WEBVTT - Regional Banks, CLOs, and ETFs 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.080 --> 0:00:06.960 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.560 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets podcast 0:00:15.600 --> 0:00:18.479 called Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.080 at Bloomberg dot com slash podcast. Let's bring in right 0:00:22.120 --> 0:00:25.400 now Frank Sorrentino. He is Shairming, CEO at Connect one Bank. 0:00:25.440 --> 0:00:31.560 It's Nasdaq traded the ticker CNOB And Frank, Wow, what 0:00:31.960 --> 0:00:36.360 an insane week or you know two or three? Or 0:00:36.800 --> 0:00:39.479 how do you deal as a banker with the rates 0:00:39.600 --> 0:00:40.720 volatility like this? 0:00:41.760 --> 0:00:43.720 Yeah? How about a year? How about an insane year? 0:00:43.800 --> 0:00:44.480 Yes, that's fair. 0:00:45.640 --> 0:00:47.480 It's been an interesting environment. 0:00:47.800 --> 0:00:50.440 You know, certainly there are lots of things that Connect 0:00:50.440 --> 0:00:54.480 One that we try to control, but what the FED 0:00:54.560 --> 0:00:57.040 policy is and where rates are going and how the 0:00:57.080 --> 0:01:00.440 market reacts to those rates is something that's somewhat out 0:01:00.480 --> 0:01:03.279 of our control. And so yeah, it's been very challenging, 0:01:03.400 --> 0:01:05.639 not just for Connect one but for banks in general. 0:01:06.080 --> 0:01:09.160 Frank, what sectors of the economy are you seeing actually 0:01:09.240 --> 0:01:13.000 absorb the effects of the fed tightening and what areas 0:01:13.000 --> 0:01:16.760 are maybe still waiting for the monetary policy lags to 0:01:16.880 --> 0:01:17.319 kick in. 0:01:18.280 --> 0:01:20.320 Yeah, I think when you look at it, I think 0:01:20.319 --> 0:01:23.840 that question would be answered differently from different bankers from 0:01:24.000 --> 0:01:26.000 different parts of the country, But certainly here in the 0:01:26.000 --> 0:01:30.200 New York metro market at Connect one, we certainly see 0:01:30.280 --> 0:01:34.119 that the vast majority of our clients are absorbing those 0:01:34.240 --> 0:01:37.520 rate increases and it's showing up in lots of places 0:01:37.600 --> 0:01:41.320 right Rents are up. If you've been to a restaurant lately, 0:01:41.400 --> 0:01:44.200 you see that the price of a meal is up. 0:01:44.800 --> 0:01:46.080 And I know, you know. 0:01:46.160 --> 0:01:49.240 There's inflation component to all this, but that's part of 0:01:49.640 --> 0:01:53.920 the rate increase, and so it's building into the economy, 0:01:54.000 --> 0:02:00.160 and I think we're seeing it in higher prices, higher costs, 0:01:58.960 --> 0:02:03.640 and being incorporated in every aspect of our economy. I 0:02:03.680 --> 0:02:07.240 think our builders, for one, are for the first time 0:02:07.320 --> 0:02:10.639 in a very long time having to figure out what 0:02:10.760 --> 0:02:15.040 are the interest rates and what's the interest component of 0:02:15.080 --> 0:02:16.280 a construction project. 0:02:16.520 --> 0:02:18.120 But they really didn't have to think about that too 0:02:18.160 --> 0:02:20.880 much in the past. So all these things are. 0:02:20.880 --> 0:02:27.560 Leading to higher prices and definitely a more normalized environment 0:02:27.600 --> 0:02:28.840 where interest. 0:02:28.639 --> 0:02:33.239 Has a cost but nothing normal about the current housing market, right, 0:02:33.280 --> 0:02:38.640 I mean in terms of residential, especially previously owned homes, 0:02:39.120 --> 0:02:41.680 that market seems to have grind to a halt. 0:02:42.960 --> 0:02:46.000 So connect one. We do a lot of new home building. 