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Speaker 1: On Today's Bloomberg Intelligence Show, we dig inside the big
Speaker 1: business stories impacting Wall Street and the global markets.
Speaker 3: Each and every week we provide in depth research and
Speaker 3: data on some of the two thousand companies and one
Speaker 3: hundred and thirty industries our analysts cover worldwide.
Speaker 1: Today, well look at why New York Community Bank posted
Speaker 1: earnings that were better than analyst feared.
Speaker 3: Plus we'll discuss how McDonald sales are being impacted by
Speaker 3: war in the Middle East.
Speaker 1: But first we dive into big tech and Amazon. Amazon's
Speaker 1: cloud unit posted the strongest sales growth in a year.
Speaker 3: It's really a sign that the retailer's most profitable unit
Speaker 3: is recovering from a slump as businesses resume spending on
Speaker 3: technology products, including AI services.
Speaker 1: Despite this, Amazon sales forecast for the current quarter fell
Speaker 1: short of analyst expectations, reflecting concern about the main e
Speaker 1: commerce business.
Speaker 3: From where We're doing Now by Anna ag Ran on
Speaker 3: Bloomberg Intelligence Technology Analysts. We first asked him for his
Speaker 3: big takeaway.
Speaker 4: I think the big spike in AWS profit is something
Speaker 4: that really alarmed us because you know, that was a
Speaker 4: number we weren't expecting for I honestly a few years.
Speaker 4: So if you look at it, AWS margins, operating margins
Speaker 4: came close to thirty seven thirty eight percent, little over
Speaker 4: thirty seven, and that was like eight points or eight
Speaker 4: percentage points higher than what Street was looking for and
Speaker 4: fourteen percentage points over last year. Absolutely phenomenal. I think
Speaker 4: that's really what I am hoping that you know, investors
Speaker 4: are focused on rather than all the other things.
Speaker 1: All right, and give us a sense if we just
Speaker 1: step back, give us kind of the market share layout.
Speaker 1: How does this market look between some of these big
Speaker 1: players like Microsoft, Google and Amazon.
Speaker 4: So Amazon only plays on the infrastructure layer, which is
Speaker 4: trying to give people raw material to build their applications.
Speaker 4: And when that they have a commanding market share over
Speaker 4: forty percent of the market, and in fact that they
Speaker 4: have maintained that for a while, I mean, which is
Speaker 4: surprising because Microsoft has been gaining share on it, you know,
Speaker 4: for a very long period of time, but from smaller players.
Speaker 4: And also the market's growing very much. So Amazon's currently
Speaker 4: at you know, revenue off over one hundred billion dollars
Speaker 4: in this market, but over.
Speaker 5: To all tech spending is you know, north.
Speaker 4: Of two trillion, frankly, so there's a lot of room
Speaker 4: to grow for everybody, not just Amazon, but Amazon, Microsoft, Google,
Speaker 4: you know, even Oracle, I mean, all of them will
Speaker 4: grow in this market.
Speaker 3: So if we take a look at the different layers
Speaker 3: of how AI kind of plays into cloud, the one
Speaker 3: area where Amazon maybe isn't getting as monch market share
Speaker 3: and maybe they're still developing that is the consumer facing side.
Speaker 3: What can they do there? What is their growth opportunity there?
Speaker 4: Yeah, I mean they have a lot of you know,
Speaker 4: I would say some apps that are working on it,
Speaker 4: but really the reason why Microsoft is ahead right now
Speaker 4: in that game is because of open Ai. They have
Speaker 4: a partnership with open Ai, and they run open AI's
Speaker 4: back end, which is when you do a search and
Speaker 4: chat GPT, Microsoft is running those searchers in the background
Speaker 4: or you know, the application runs on it, which is
Speaker 4: why Microsoft is getting the benefit of it. For AWS,
Speaker 4: the big benefit is going to come from companies or
Speaker 4: big corporations when they go out and build their AI applications.
Speaker 5: There's a high likelihood they're going to choose.
Speaker 4: AWS as much as they're going to choose Microsoft or Google.
Speaker 4: And that's really what Amazon's betting on.
Speaker 1: So you mentioned the margins, high margins at AWS. Can
Speaker 1: they maintain those margins? What are the risks for those margins?
Speaker 4: Yeah, I don't think they can maintain them, only because
Speaker 4: they have to spend a fair amount of money in
Speaker 4: order to you know, fulfill the demand expanding in data centers,
Speaker 4: buying new hardware, buying chips. So I'd be very surprised
Speaker 4: if you see that number again for a very long
Speaker 4: period of time.
Speaker 6: You know.
Speaker 4: Frankly speaking, I'll be happy with the thirty percent margin
Speaker 4: for the next several years while they make sure that
Speaker 4: they're doing the right investments to drive double digit growth
Speaker 4: rate on their top line.
Speaker 3: Let's talk about those investments. So they said they're going
Speaker 3: to quote meaningfully step up their capex to pay for
Speaker 3: all this AI infrastructure. But there was no like number
Speaker 3: given when Meta said that market didn't like it. What
Speaker 3: was the pass here that Amazon got?
Speaker 4: Yeah, but you know, Amazon's basically showcasing that they actually
Speaker 4: have been doing this successfully in terms of expanding data
Speaker 4: centers based on the capacity, so you know, before going in,
Speaker 4: you know, they had close to fifteen billion dollars yesterday
Speaker 4: in the first quarter in terms of capex, and it's
Speaker 4: going to go up over the next quarter. So we
Speaker 4: think it's going to be north of sixty five billion
Speaker 4: at this point for all of Amazon, with most of
Speaker 4: it going to AWS.
Speaker 5: But there's a reason for it.
Speaker 4: They are in contracts to fulfill cloud demand or you know,
Speaker 4: they need to be able to expand that to fulfill
Speaker 4: that massive cloud demand.
Speaker 5: An rug.
Speaker 1: You know what I did not see an Amazon's report
Speaker 1: a dividend.
