3: But at the same point, that pendulum can swing too
Speaker 3: far and then it can become a headwind to growth.
Speaker 3: And I'm hopeful, you know, on both sides of the aisle,
Speaker 3: there'll be a fresh look after the election to make
Speaker 3: sure we get that balance correct.
Speaker 2: As that was the CEO of Goldman Sacks, David Solid
Speaker 2: and they're speaking to Bloomberg's Gumani Verseacci at the Future
Speaker 2: Investment Initiative summit in Saudi Arabia. Now, a proposal to
Speaker 2: divide up the UK power market and provide free electricity
Speaker 2: and the windiest parts of the country is turning into
Speaker 2: a bitter fight with the biggest energy companies. Whether to
Speaker 2: keep Britain's electricity system is one national market or break
Speaker 2: it into regions with different prices is one of the
Speaker 2: consequential decisions looming for the Prime Minister care Starmer. Our
Speaker 2: Energy report of Will Mathis joins us now for more
Speaker 2: on this story. Well, why does this question matter whether
Speaker 2: the UK is one national market or lots of little ones.
Speaker 8: Yeah, this matters because the way the system is designed
Speaker 8: now puts a tremendous cost onto all of our bills.
Speaker 8: Right now, generators and consumers of power, you know, trade
Speaker 8: with each other irrespective of whether the power generated can
Speaker 8: actually be delivered to where it's needed. And so what
Speaker 8: happens is you have all these you know, wind farms
Speaker 8: up in Scotland that sell power, and then when it
Speaker 8: comes time to actually use that power, they can't provide
Speaker 8: it because the grid is insufficient. So the grid and
Speaker 8: operator in the middle steps in and you know, pays
Speaker 8: some people to turn off and pays other people to
Speaker 8: turn on. And what happens is you have wind farms
Speaker 8: shut off, paid to shut off, and then you have
Speaker 8: gas fire plants paid to shut on, and that to
Speaker 8: turn on, and that has a huge cost. During the
Speaker 8: energy crisis it was you know, over two billion pounds
Speaker 8: just for that, you know, and it's expected according to
Speaker 8: some government studies, that could reach eight billion by that,
Speaker 8: you know, from the end of this decade. So you
Speaker 8: have a real problem baked into the system, and this
Speaker 8: is one this is one of the only proposals to
Speaker 8: address that problem and bring down this rising cost for
Speaker 8: consumer energy business.
Speaker 2: I mean, it seems like politically quite an easy sell,
Speaker 2: right consumers could potentially end up paying less as a
Speaker 2: result of this change. But what's the kinds of arguments?
Speaker 8: Well, there's two counter arguments one is it's an easy
Speaker 8: sell to people you know up at Scotland or parson
Speaker 8: of the North of England that will see very cheap
Speaker 8: power or even you know, free it sometimes. But if
Speaker 8: you're you know, like me and you living in London,
Speaker 8: and you know that's where most of the population is
Speaker 8: and where most of the media outlets are, then you
Speaker 8: know the price of power will rise because right now
Speaker 8: we're essentially getting you know, the bill bos are being
Speaker 8: leveled out, whereas like the market price of electricity in
Speaker 8: the South of England for most of the demands should
Speaker 8: be higher. And components of this would say, you know,
Speaker 8: have done modeling that shows that overall, if you get
Speaker 8: rid of those costs balancing the system, not just power price,
Speaker 8: that overall it will be cheaper to make this change.
Speaker 8: But still you will see power prices rise in the
Speaker 8: south of the country. And it's a complicated argument for
Speaker 8: a politician to make, and it's tough to make this
Speaker 8: argument based on, you know, comparison to a counterfactual that
Speaker 8: has yet happened.
Speaker 2: What could this change though, mean for investment in green energy,
Speaker 2: which we know is a key priority for the government.
Speaker 8: Yeah, well, most of the companies that are doing that
Speaker 8: investment say that this is a really stupid idea. They
Speaker 8: say that, you know, if you make this kind of
Speaker 8: fundamental change, then they're going to pause investment. You know,
Speaker 8: they're going to have to reconsider the business case for
Speaker 8: these multi billion pound investments in wind farms and grid infrastructure,
Speaker 8: because you know, if you've built a wind farm in
Speaker 8: the windiest part of the country in Scotland, or you
Speaker 8: have planned to and then all of a sudden, you know,
Speaker 8: the power price is completely different what you thought it
Speaker 8: was before, then yeah, they say, we're going to have
Speaker 8: to pause to consider that, and some of the investments
Speaker 8: aren't going to happen and it would just be disruptive
Speaker 8: at a time the government is saying we need to
Speaker 8: build faster than we've ever built.
Speaker 2: Talk us through the timeline of this decision process, because
Speaker 2: it's something that was put off by the previous government.
Speaker 2: But what are we expecting in terms of the next steps.
Speaker 8: Yeah, so this is we're kind of waiting for a
Speaker 8: final decision. How there was there had been two propose
Speaker 8: us on the table. One was to do a it's
Speaker 8: called a nodal system, which would be many many different
Speaker 8: hyper local prices, or to do what's called a zonal system,
Speaker 8: which divided the country up into zones. Previous government said
Speaker 8: no to zonal they said that that would be too disruptive,
Speaker 8: but sort of like left it open to deciding on
Speaker 8: a zonal system. They said that they saw benefits for
Speaker 8: doing that and they were going to wait till a
Speaker 8: later date to decide. And people in the industry had
Speaker 8: expected that decision this year, but then there was an election.
Speaker 8: So now the expectation is that we should get a
Speaker 8: final decision on this early next year. But it's really
Speaker 8: fundamental to the you know, the Governman's twenty thirty goal
Speaker 8: to decarbonize the grid, which is going to require huge investments,
Speaker 8: and whether what they do with this decision really dicted
Speaker 8: where those investments go.
Speaker 2: This is Bloomberg Daybreak Europe, your morning brief on the
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