0:02:46.240 --> 0:02:50.080 We don't see a lot of the mortgage refinance although 0:02:50.120 --> 0:02:54.240 we do see some. And yes, for the existing home market, 0:02:54.320 --> 0:02:57.800 it's a difficult place today because folks have low interest 0:02:57.880 --> 0:03:01.040 rate loans. They really don't want to move and give 0:03:01.120 --> 0:03:04.359 up that rate where they can't. But on the new 0:03:04.440 --> 0:03:09.080 housing front, we do see a level of optimism. Where 0:03:09.240 --> 0:03:11.120 As you know in the New York metro market and 0:03:11.160 --> 0:03:13.760 by the way, as the nation, we are under housed, 0:03:13.840 --> 0:03:17.080 right There's just not enough apartments, not enough housing units, 0:03:17.520 --> 0:03:20.640 and so new product that's coming to the market is 0:03:20.760 --> 0:03:23.760 able to absorb the higher costs due to inflation, the 0:03:23.840 --> 0:03:26.520 higher cost due to interest rates, and there is a 0:03:26.560 --> 0:03:28.359 ready market buying that product. 0:03:28.639 --> 0:03:32.639 We hear all the time that builders offer incentives. You know, 0:03:32.680 --> 0:03:35.440 they're buying down points or they're giving lower rates. And 0:03:35.480 --> 0:03:38.160 I heard I was talking to a land developer the 0:03:38.240 --> 0:03:42.120 other day who said they are giving builders incentives, and 0:03:42.160 --> 0:03:45.080 I thought, you know, where does the buck stop, because 0:03:45.840 --> 0:03:48.440 obviously at some point somebody's got to pay the price. 0:03:50.240 --> 0:03:53.080 The end consumer pays the price, right, So with. 0:03:53.240 --> 0:03:58.440 Certainly seeing prices have somewhat leveled off relative to new 0:03:58.600 --> 0:03:59.280 home product. 0:03:59.320 --> 0:04:01.760 We're also seeing it in the rental market. 0:04:01.800 --> 0:04:04.760 Rents continue to go up over the last couple of 0:04:04.840 --> 0:04:09.360 years at a pretty drastic clip. We are, however, starting 0:04:09.360 --> 0:04:12.480 to see that level off and there are some places 0:04:12.520 --> 0:04:14.640 where we are seeing some level of concessions. 0:04:15.520 --> 0:04:18.640 So I do think we're getting to a more normalized place. 0:04:18.640 --> 0:04:20.440 And I think that's part of the message that came 0:04:20.480 --> 0:04:23.280 out of the FED is that the economy is beginning, 0:04:23.320 --> 0:04:27.600 as you first question you asked, beginning to absorb a 0:04:27.600 --> 0:04:29.560 more normalized rate environment. 0:04:30.520 --> 0:04:33.000 Your notes it says that you think the economy is 0:04:33.040 --> 0:04:37.080 on a soft landing trajectory. I'm wondering what you see, 0:04:37.120 --> 0:04:39.159 as the CEO of a bank that deals with small 0:04:39.200 --> 0:04:41.760 businesses and deals with lenders, what are you seeing that 0:04:41.800 --> 0:04:45.720 maybe some of the other Wall Street prognosticators that are 0:04:45.760 --> 0:04:48.040 still calling for recession are missing. 0:04:49.200 --> 0:04:49.360 Well. 0:04:49.360 --> 0:04:52.919 Look, I start with employment, and in all the markets 0:04:52.960 --> 0:04:57.599 that connect one serves, we're seeing a shortage of people 0:04:57.920 --> 0:05:03.159 to fill jobs. We're seeing very very low unemployment. We're 0:05:03.160 --> 0:05:08.240 seeing a strong labor market overall rising wages, and that 0:05:08.320 --> 0:05:13.760 to me underpins everything. People that are that have a 0:05:13.880 --> 0:05:17.880 job feel good about their job and see their wages rising, 0:05:18.320 --> 0:05:22.200 can absorb those, you know, changes in the economy, higher interest. 0:05:22.040 --> 0:05:23.039 Rates and everything else. 0:05:23.279 --> 0:05:27.600 They can absorb rising rents, They can absorb higher costs 0:05:27.600 --> 0:05:30.880 of food and housing and everything else. And so to me, 0:05:31.040 --> 0:05:33.880 that's the that that that's the foundation on which the 0:05:33.960 --> 0:05:38.560 economy is built. And no one's been able to convince 0:05:38.600 --> 0:05:40.599 me that that's going to change anytime soon. 0:05:41.600 --> 0:05:46.240 I just want to ask about deposits. How sticky are they? 0:05:46.400 --> 0:05:48.599 How do you fight deposit flight? Is it just a 0:05:48.680 --> 0:05:50.840 question of the rate you offer, or do you think 0:05:52.200 --> 0:05:57.159 that depositors also really look into services and the culture. 