Speaker 7: Why is that?
Speaker 5: Yeah?
Speaker 4: I mean I I you know, again, they're going to
Speaker 4: spend that sixty five billion dollars next year on capex also,
Speaker 4: so I'm I'm okay with not having a dividend for
Speaker 4: a while. I would rather you're a tech animals.
Speaker 1: You guys think that if you if you put out
Speaker 1: a dividend, it's signals that you're no longer a growth story.
Speaker 5: Yeah, it's a kiss of death. I'm not a big fan.
Speaker 3: Not Microsoft, Google. They disagree with you.
Speaker 4: Yeahb IBM kind of agrees with me at this point
Speaker 4: of that. So look at IBM. I mean, they have
Speaker 4: a massive dividend yield. I would rather they you know,
Speaker 4: they take that money and buy a bunch of new
Speaker 4: Hashi corpse kind of companies that are growing at fifteen
Speaker 4: to twenty percent. That will change the face of the company,
Speaker 4: make them, you know, even more relevant in the tech
Speaker 4: space than.
Speaker 5: They are right now.
Speaker 4: So I'm always in that camp that when you are
Speaker 4: a tech company, you got to constantly reinvent yourself otherwise
Speaker 4: somebody will come and eat your lunch.
Speaker 1: I mean, on Rock and I we just fundamentally disagree
Speaker 1: on this. We agree to disagree. We go to our
Speaker 1: separate corners.
Speaker 3: Can I ask a dumb question for the two of you,
Speaker 3: then is there room for both of you to be right?
Speaker 8: Like?
Speaker 3: Can these tech companies throw off enough cash they can
Speaker 3: reinvest in a healthy way and also pay a dividend.
Speaker 4: Yes on our own Yes, yes, absolutely, Alex, I completely
Speaker 4: agree with that because what happens is if you give
Speaker 4: a very small token dividend, it opens the doors to
Speaker 4: a lot of institutional investors that are bound by their
Speaker 4: charter to only invest in companies that pay are dividend.
Speaker 4: So there is a logical reason to do it. But
Speaker 4: I'm okay with Amazon. It's going to take a year
Speaker 4: or two years to get to.
Speaker 5: That path, all right.
Speaker 3: So there's a whorl where you.
Speaker 6: Can both be ready.
Speaker 1: We can there's a place where we can meet in them.
Speaker 3: Is there a capex number that you wouldn't like from Amazon?
Speaker 3: They didn't give a.
Speaker 4: Number now, not at this point. The only reason is
Speaker 4: because we see forward contracts. As of this morning, when
Speaker 4: they filed their ten Q, we saw cloud commitments go
Speaker 4: up twenty nine percent.
Speaker 5: I mean that's a very big number.
Speaker 4: And frankly, when on the enterprise side, we haven't seen
Speaker 4: orders coming for AI at this point. AI orders are
Speaker 4: only coming in from consumer applications like CHACKGBT, people running
Speaker 4: that at this point, over the next few years, we
Speaker 4: should see a massive spike in you know, people creating
Speaker 4: new applications or companies creating new applications, and that's going
Speaker 4: to only drive more growth for AWS, Microsoft and Google.
Speaker 1: Our thanks to Anaagrana, Bloomberg Intelligence technology analyst.
Speaker 3: We move next to the EV space in Tesla CEO
Speaker 3: Elon Musk recently paid a quick visit to China and
Speaker 3: it paid immediate dividends for the ev giant.
Speaker 1: Tesla received an in principle approval from government officials to
Speaker 1: deploy its driver assistance system in China. Also reached the
Speaker 1: mapping navigation deal with Chinese tech giant Bydo, and met
Speaker 1: requirements for how it handles data security and privacy issues.
Speaker 3: From more on all of this, we were joined by
Speaker 3: Craig Drudell, Bloomberg Global Autos Editor. Craig began by telling
Speaker 3: us that his tentative China deal has been in the
Speaker 3: works for some time.
Speaker 9: It wasn't necessarily the case that this was, you know,
Speaker 9: kind of an overnight saying, actually, the last time that
Speaker 9: Musk was in China, this was something that we reported
Speaker 9: at the time was on the agenda. It's been something
Speaker 9: that Tesla has been after for quite some time, and
Speaker 9: it's increasingly a way that you know carmakers are competing
Speaker 9: in China is you know, how advanced is your driver
Speaker 9: assistant system. You know that that keeps you from crashing,
Speaker 9: that keeps you in your lane, that allows you in
Speaker 9: some cases to take your hands off the wheel. But
Speaker 9: in all cases, you know you absolutely are responsible for
Speaker 9: for you know, the car, and you know no companies
Speaker 9: are are taking responsibility legal responsibility if if you get
Speaker 9: into a craft, you know, with the exception of of
Speaker 9: some you know, very small sort of limited fleets and
Speaker 9: contained areas, and you know there are quirks as you
Speaker 9: might imagine, you know, by market for what is required
Speaker 9: to be able to offer these systems that really need
Speaker 9: to be safe and also need to have, you know,
Speaker 9: controls for data collection and and you know, the cameras
Speaker 9: used to navigate the surroundings that these cars are going
Speaker 9: to need to to pilot around. And that's been a
Speaker 9: hang up for Tesla and other international companies that you know,
Speaker 9: they need to in all cases work with local Chinese
Speaker 9: companies for things like mapping and navigation. So one of
Speaker 9: the key sort of you know, takeaways from this trip
Speaker 9: was Tesla agreeing to do that with bayd in China.
Speaker 3: So who owns the stuff it.
Speaker 9: Is importantly you know, it's a matter of ownership and
Speaker 9: where it's kept. And so you know, this has come
Speaker 9: up years ago. Actually, Tesla had a bit of a
Speaker 9: hang up where their cars were banned from you know,
Speaker 9: being in the area of military compounds and other sort
Speaker 9: of sensitive parts of kind of out of concerns about
Speaker 9: you know, any information that cars were gathering, and you know,
Speaker 9: there were concerns about whether any data was going from
Speaker 9: Tesla's China operations back to the US, and so Tesla
Speaker 9: needed to sort of rea kinda that you know, any
Speaker 9: data collected in China will stay in China, and so
Speaker 9: that has been you know, something that they've had this
Speaker 9: sort of acquiesce to as of you know, several years ago.
Speaker 9: But they needed to still sort of you know, clear
Speaker 9: you know, approval for you know, making sure that their
Speaker 9: teas were crossed and eyes were dotted in that respect,
Speaker 9: and they needed this deal with BAYD. It does seem
Speaker 9: to be the case that they need to meet other
Speaker 9: conditions in order for FSD to be offered in China.
Speaker 9: It's still not a done deal, but what you know,
Speaker 9: sort of hoops they still have to jump through are
Speaker 9: a bit unclear at this point.
Speaker 1: So how does this change, if at all, kind of
Speaker 1: the competitive landscape for Tesla in China. I know, you
Speaker 1: guys have been reporting a lot of how some of
Speaker 1: the local ev makers have really become very good and
Speaker 1: very competitive.
Speaker 9: Yeah, I think it absolutely is something that's been missing
Speaker 9: for Tesla that, assuming all goes well here, it will
Speaker 9: no longer be a sort of strike against them among
Speaker 9: consumers who really, you know, want the most cutting edge technology.
Speaker 9: It remains to be seen how big a deal it
Speaker 9: will be for Tesla from a revenue standpoint, because we
Speaker 9: don't know at this point how much Tesla will be
Speaker 9: looking to charge for it. We don't know, you know,
Speaker 9: to what extent they may have to share some revenue
Speaker 9: with some of their partners. It's not clear whether by
Speaker 9: do maybe gets a cut. You know, in the US,
Speaker 9: Tesla and you know throughout the world, Tesla has made
Speaker 9: a point to really be you know, want to be
Speaker 9: vertically integrated, and that's you know, fancy talk for in
Speaker 9: control of its own destiny. Uh, they were willing to
Speaker 9: sort of acquiesce in this case, I think because they
Speaker 9: really could use this boost in China at a time
Speaker 9: when their lineup is getting a bit tired and they're
Speaker 9: losing a lot of market share to companies like byd Well.
Speaker 3: This also raises the question too, it doesn't take a
Speaker 3: lot of news to get Tesla stock moving, not that
Speaker 3: a trip to China wasn't a big deal, but like
Speaker 3: you said, there's so many questions as to the actual
Speaker 3: revenue driver and what it's going to mean.
Speaker 7: I mean, you have to wonder is.
Speaker 3: Not going to take a lot for any kind of
Speaker 3: shorts Craig to cover.
Speaker 9: I think that's right. And this is also a name
Speaker 9: that you know, options traders absolutely love. It's it's sort
Speaker 9: of like the meme stock that has lasted as a
Speaker 9: meme stock as that craze has sort of faded away.
Speaker 9: And so you know, anytime to your point, you know,
Speaker 9: Musk is able to sort of get the momentum with
Speaker 9: you know, the narrative, it tends to lead to big swings.
Speaker 9: So you know, early this year, I think he lost
Speaker 9: control of that narrative. And it's not at all a
Speaker 9: mystery as to why that is, you know, looking at
Speaker 9: last week's earnings, but I think he was really able
Speaker 9: to sort of change what people were talking about last week.
Speaker 9: We'll see whether or not, you know, this is mostly
Speaker 9: talk as opposed to you know, going to lead to real,
Speaker 9: sort of meaningful change in Tesla's earnings trajectory, which has
Speaker 9: not been trending in the right direction.
Speaker 1: Our thanks to Craig Trudell, Bloomberg Global Autos Editor.
Speaker 3: All right, coming up, we're going to break down why
Speaker 3: McDonald's is now looking to focus on affordable prices in
Speaker 3: the US.
Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 1: depth research and data on two thousand companies from one
Speaker 1: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 1: b I go on the terminal.
Speaker 3: I'm Paul Sweeney, a Mlex Steel, and this is Bloomberg.
Speaker 2: This is Bloomberg Intelligence with Alex Steel and Paul Sweeney
Speaker 2: on Bloomberg Radio.
Speaker 3: We look next at the food service industry. At McDonald's,
Speaker 3: the fast food chain's quarterly sales fell short of analysts
Speaker 3: expectations in the first quarter, and results were hurt by
Speaker 3: slow and growth in the US and Boycott's related to
Speaker 3: the Israel Hamas war.
Speaker 1: The restaurant chain now looks to focus on affordable prices
Speaker 1: in the US for more and all this, we were
Speaker 1: joined by Michael Halen, Bloomberg Intelligence Senior restaurant and food
Speaker 1: service analyst. We first asked Michael for his reaction to
Speaker 1: McDonald's quarterly it results.
Speaker 10: I'd say the biggest takeaway was, you know, the fact
Speaker 10: that April's flat so far in the United States. That's
Speaker 10: trailing the industry level, you know the industry data that
Speaker 10: we get so and also you know, Burger King showed
Speaker 10: an acceleration in the US and their US numbers, so
Speaker 10: I would say that was the biggest surprise. You know,
Speaker 10: McDonald's still on a five year trend, is vastly outperforming
Speaker 10: Burger King almost the other quick service names, but there
Speaker 10: seems to be some slowing if I was to guess
Speaker 10: some of that bad press around the eighteen dollars big
Speaker 10: mac meal in some markets, you know, could be hurting
Speaker 10: because we are seeing US consumers really push back against
Speaker 10: price increases right now, and they're being more picky about
Speaker 10: where they spend their money.
Speaker 1: Mike, I see just in the Bloomberg reporting here. Executives
Speaker 1: have also said that low income consumers in the US,
Speaker 1: which is an important part of the company's customer base
Speaker 1: are pulling back. That does that mean we're going to
Speaker 1: see more promotions which might put pressure on the margins.