0:05:57.200 --> 0:05:59.080 I mean, what do you what's your view on on 0:05:59.120 --> 0:06:00.840 that look? 0:06:00.880 --> 0:06:05.240 I think there was definitely back in March, a reorganization 0:06:05.320 --> 0:06:10.240 of the deposit market versus large banks, small banks, medium 0:06:10.240 --> 0:06:14.880 sized banks where people had funds, The entire notion that 0:06:15.600 --> 0:06:19.560 interest wasn't being paid on certain types of accounts, FDIC, 0:06:19.720 --> 0:06:22.919 insurance coverage, lots of questions, lots of things came to 0:06:23.000 --> 0:06:27.279 the four in those few weeks of March. In early April, 0:06:28.440 --> 0:06:31.239 I think the market overall, though, has pretty much settled 0:06:31.240 --> 0:06:35.039 out and people are pretty much staying where they are. 0:06:35.080 --> 0:06:37.719 There is the ease of being able to move money 0:06:37.880 --> 0:06:42.000 from bank to bank, but folks, Connect One is mostly 0:06:42.040 --> 0:06:45.520 a business oriented bank. People come to us not necessarily 0:06:45.560 --> 0:06:48.360 for the highest rate. They come to us for services. 0:06:48.480 --> 0:06:53.240 There's generally we have clients who have multiple types of 0:06:53.279 --> 0:06:56.440 businesses with us, and so rate is not the number 0:06:56.480 --> 0:06:59.080 one thing. That doesn't mean we're not going to pay 0:06:59.480 --> 0:07:03.040 a market rate, but it does mean that folks are 0:07:03.160 --> 0:07:07.120 making decisions in banks like hours relative to things like 0:07:07.240 --> 0:07:11.360 service and availability and the ability to talk to decision makers, 0:07:11.400 --> 0:07:13.920 and you know what the other side of the transaction 0:07:14.080 --> 0:07:16.760 looks like, if there's a loan there, or a business 0:07:16.760 --> 0:07:20.080 loan or something else. So I think things in general 0:07:20.120 --> 0:07:24.240 have stabilized. Keep in mind, however, beside the FED raising rates, 0:07:24.560 --> 0:07:28.080 they've also been shrinking the money supply and shrinking the 0:07:28.120 --> 0:07:30.720 FED balance sheet. Right earlier this year we saw for 0:07:30.760 --> 0:07:33.320 the first time since nineteen forty nine that M two 0:07:33.440 --> 0:07:35.960 actually shrunk, and the FED is on a track to 0:07:36.040 --> 0:07:38.920 continue to reduce the size of its balance sheet. That's 0:07:38.920 --> 0:07:42.360 putting a lot of pressure on banks and other financial institutions. 0:07:42.960 --> 0:07:45.960 Frank, great to get your views, really helpful context there. 0:07:46.000 --> 0:07:49.800 Frank Sorrentino is the chairman and CEO of Connect One Bank. 0:07:51.120 --> 0:07:54.520 You're listening to the team. Ken's a live program Bloomberg 0:07:54.560 --> 0:07:57.920 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:07:58.040 --> 0:08:01.160 the iHeartRadio app, and the Bloomberg Business App, or listen 0:08:01.240 --> 0:08:03.280 on demand wherever you get your podcast. 0:08:05.280 --> 0:08:10.040 Katie Greifeld in the studio with me Paul Sweeney on 0:08:10.120 --> 0:08:12.280 an extended lunch break right now. I'll be back at 0:08:12.280 --> 0:08:15.560 three pm. Let's talk right now about There was a 0:08:15.560 --> 0:08:19.960 Bloomberg story the other day that said the shrinking one 0:08:19.960 --> 0:08:24.880 point three trillion dollar col market is bad news for bankers, 0:08:25.000 --> 0:08:28.920 and people have been talking about this market as if 0:08:29.080 --> 0:08:32.400 it's hit a speed bump or maybe even frozen. Got 0:08:32.400 --> 0:08:34.520 a guest here in the studio says, not the case, 0:08:34.600 --> 0:08:37.520 not so fast. Thomas Majuski is a CEO of Eagle 0:08:37.600 --> 0:08:42.240 Point Credit Management. He's got experience across the street from 0:08:42.400 --> 0:08:46.280 JP Morgan to bear Stearns and Mother