Speaker 10: Yeah, McDonald's has come out and said they're going to
Speaker 10: focus more on their value menu. They're going to continue
Speaker 10: to offer promotions, a lot of them.
Speaker 7: Through the apps.
Speaker 10: So it looks like a full on value war is here.
Speaker 10: I mean, Burger King Borg Kings could be a little
Speaker 10: bit more careful with their discounting because in the last
Speaker 10: five years or so they've gotten too aggressive and it
Speaker 10: hurt franchising margins. So they kind of hoopooed that a
Speaker 10: little bit. But we think a full blown value war
Speaker 10: is here and it's on the table for twenty twenty four.
Speaker 3: So does the value war take into account a bigger burger?
Speaker 3: Is that the deal?
Speaker 5: Well? Value?
Speaker 10: You know, it's measured in a couple of ways. It's
Speaker 10: not just the price, but it's what you get for
Speaker 10: the price, right, And so I'm sure McDonald's has done
Speaker 10: their legwork and they have some customer feedback that says
Speaker 10: that they want some Bigger burgers on their menu, and
Speaker 10: so that's going to be interesting. They said they're going
Speaker 10: to start testing it in the second half of this year,
Speaker 10: so it may not hit the United States for quite
Speaker 10: some time. But yeah, there's a couple of ways to
Speaker 10: measure value.
Speaker 1: Hey, Mike, what are the McDonald's of the world, and
Speaker 1: you know, the other restaurant companies you talked to, what
Speaker 1: are they saying about these GLP one drugs? Are they
Speaker 1: really going to impact their business?
Speaker 10: You know, I don't think there's too much worry about
Speaker 10: that anymore. I know that was a big thing last
Speaker 10: summer and into the fall, and it really impacted the
Speaker 10: prices of some of these quick service restaurant chain stocks,
Speaker 10: especially McDonald's. But I've seen a lot of different reports
Speaker 10: out there, and you know, the amount of people on
Speaker 10: these drugs ranges from you know, seven to twelve or
Speaker 10: maybe fifteen percent best case if once they get to
Speaker 10: like maybe a pill form instead of a shot, you know,
Speaker 10: and we don't know about long term side effects from
Speaker 10: some of these drugs, So I think initially there was
Speaker 10: some concern, but over time McDonald's and these other chains,
Speaker 10: they're going to figure out how to make a seven
Speaker 10: to twelve percent smaller cheeseburger. Right They're getting smaller anyway,
Speaker 10: because there's a historical situation in the cattle market right now,
Speaker 10: and so beef prices are going to continue to stay
Speaker 10: elevated in here for a couple of years, and so
Speaker 10: chains are already starting to try to, you know, solve
Speaker 10: for some of these problems, you know, ahead of broader adoption.
Speaker 3: Yeah, I mean you have to think that translation is
Speaker 3: going to hit in many different ways. But before we
Speaker 3: let you go, we have about a minute left. So
Speaker 3: who wins the value war right now? Based on what
Speaker 3: you've seen.
Speaker 10: It's interesting because you know McDonald's historically has and so
Speaker 10: that's what's most interesting about them underperforming in April. Burger
Speaker 10: King is an interesting one because you know, they have
Speaker 10: easier comps. They struggled coming out of the pandemic for
Speaker 10: a few years, right, and so they have easier comparisons
Speaker 10: to lap lower average unit volumes at the store level,
Speaker 10: and so there's room for some upside there. Chipotle absolutely
Speaker 10: continues to knock the cover off the ball, and you
Speaker 10: know McDonald's has scale, right, and so when they really
Speaker 10: start pushing on value, everyone else is going to feel it.
Speaker 10: So so you know, I'm confident that McDonald's can kind
Speaker 10: of turn the tide here a little bit because they
Speaker 10: can just offer burgers and other items at prices their
Speaker 10: computers just can't match.
Speaker 1: Thanks to Michael Halen, Bloomberg Intelligence Senior restaurant and food
Speaker 1: service analysts, we.
Speaker 3: Move now to regional banks. New York Community Bank posted
Speaker 3: quarterly results that were better than analysts had feared, and
Speaker 3: the lender also outlined a plan for reshaping it into
Speaker 3: a more diversified and profitable bank.
Speaker 1: For more, we were joined by Herman Chin, Bloomberg Intelligence
Speaker 1: Senior analyst for US regional banks. We first asked Herman
Speaker 1: for his key takeaways from the bank's earnings.
Speaker 11: We learned a lot. So they gave a path forward
Speaker 11: remains to be seeing if everything's going to go and
Speaker 11: lockstep to their expectations. But they basically said they're moving
Speaker 11: to a three year plan with a transition to be
Speaker 11: more of a commercial bank and expecting any sort of
Speaker 11: credit issues to be mostly cleaned up this year with
Speaker 11: an earnings loss for the year. But it was a
Speaker 11: low bar and they cleared up pretty healthily.
Speaker 1: Okay, so just that review here. Their risk was rent
Speaker 1: control departments in New York City, very focused business. They
Speaker 1: were in, very niche Are they exiting that business. Are
Speaker 1: they fixing that business is? How are they going to
Speaker 1: make things right there?
Speaker 11: The part of the three turnaround is de emphasizing that
Speaker 11: multifamily rent regulated piece. There's thirty billion dollars of those
Speaker 11: loans now on the balance sheets. They can't get rid
Speaker 11: of them because there's not going to be a lot
Speaker 11: of buyers, and if they would have to sell, they
Speaker 11: take a big discount and take a big hit to
Speaker 11: the balance sheet. So they're just going to manage through it.
Speaker 11: They've been building their loan loss reserves on these over
Speaker 11: the past couple quarters, so they're built up their reserves
Speaker 11: to pretty much in line with peers. But that's one
Speaker 11: of the unknowns is how credit quality is going to
Speaker 11: perform going forward in a higher for longer rate scenario
Speaker 11: with respect to these rent regulated loans.
Speaker 3: There was an article at the Bloomberg today that talked
Speaker 3: about how rent stabilized apartment buildings are Actually the rent's
Speaker 3: going up and if you assigned two year leases, the
Speaker 3: top can be like six and a half percent, And
Speaker 3: I was in an americ control department it was like half
Speaker 3: a percent, Like it was really really low. Are those
Speaker 3: kind of increases enough to really help the likes of
Speaker 3: a New York community bank.
Speaker 11: Yeah, that's it helps. But a lot of the issues
Speaker 11: that these borrowers, these landlords are facing is higher debt,
Speaker 11: service coverage ratios and higher operating expenses. Right because if
Speaker 11: you have to they gave an example, if you have
Speaker 11: to replace the HVAC unit that costs thirty percent more
Speaker 11: than it did two years ago. So all of these
Speaker 11: operating expenses pile up. But then you can't raise your
Speaker 11: rents to commensurate with your higher costs. So that's the issue,
Speaker 11: and the higher rate issue where they have to refinance
Speaker 11: at higher interest.
Speaker 1: So rent stabilizers apartments, I was never I've never been
Speaker 1: in one. Do they not just rise on the radar
Speaker 1: of inflation or they really really fixed?
Speaker 7: No, it's it's fixed.
Speaker 1: Well, that's that's a tough business to be in if
Speaker 1: you're a landlord, isn't right?
Speaker 11: It is now And there was a change in the
Speaker 11: New York state laws that really capped how much the
Speaker 11: rents can go up every year. So we're seeing the
Speaker 11: repercussions of that for banks like your community.
Speaker 3: Just so, I lived in one twenty years ago. For
Speaker 3: a while, I had a two bedroom apartment huge on
Speaker 3: one hundred and eighty third Street. I paid eight hundred
Speaker 3: and fifty dollars.
Speaker 5: Wow, it saved me.
Speaker 7: Like, there's no.
Speaker 1: Man, why you would give that up on those things
Speaker 1: you keep it in your I got married, okay.
Speaker 3: And my husband owned his apartment, so that was just better.
Speaker 5: Yeah.
Speaker 3: But like the dream was that it would go co
Speaker 3: op or something and then I could buy it for
Speaker 3: like crazy, crazy cheap. But also there was no incentive
Speaker 3: on that end to like fix it up, like it
Speaker 3: hadn't been fixed in forever and twenty years and the
Speaker 3: kitchen was horrendous, But there's no incentive to like spend
Speaker 3: money to do it to just then raise your rent
Speaker 3: ahenomenal amount because it's sort of like a utility, right,
Speaker 3: Like you can only raise it a certain amount. Even
Speaker 3: if you put a certain amount of work in then
Speaker 3: you can raise it a little bit more. But it's
Speaker 3: not a huge propa generator from that end. But man,
Speaker 3: that was that was nice.
Speaker 1: That was nice.
Speaker 3: I had a lot of classt space. So when they
Speaker 3: talk about this, you know it for a diversification, right,
Speaker 3: they want to be a diversified bank. What does that
Speaker 3: mean for them?
Speaker 7: Yeah?
Speaker 11: What that means is they want to tilt more towards
Speaker 11: business lending, commercial lending. They talked about their business portfolio
Speaker 11: is about twenty billion dollars. They want to grow it
Speaker 11: over time to be thirty billion. And the CEO, the
Speaker 11: new CEO who came from One West, who was former
Speaker 11: head of the OCC, he alluded to the fact that
Speaker 11: they're going to hire more folks that he used to
Speaker 11: work with in the past to really build this commercial
Speaker 11: lending franchise. The issue is that they're losing your existing
Speaker 11: commercial bankers, your folks that are focused on deposit inflow,
Speaker 11: and these are former Signature employees. And they talked about
Speaker 11: losing thirty five teams out of one hundred and thirty four.
Speaker 11: So you've got folks leaving, but then you got to
Speaker 11: refill them. So there's there's a lot of work to
Speaker 11: be done there.
Speaker 1: All right, let's step back and take a look at
Speaker 1: your coverage in general, the regional bank coverage. I'm looking
Speaker 1: at the spider s andp regional banking EKF. What's the
Speaker 1: call out there and you talk to institutional investors, is
Speaker 1: it can we buy these things?
Speaker 7: Yeah?
Speaker 11: The dip was the low was in October and you've
Speaker 11: seen banks come back a little bit. What's helpful is
Speaker 11: that the banks are talking about troughing margins and then
Speaker 11: interest income, so that's good to see, and they expect
Speaker 11: a improvement and growth in the back half of the year. Really,
Speaker 11: to us, it really hinges on what the rate backdrop
Speaker 11: is and if rates are going to be higher for longer.
Speaker 11: The optimism that bank management teams are talking about for
Speaker 11: a back half return of loan growth maybe just won't
Speaker 11: materialize as well as they currently expect. So there's a
Speaker 11: lot of questions if we do get that second half resurgence,
Speaker 11: but bank management teams are talking about it's on the
Speaker 11: other side, we still haven't seen the shoe to drop
Speaker 11: on the credit quality fronts, and really the strong and
Speaker 11: resilient economy has really helped that front.
Speaker 7: Remains to be seeing.
Speaker 11: If things really do to deteriorate, then then you're going
Speaker 11: to see a pickup in charge offs as well.
Speaker 3: Are deposits moving anywhere? So I have a citizen's bank
Speaker 3: a couple of blocks from my house and I'm seeing a
Speaker 3: five percent CD Man, I'm not getting that at city.
Speaker 3: Are we seeing deposits move?
Speaker 11: We have seen stability, so in the first half of
Speaker 11: last year when we went through the regional banking turmoil,
Speaker 11: there was a lot of deposits that were leaving to
Speaker 11: go to the Bank of Americas and the JP Morgans
Speaker 11: of the world, especially the large corporate deposits, where they
Speaker 11: thought it would be much safer to be in a
Speaker 11: two big to fail bank. Banks have recalibrated their pricing,
Speaker 11: like you talked about the five percent CDs, So that's
Speaker 11: helped a stabilizer a deposit base, and.