Merrill and then 0:08:46.440 --> 0:08:50.839 obviously some smaller shops as well. Tom, Thanks so much 0:08:50.880 --> 0:08:53.840 for your time. What's your view of the CLO market 0:08:53.920 --> 0:08:54.320 right now. 0:08:54.440 --> 0:08:57.280 Great, thanks for having me mat The market's far more vibrant, 0:08:57.320 --> 0:09:00.240 I think than the headlines suggest. There's always waysy can 0:09:00.280 --> 0:09:03.040 cut the data a lot of different ways. The actual 0:09:03.160 --> 0:09:07.560 new issue volume for colos remains quite robust. However, the 0:09:07.600 --> 0:09:11.400 activity of resetting or refinancing, which is where you go 0:09:11.440 --> 0:09:14.160 and reopen an old deal and re extend it, that 0:09:14.360 --> 0:09:19.440 slowed down significantly. So total volume is down, but the 0:09:19.480 --> 0:09:22.160 actual new volume created is not too far off from 0:09:22.160 --> 0:09:23.240 where it was last year. 0:09:23.760 --> 0:09:25.320 Well, let's talk about one of the ways in which 0:09:25.360 --> 0:09:28.199 they cut the data. About forty percent of issuers in 0:09:28.400 --> 0:09:31.200 this area of corporate finance are yet to price a 0:09:31.240 --> 0:09:34.120 new deal this year. When you hear a stat like that, 0:09:34.160 --> 0:09:34.959 what's your reaction? 0:09:35.640 --> 0:09:39.160 It's an indication perhaps of the state of their performance 0:09:39.360 --> 0:09:40.480 and a state of the market. 0:09:40.480 --> 0:09:40.920 Broadly. 0:09:41.679 --> 0:09:45.200 Markets investors in colos, including US, have certainly gotten far 0:09:45.240 --> 0:09:49.600 more selective in a raging bull market. There was an 0:09:49.600 --> 0:09:52.120 old saying two guys in a Bloomberg could print a COLO. 0:09:52.559 --> 0:09:54.640 The market needs a little more robust than that. And 0:09:54.679 --> 0:09:57.120 now that we have over twenty years of data for 0:09:57.200 --> 0:10:00.480 people's performance, it's easier to separate the top from the 0:10:00.520 --> 0:10:03.400 worst that forty is out of about one hundred and twenty. 0:10:03.600 --> 0:10:05.240 So the other way to cut that is two thirds 0:10:05.240 --> 0:10:07.880 of the market is operating kind of business as usual. 0:10:08.600 --> 0:10:11.319 What's your view on financial conditions right now? It seems 0:10:11.360 --> 0:10:14.640 like they were getting tighter. The Fed was letting the 0:10:14.679 --> 0:10:17.640 market do its job until the Fed told the market 0:10:17.679 --> 0:10:20.160 that's what it was doing. And now the market isn't 0:10:20.200 --> 0:10:23.360 doing its job anymore. So how do they look to you? 0:10:23.600 --> 0:10:27.440 Well, the underlying assets and clos are syndicated loans, small 0:10:27.480 --> 0:10:31.080 pieces of big loans to big American companies. Their floating 0:10:31.160 --> 0:10:34.960 rate and senior and secured, which means a problem, there's 0:10:35.040 --> 0:10:37.920 less risk of loss. The loan index is up about 0:10:37.920 --> 0:10:41.400 ten percent this year versus the Bloomberg ag is roughly 0:10:41.440 --> 0:10:44.679 flat for the year, down a tiny bit. That's investment 0:10:44.720 --> 0:10:47.560 grade versus loans are below investment grade. And there was 0:10:47.600 --> 0:10:49.840 a lot of talk early in the year with increasing 0:10:49.880 --> 0:10:53.520 interest rates and loans are floating rate, that companies wouldn't 0:10:53.520 --> 0:10:55.719 be able to service their debt. There was going to 0:10:55.720 --> 0:10:59.199 be a recession coming and rates are going higher. As 0:10:59.200 --> 0:11:02.680 an investor, great, we get a floating rate for the companies. 0:11:02.720 --> 0:11:04.720 On the other hand, they have to pay that floating rate. 0:11:05.120 --> 0:11:07.800 The reality though, is profits and revenue at most below 0:11:07.840 --> 0:11:10.880 investment grade companies continue to go up in this economy. 