Speaker 3: That's a large payout, like that's not going to be nothing, right.
Speaker 11: That's not going to be nothing. The good thing is
Speaker 11: that overall, with short term rates now pretty much stable
Speaker 11: for the passive recorders, the banks have been keeping their
Speaker 11: deposit costs fairly manageable, so we're not seeing that big
Speaker 11: jump in costs that we saw last year after seb's failure.
Speaker 1: All Right, my personal proxy for equality regional bank is
Speaker 1: M and T Bank, You're former employer up there in Buffalo.
Speaker 5: In order for that.
Speaker 7: Name to really work is loan growth.
Speaker 1: The thing I need to focus on. I need to
Speaker 1: see loan growth for this one.
Speaker 9: In work.
Speaker 11: You need to see more confidence in loan growth and
Speaker 11: also their their asset quality. So the potential knock on
Speaker 11: them is they tilt more towards commercial real estate exposure
Speaker 11: just because of their historical leanings. They've been trying to
Speaker 11: reduce that over time, but they do screen higher on
Speaker 11: commercial real estate.
Speaker 7: So if we get more stabilitia.
Speaker 11: There and less loss content, then that's not going to
Speaker 11: really work, even though the valuation is still higher than
Speaker 11: your typical regional bank.
Speaker 1: Our thanks to Herman Chan Bloomberg Intelligence, senior analysts for
Speaker 1: US regional banks.
Speaker 3: Coming up on the program, a look at why US
Speaker 3: solar makers are seeking more tariffs and important equipment from
Speaker 3: Southeast Asia.
Speaker 1: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
Speaker 1: depth research and data on two thousand companies and one
Speaker 1: hundred and thirty industries. You can access Bloomberg Intelligence via
Speaker 1: bi go on the terminal.
Speaker 3: I'm Paul Sweeney and a Malex Steel and this is Bloomberg.
Speaker 2: You're listening to Bloomberg Intelligence with Alex Steele and Paul
Speaker 2: Sweeney on Bloomberg Radio.
Speaker 3: We move now to Intel. The stagnating chip maker is
Speaker 3: committing twenty eight billion dollars to build a factory in
Speaker 3: Ohio called Ohio One, and it all goes well, Intel,
Speaker 3: we'll be able to credibly compete for contracts to manufacture
Speaker 3: state of the art chips.
Speaker 1: This is a subject of the Bloomberg Big Take story
Speaker 1: entitled Intel is betting twenty eight billion dollars on making
Speaker 1: Ohio a global chips capital for where we were joined
Speaker 1: by one of the story's co authors, Max Chafkin, Bloomberg
Speaker 1: BusinessWeek Senior reporter. We first asked Max for more context
Speaker 1: on his story.
Speaker 8: So, Intel at one time was one of the world's
Speaker 8: largest companies. It is essentially the one of the founding
Speaker 8: parts of Silicon Valley. It's the reason it's called Silicon
Speaker 8: Valley in fact. But over the last decade Intel has
Speaker 8: really suffered. You know, they've they've sort of fallen behind
Speaker 8: both the big chip makers in the un U, Nvidia, AMD,
Speaker 8: and they've fallen way behind on manufacturing, behind TSMC and Samsung.
Speaker 7: And that's a big problem for Intel.
Speaker 8: This you know, large important American company, but of course
Speaker 8: is also a problem for the United States because Intel
Speaker 8: at this point is the only company making state of
Speaker 8: the art ships or even trying to make state of
Speaker 8: the art ships in the US. And over the last
Speaker 8: few years they've pursued basically a turnaround, and that turnaround
Speaker 8: is betting entirely on manufacturing.
Speaker 7: You mentioned the project in Ohio.
Speaker 8: President Biden has talked about that a fair number of times,
Speaker 8: including bringing it up in the State of the Union address.
Speaker 7: They're also major, you know, tens of.
Speaker 8: Billions of dollars projects in Arizona and Oregon. This work
Speaker 8: is being backed with a lot of money from Washington,
Speaker 8: nineteen point five billion in grants and loans from the
Speaker 8: Biden administration. So it's this big, ambitious attempt to turn around,
Speaker 8: you know, a really important company that's fallen on some
Speaker 8: hard times. It's also a big part of the White
Speaker 8: House's geopolitical strategy.
Speaker 1: The build a megafab? What is a megafab? And are
Speaker 1: they going to get it done here? Because this is
Speaker 1: the big numbers.
Speaker 8: Intel's put twenty eight billion into this Ohio site so far.
Speaker 8: The site is it's about forty five minutes north of Columbus.
Speaker 7: You know, it's in a bunch of farmland. It's really muddy.
Speaker 8: You go there now and what you really see is
Speaker 8: just a ton of construction. The idea of a megafab
Speaker 8: would be to have multiple chip factories each one of
Speaker 8: these things. You know, you're talking on the order of
Speaker 8: ten billion dollars.
Speaker 7: They're going to.
Speaker 8: Build two to start, and it sounds like a crazy
Speaker 8: amount of money, but at this point, that is what
Speaker 8: you need if you want to be able to compete
Speaker 8: to make chips, say for the iPhone or for AI chips,
Speaker 8: you know, to try to compete with Nvidia, which Intel
Speaker 8: you know, really desperately would like to do, but it
Speaker 8: just isn't quite there yet.
Speaker 7: On the manufacturing side yet.
Speaker 3: We have heard though of a lot of companies announcing
Speaker 3: projects and manufacturing facilities and don't get done or the
Speaker 3: timeline's pushed out or gets paired back.
Speaker 8: Where's inteling, Yeah, yeah, we saw this of course during
Speaker 8: the Trumpet minute. You know, there has been like a
Speaker 8: political shift over the last i'd say decade where there's
Speaker 8: a lot more enthusiasm both from Republicans and Democrats for
Speaker 8: sort of state backed industrial projects.
Speaker 7: Not all those have gone great.
Speaker 8: You know, I mentioned this story that one of the
Speaker 8: sites that Intel was looking at was this Wisconsin sight
Speaker 8: outside of Racine.
Speaker 7: People will remember.
Speaker 8: That because Donald Trump called it the eighth Wonder of
Speaker 8: the World. These eight or nine years ago talking about
Speaker 8: Fox Cohn. You know, Fox Haunt opened there, but it
Speaker 8: hasn't proven to be the job creator they want. And
Speaker 8: there's a risk with this project as well. I will
Speaker 8: say these semiconductor factories, they are like some of the
Speaker 8: biggest and most ambitious kinds of factories you can build.
Speaker 7: There are already It's like I said, it's muddy. There's
Speaker 7: not a lot going on.
Speaker 8: There right now, and there are Figura there are already
Speaker 8: you know, fourteen hundred construction workers working on that site today.
Speaker 8: Long run, they're saying it's going to employ something like
Speaker 8: seven thousand. And you hear that, you think, okay, seven
Speaker 8: thousand construction workers like that.
Speaker 7: That's as a temporary job, not a full time job.
Speaker 8: But the thing is with these sites, construction could go
Speaker 8: on for decades. You know, it's conceivable if they really
Speaker 8: built this thing out, that many of these construction workers
Speaker 8: could work like their entire career building these things. Because
Speaker 8: the nature of the business is you have to keep
Speaker 8: reinvesting and you have to keep building new fabs. And
Speaker 8: the way that you know, analysts and so on are
Speaker 8: looking at this industry, there's gonna be a lot more
Speaker 8: demand for chips, you know, in the coming decades and.
Speaker 1: Avoid reading your story and in king story here. You know,
Speaker 1: this is a great example or just certainly an expensive
Speaker 1: example of onshoing the money for Intel in Ohio. But
Speaker 1: then you guys also report twelve billion dollars for plant
Speaker 1: being built in Arizona by Taiwan Semiconductor, six billion dollars
Speaker 1: for one in Texas being built by South Korea Samsung Electronics.
Speaker 1: So the money and is coming into the US for
Speaker 1: to ensure this chip business.
Speaker 7: Yeah, I think this.
Speaker 8: May turn out to be, you know, a thing that
Speaker 8: people are talking about in the next few months as
Speaker 8: we get closer to November. You know, this has been
Speaker 8: a big part of the Biden administrations industrial policy. It
Speaker 8: has components of sort of a jobs program because like
Speaker 8: as I was saying, you know, these are construction sites,
Speaker 8: you know, potential good jobs for people. Even even in
Speaker 8: these plants which are run by robots, the people still
Speaker 8: work there.
Speaker 7: And the other thing.
Speaker 8: You have is this kind of competition with China and
Speaker 8: the Biden administration really seeing you know, post COVID, post
Speaker 8: chips shortage that the United States needs to sort of
Speaker 8: be able to produce at least some of its own
Speaker 8: high end chips, because right now that is not the case. Now,
Speaker 8: the interesting thing is that idea, the sort of China
Speaker 8: competition idea has devotees in both parties. You know, in Ohio,
Speaker 8: Ohio is a state dominated by Republicans. The Republicans have
Speaker 8: been touting this as well. However, you know, it's not
Speaker 8: clear if Biden doesn't win, It's not totally clear like how.
Speaker 7: Things might change with Trump.
Speaker 8: But right now it really seems like, you know, the
Speaker 8: US is all in on investing in chip factories. There's
Speaker 8: even talk of a second chip sack, you know, the
Speaker 8: idea that we might even appropriate more money for this stuff.
Speaker 3: Not to talk about energy, but let's talk about energy.
Speaker 3: How are they going to power these this kind of
Speaker 3: fab excellent?
Speaker 7: Yeah, I mean that is a huge issue.
Speaker 8: And talking to Intel, that is like one of the
Speaker 8: main issues in terms of where where you're going to
Speaker 8: cite one of these things. So when you're talking about
Speaker 8: building a fab, you're talking about essentially you need a
Speaker 8: lot of space, you need energy, and you also need water.
Speaker 8: Semiconductors use tons and tons of water. Now, Intel, what
Speaker 8: they say is they are really mindful of their environmental stuff.
Speaker 8: They're you know, you know, all in on sustainability and
Speaker 8: so on a lot of the stuff that many companies say,
Speaker 8: although I have to say they are already recycling a
Speaker 8: huge amount of water at these plants, and and you know,
Speaker 8: for this industry to have a future, it does have
Speaker 8: to you know, continue you know, improving on sustainability.
Speaker 3: Thanks to Max Chafkin Bloomberg, a BusinessWeek senior.
Speaker 1: Reporter on Bloomberg Intelligence Radio, we bring you all the
Speaker 1: top annulets, providing in depth research and data on two
Speaker 1: thousand companies and one hundred and thirty industries.
Speaker 3: We also have something here at Bloomberg called Bloomberg New
Speaker 3: Energy Finance or BNF. The idea behind it is to
Speaker 3: provide data on commodities and power, transport industries, buildings and
Speaker 3: agriculture and also new technology.
Speaker 1: This week we looked into US solar manufacturers and several
Speaker 1: of them asking the US government to slap tariffs on
Speaker 1: twelve point five billion dollars of imported equipment from Southeast Asia.
Speaker 1: This is to help counteract what they say are unfair
Speaker 1: practices by oversea rivals, but it also.
Speaker 3: Sets the stage for a sweeping trade probe that threatens
Speaker 3: to make power projects more expensive for more. We were
Speaker 3: joined by Paul as Kano Bloomberg, an e f A
Speaker 3: senior associate. We first asked Paul, if we can impose
Speaker 3: tariffs on the stuff we need to decarbonize.
Speaker 5: We should not.