0:11:11.400 --> 0:11:14.080 Citybank just put out research that said more companies are 0:11:14.080 --> 0:11:17.640 getting upgraded than downgraded, and while there are some defaults, 0:11:17.960 --> 0:11:20.520 the default rate over this year has been roughly half 0:11:20.600 --> 0:11:23.560 the long term average. So it's the economy is at 0:11:23.640 --> 0:11:27.360 least the corporate borrower in leverage finances doing far better 0:11:27.840 --> 0:11:29.440 than the headlines would suggest. 0:11:29.600 --> 0:11:34.439 Okay, so overall, not too much consternation over increased in 0:11:34.440 --> 0:11:37.800 interest expenses and servicing that debt. But for the pain 0:11:37.880 --> 0:11:41.000 that you are seeing, there certainly are companies out there 0:11:41.040 --> 0:11:43.280 that are struggling with that. Do they tend to be 0:11:43.320 --> 0:11:48.360 concentrated to any industry or what is the common denominator there? 0:11:48.440 --> 0:11:51.400 Thankfully it's not one industry. Sometimes we've seen that, maybe 0:11:51.440 --> 0:11:54.920 in twenty fifteen we saw energy pose a problem. The 0:11:55.000 --> 0:11:57.800 problems where they do exist, and they're quite few, are 0:11:57.840 --> 0:12:01.200 generally broad based. In many case is it's due to 0:12:01.600 --> 0:12:04.160 either a company that just put on a little too 0:12:04.240 --> 0:12:07.640 much leverage or a company maybe with a less skilled 0:12:07.679 --> 0:12:10.079 management team would be some of the biggest things or 0:12:10.240 --> 0:12:14.559 change in regulation. One company recently, in Vision Healthcare, which defaulted, 0:12:15.240 --> 0:12:19.240 had a number of businesses. Every business line was coincidentally 0:12:19.280 --> 0:12:22.600 infected by adverse changes in regulation for them, So just 0:12:22.640 --> 0:12:25.200 a perfect storm against that company, you think. 0:12:25.640 --> 0:12:29.959 So, you think that regulatory capital reasons are the problem 0:12:30.000 --> 0:12:34.560 that some banks have, I guess bought other things than 0:12:35.000 --> 0:12:38.400 triple A clos. But you point out Japanese banks are 0:12:38.440 --> 0:12:42.520 still big buyers. Why is that? Why are Japanese banks 0:12:42.559 --> 0:12:43.199 notable here? 0:12:43.440 --> 0:12:46.760 Absolutely, Japanese banks remained some of the largest buyers of 0:12:46.800 --> 0:12:50.559 COLO triple as and holders in the world. US banks 0:12:50.640 --> 0:12:53.760 also own meaningful amounts. Some of the largest money center 0:12:53.800 --> 0:12:56.360 banks own more than one percent of their gross assets 0:12:56.360 --> 0:13:00.640 and COLO paper. Frankly, we joke that had some of 0:13:00.679 --> 0:13:03.120 the regional banks that are no longer with US bought 0:13:03.120 --> 0:13:05.880 floating rate clos instead of mortgages, they might still be 0:13:05.920 --> 0:13:10.040 with US in fact, but the banks in the US 0:13:10.960 --> 0:13:13.440 there's sometimes some stigma with the name. It's still a 0:13:13.480 --> 0:13:17.200 COLO that sounds like a cdo Many of those Japanese 0:13:17.200 --> 0:13:20.000 investors have been in the market for over twenty years, 0:13:20.400 --> 0:13:23.040 and across their triple A portfolios, what they've seen is 0:13:23.640 --> 0:13:26.040 everyone has paid off at par there's never been a 0:13:26.040 --> 0:13:28.480 default on any bond they bought in the COLO market. 0:13:29.080 --> 0:13:31.400 And let's talk a little bit about what happened in March. 0:13:31.520 --> 0:13:35.040 Like you said, maybe if those banks had maybe shifted 0:13:35.080 --> 0:13:37.800 out of treasuries into colos, we'd still be with them. 0:13:38.200 --> 0:13:41.160 But when we talk about what happened in March, we 0:13:41.200 --> 0:13:43.880 talk about it as a boon to private credit. Certainly, 0:13:43.920 --> 0:13:47.000 private debt has been on fire this year. Where does 0:13:47.040 --> 0:13:50.080 the COLO market sit in relation to what we're seeing 0:13:50.080 --> 0:13:50.880 in private credit? 0:13:50.960 --> 0:13:53.160 Sure so we're a net beneficiary of that in a 0:13:53.240 --> 0:13:57.280 number of ways. Frankly, banks in general are putting less 0:13:57.320 --> 0:14:00.800 capital out as Basel three comes to fruition and higher 0:14:00.840 --> 0:14:04.199 capital charges on banks are unambiguously trends in the market. 0:14:04.840 --> 0:14:07.800 The steady hand of private credit, which is typically in 0:14:07.840 --> 0:14:11.240 the form of private equity style funds, not short term 0:14:11.280 --> 0:14:14.240 funds with redemptions, but long ten year funds that can 0:14:14.280 --> 0:14:17.480 see a credit through from start to end. A lot 0:14:17.480 --> 0:14:20.400 of capital going in there. They've frankly bailed out a 0:14:20.480 --> 0:14:23.480 number of triple C rated syndicated loans and taken that 0:14:23.640 --> 0:14:26.640 out of the syndicated loan market, brought it to private 0:14:26.640 --> 0:14:29.240 credit as one thing and another thing. We've seen a 0:14:29.280 --> 0:14:32.280 real increase in it. It's an opportunity we're very interested in, 0:14:32.240 --> 0:14:34.520 and I've been deploying a lot of capital in are 0:14:34.560 --> 0:14:39.280 something called regulatory capital relief transactions for banks. This is 0:14:39.320 --> 0:14:42.440 where a large bank will take a portion of their 0:14:42.480 --> 0:14:46.600 corporate loans, or their auto loans, or their fund subscription 0:14:46.800 --> 0:14:51.040 line loans even and put them in a synthetic securitization. 0:14:51.680 --> 0:14:54.840 Some very loaded words there, but a good way to 0:14:55.040 --> 0:14:58.600 raise capital and they can basically transfer the risk of 0:14:58.600 --> 0:15:02.280 owning those two investors. Basically a way to raise capital 0:15:02.480 --> 0:15:04.240 without having to go to the stock market and do 0:15:04.280 --> 0:15:07.480 a secondary offering. The reality is, over many years those 0:15:07.480 --> 0:15:10.360 investments have done very very well. And what we're seeing 0:15:10.480 --> 0:15:12.960 is banks are seeking more and more capital knowing they're 0:15:13.000 --> 0:15:15.800 going to be facing higher capital charges. They're coming to 0:15:15.840 --> 0:15:17.520 that market with greater frequency. 0:15:17.600 --> 0:15:20.200 But the private credit market is one that banks are 0:15:20.560 --> 0:15:24.720 It seems like they're losing that business to almost a 0:15:24.720 --> 0:15:31.080 shadow banking group of lenders. Is that market even though 0:15:31.200 --> 0:15:33.720 I mean you point out their long term lenders, you 0:15:33.760 --> 0:15:36.720 know they aren't facing like immediate redemptions in a lot 0:15:36.720 --> 0:15:40.560 of cases, but there's not a lot of regulation there 0:15:40.800 --> 0:15:44.920 for how much business they're doing. So does that look 0:15:45.000 --> 0:15:47.520 like a place where regulation is going to grow into 0:15:47.880 --> 0:15:48.680 the good. 0:15:48.440 --> 0:15:50.920 Part about it is it's a steady hand, and what 0:15:51.280 --> 0:15:53.480 goes wrong with banks as people take their money out. 0:15:53.600 --> 0:15:55.000 You and I can take our money out of our 0:15:55.040 --> 0:15:58.440 banks today with no consequence except for the person in 0:15:58.480 --> 0:16:01.880 line after us perhaps having these credits, even if there 0:16:01.880 --> 0:16:04.440 are riskier credits some cases in private credit or maybe 0:16:04.480 --> 0:16:07.560 a little more leverage, having a small number of owners 0:16:07.960 --> 0:16:10.920 in that loan, each with a long term mindset and 0:16:10.960 --> 0:16:14.640 a steady hand, I think is net beneficial. The investors 0:16:14.640 --> 0:16:18.680 in those vehicles typically are large sophisticated pensions and insurance companies, 0:16:19.000 --> 0:16:22.000 so the investor is getting involved in these underlying funds 0:16:22.000 --> 0:16:25.960 that are making these private credit loans are quite sophisticated themselves. 0:16:26.600 --> 0:16:28.760 Okay, so we don't have much time love with you, 0:16:28.920 --> 0:16:31.840 but I could see regulation being a potential risk here. 0:16:32.280 --> 0:16:34.800 Talking to you, everything sounds pretty rosy. But if you 0:16:34.800 --> 0:16:37.680 take a look at the CLO market overall, where else 0:16:37.720 --> 0:16:38.880 are you seeing risks lurk? 0:16:40.080 --> 0:16:42.080 Some of the risks continue to be frankly that the 0:16:42.080 --> 0:16:45.440 biggest thing is the change in regulation and the impact 0:16:45.440 --> 0:16:48.560 on companies. I cited that one company before something that 0:16:48.640 --> 0:16:52.920 makes medicare reimbursement slower or things like that, a regulation, 0:16:52.960 --> 0:16:55.400 which might be a very valid regulation, then has an 0:16:55.440 --> 0:16:59.280 impact and changes a company's behavior overall. Things that people 0:16:59.320 --> 0:17:02.320 often talk about, the wall of maturities and loans has 0:17:02.360 --> 0:17:06.120 been pushed way out, frankly, and the ability of companies 0:17:06.160 --> 0:17:11.080 to service their higher debts remains quite strong. Idiosyncratic risk 0:17:11.240 --> 0:17:13.720 is probably the biggest area that we look at, and 0:17:13.760 --> 0:17:16.920 then probably when we think about in our risk management meetings, frankly, 0:17:17.320 --> 0:17:19.880 continuing to look at our counterparties one of the things 0:17:19.960 --> 0:17:22.199 we look at, or what's the credit default spread pricing 0:17:22.240 --> 0:17:24.920 on banks that we do business with. While right now 0:17:24.960 --> 0:17:27.879 it seems most banks are on steady footing, again, that 0:17:27.920 --> 0:17:30.320 can change very quickly, so we keep our eye out 0:17:30.600 --> 0:17:33.160 at the margins. We don't see a large systemic risk 0:17:33.200 --> 0:17:36.240 facing us, but no one was talking about a banking 0:17:36.280 --> 0:17:37.800 crisis in January of this year. 0:17:38.240 --> 0:17:40.560 Absolutely, Thomas, thanks so much for your time, Really appreciated. 0:17:40.960 --> 0:17:44.960 Thomas Majuski is the CEO of Eagle Point Credit Management. 0:17:44.960 --> 0:17:46.200 If you want more from him, he's going to go 0:17:46.240 --> 0:17:48.560 on Bloomberg Television in a moment and talk a little 0:17:48.560 --> 0:17:51.200 bit Lisa Bromwitz about this as well. 0:17:51.520 --> 0:17:54.600 You're listening to the tape. Catch our live program Bloomberg 0:17:54.680 --> 0:17:58.280 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:17:58.320 --> 0:18:01.560 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:01.600 --> 0:18:04.399 You can also listen live on Amazon Alexa from our 0:18:04.440 --> 0:18:08.840 flagship New York station, Just say Alexa Play Bloomberg eleven thirty. 0:18:10.520 --> 0:18:13.520 Katie Greifeld here with me in the Interactive Brokers studio. 0:18:13.600 --> 0:18:16.920 Paul Sweeney is out today. Well he'll be back, yeah, 0:18:16.920 --> 0:18:20.240 but not until three pm. He's taking an extended break 0:18:20.560 --> 0:18:23.720 right now. Gina ting in the house as well. She 0:18:23.800 --> 0:18:27.160 is the head of Global Index Portfolio Management team over 0:18:27.160 --> 0:18:30.840 at Franklin Templeton ETFs, and she will be a guest 0:18:31.119 --> 0:18:36.480 on our next week's ETFIQ program that's on Bloomberg Television 0:18:36.520 --> 0:18:38.040 every Monday at one pm. 0:18:38.240 --> 0:18:39.240 So this is the warm up. 0:18:39.680 --> 0:18:45.520 This is a deep tease, basically, Dina, just before we 0:18:45.560 --> 0:18:48.720 get into the important stuff, I wanted to address a 0:18:48.760 --> 0:18:52.480 story that Katie and Eric Belchunas they don't think it's 0:18:52.520 --> 0:18:56.040 that important, but I think it's very interesting and kind 0:18:56.040 --> 0:18:59.359 of a big deal, and that is a big push 0:18:59.400 --> 0:19:02.840 by regularly to shift to T plus one to faster 0:19:03.080 --> 0:19:06.399 settlement is going to drive up costs and create a 0:19:06.440 --> 0:19:09.720 lot of operational challenges for ETFs. What do you think 0:19:09.720 --> 0:19:14.320 about this drive to move to at some point will 0:19:14.320 --> 0:19:16.439 be on tea. We'll just settle as soon as you 0:19:16.480 --> 0:19:17.240 make the transaction. 0:19:18.040 --> 0:19:22.920 Yeah. I think all changes always have repercussion, right, So 0:19:23.160 --> 0:19:25.679 in the case of T plus one, I think at 0:19:25.720 --> 0:19:29.040 the end of the day, when everybody is prepared for it, 0:19:29.040 --> 0:19:31.800 it should not be causing an issue. I've seen an 0:19:31.840 --> 0:19:34.960 example in India where they move from T plus two 0:19:34.960 --> 0:19:38.480 to T plus one earlier this year and everybody was worried, 0:19:38.680 --> 0:19:42.680 especially because India the currency is restricted. Currency is a 0:19:42.680 --> 0:19:45.840 little bit more difficult. So I would imagine with more 0:19:45.880 --> 0:19:49.879 preparation in the US dollar in the US especially, that 0:19:49.960 --> 0:19:52.879 it's less of an issue. And I don't know if 0:19:52.880 --> 0:19:57.440 you're aware, but in China it's actually T plus zero. WOWK, Yeah, 0:19:57.560 --> 0:19:58.119 good for them. 0:19:58.640 --> 0:20:03.280 The concern is actually international settlements. So there are many 0:20:03.640 --> 0:20:06.520 US listed ETFs that are going to have to be 0:20:06.560 --> 0:20:10.600 settling plus one, but they hold you know ETFs that 0:20:10.640 --> 0:20:15.959 hold European assets for example, or international assets that settle 0:20:16.359 --> 0:20:21.520 plus two or plus five, how do they square that circle? 0:20:22.320 --> 0:20:25.120 Yeah, so those are the balancing act that a portfolio 0:20:25.160 --> 0:20:26.119 manager has to do. 0:20:26.320 --> 0:20:26.520 Right. 0:20:26.560 --> 0:20:30.399 So when you're investing in the global markets, they all 0:20:30.440 --> 0:20:34.000 have different settlement cycles. So and if you're in the 0:20:34.000 --> 0:20:38.040 midst of rebalancing, how would you balance something that settles 0:20:38.040 --> 0:20:40.919 in three plus three if your funding is coming in 0:20:41.119 --> 0:20:44.879 at even longer settlement than that. But it's nothing unusual. 0:20:45.119 --> 0:20:48.119 So it's just about like, how would you handle the 0:20:48.200 --> 0:20:52.560 mismatch between where you're getting your funding versus where are 0:20:52.600 --> 0:20:56.240 you going to deploy that particular cash. Right, So if 0:20:56.280 --> 0:20:59.320 you think about your example, so if let's say you're 0:20:59.359 --> 0:21:05.800 investing in European countries and you're buying a US equity, right, 0:21:05.840 --> 0:21:08.639 so the US equity will settle T plus one. But 0:21:08.720 --> 0:21:13.199 let's say to buy the US equity you require funding 0:21:13.280 --> 0:21:16.800 from selling the European equity. Then you have to short 0:21:16.800 --> 0:21:19.439 stand the cycle of that one in order to be 0:21:19.480 --> 0:21:21.359 able to fund or you can have a line of 0:21:21.480 --> 0:21:24.240 credit to kind of handle that. So it's one of 0:21:24.280 --> 0:21:25.720 those things that at the end of the day, it 0:21:25.800 --> 0:21:26.560 is complicated. 0:21:26.800 --> 0:21:30.840 Yeah, gosh, good thing that I the end investor probably 0:21:30.840 --> 0:21:32.159 don't have to worry about. 0:21:31.920 --> 0:21:36.200 This, right, It's true, Like that's why you trust your 0:21:36.400 --> 0:21:37.679 money managers. 0:21:37.920 --> 0:21:39.840 Well, unless you take to hit on the margins, she's 0:21:39.840 --> 0:21:41.119 going to have to pay a higher fee. 0:21:41.280 --> 0:21:44.640 Frankly, perhaps, Yeah, all right. 0:21:44.440 --> 0:21:47.359 Franklin Templeton ETFs. What are you guys pumped about? 0:21:48.359 --> 0:21:52.760 So we are looking at dividendal strategy. So we're pumped 0:21:52.760 --> 0:21:57.040 about that strategy because very rarely a strategy that focus 0:21:57.160 --> 0:22:00.879