Speaker 6: And the US has been doing it for a while,
Speaker 6: actually very quietly since twenty twelve, so it's not a
Speaker 6: new thing, and it's really made solar more expensive in
Speaker 6: the US and everywhere else in the world. So the
Speaker 6: difference is the US has very generous has had very
Speaker 6: generous subsidies for solar for a long time, and that
Speaker 6: upsets some of those higher input costs. But is it
Speaker 6: the most efficient way if you're trying to decarbonize quickly
Speaker 6: and grow a sector quickly. Probably not.
Speaker 5: So what are we.
Speaker 1: Talking about here? The panels the more than the panels.
Speaker 1: What are we talking about here?
Speaker 6: Yeah, we're talking mostly cells and panels.
Speaker 1: So the panel gets the sun. Where's it go from there?
Speaker 6: Correct, it goes into an inverter, which is the brains
Speaker 6: of the system, and the inverter translates that direct current
Speaker 6: power that the panels produce into alternating current power.
Speaker 1: Which is the one that we use thank you for
Speaker 1: because I represent like ninety nine percent of our listeners.
Speaker 3: It's true, Sorry about that. Yes, so what part of
Speaker 3: that would be taxed with the teraroff the panels?
Speaker 6: But what typically those tariffs target are the cells, which
Speaker 6: is the cells is essentially what composes those panels. You
Speaker 6: stack them together and you assemble them because the cells
Speaker 6: is really the true, the true technological component of the panel.
Speaker 6: The panel is just like cells assembled basically. So with
Speaker 6: some of these companies are trying to do is impose
Speaker 6: a new set of tariffs on Like there's already tariffs
Speaker 6: on panels coming from Southeast Asia, and there will be
Speaker 6: new tariffs coming in June, but this would be an
Speaker 6: additional set of tariffs that they're trying to impost.
Speaker 3: Why can't these companies, like at First Solar or something
Speaker 3: make these panels themselves.
Speaker 6: They do, so First Solar sits in a different league.
Speaker 6: First Solar has a different technology this we're talking about
Speaker 6: crystalin silicon technology. First Solo uses a different type of
Speaker 6: technology called thin film, and they for Sola has been
Speaker 6: producing their own panels for a long time and they
Speaker 6: have really ambitious plans in the US.
Speaker 3: But I guess that's the point, right, because they don't
Speaker 3: want the cheaper ones coming in and diluting what they're
Speaker 3: able to sell. So why can't I guess the better
Speaker 3: question I should have is why can't they make it
Speaker 3: for as cheap is the ones that Southeast Asia is
Speaker 3: selling for.
Speaker 6: Yeah, the question is probably the answer is not going
Speaker 6: to surprise you. Just higher input costs, higher production costs,
Speaker 6: higher labor costs. You cannot really reach the same scale
Speaker 6: that you can in the Asian countries. In the US.
Speaker 6: It's not just about the factory that you have that
Speaker 6: you're where your assemble or making the cells or making
Speaker 6: the panels. It's about all of the adjacent supply chain.
Speaker 6: And China and some of these Asian countries, and by
Speaker 6: extent from being so closely to China, they are able
Speaker 6: to ramp up all of the adjacent supply that they
Speaker 6: need in a very efficient way. Typically, those megabases in
Speaker 6: China have massive solar factories, and if you go across
Speaker 6: the road, that's where your aluminum frame supplier is going
Speaker 6: to be. If you go in a little bit further
Speaker 6: down the road, that's where your glass supplier is going
Speaker 6: to be. So it works in in coordination quite quite nicely,
Speaker 6: and that helps improve efficiencies and lower costs.
Speaker 5: It doesn't seem high tech to me.
Speaker 1: Why would I care if China is producing them other
Speaker 1: than if at any time they could stop producing them.
Speaker 3: Because you're saying that there's no like cybersecurity or security
Speaker 3: measure for that.
Speaker 1: Don't I just want the cheapest panel.
Speaker 6: That's That's correct, And that's exactly what we've been trying
Speaker 6: to say for a long time. Solar manufacturing is a
Speaker 6: terrible business to be in competition is really fears where
Speaker 6: typically go through all these swings of over capacity, a
Speaker 6: bunch of bankruptcies, and then new companies arise from from
Speaker 6: nowhere and there's again over capacity. The IP and really
Speaker 6: that the technological know how there is really not that difficult.
Speaker 6: And I really don't understand, We don't understand why you
Speaker 6: would want to throw so much money at building this
Speaker 6: industry in the US unless it's a geopolitical hatch, which
Speaker 6: is something that obviously begs a very different question and
Speaker 6: a very different set of analysis.
Speaker 3: What kind of let's say that these tariffs do go through.
Speaker 3: So this request could raise the prospect of tariffs as
Speaker 3: high as two hundred and seventy one point five percent
Speaker 3: later this year. Let's just pretend that that happens. Yeah,
Speaker 3: and I want to install a solar panel on my
Speaker 3: house in Massachusetts. What's that going to cost me?
Speaker 6: Now, it's going to cost you a ton more money?
Speaker 6: A ton I don't like a ton No, I mean,
Speaker 6: the two hundred and seventy one percent is very unrealistic.
Speaker 6: So what's happened Typically in these petitions, this is a
Speaker 6: little bit of boring stuff, But what happens is what
Speaker 6: happens is they file this petition and then if the
Speaker 6: US agrees to investigate these companies, they have to prove
Speaker 6: that the amount of subsidies that they receive is not
Speaker 6: as high as what that country wide tariff would look like.
Speaker 6: So typically they get a tariff rate that is much
Speaker 6: lower than the two seventy one percent that you're referring to.
Speaker 6: And it can range from like thirty to fifty percent.
Speaker 6: It just really it just really depends. But the bottom
Speaker 6: line is if that were to happen, obviously imports from
Speaker 6: Southeast Asia would be completely ruled out in the US
Speaker 6: and that would really trigger the renaissance of the US
Speaker 6: manufacturing industry. But you would have to pay more for
Speaker 6: your panels thanks.
Speaker 3: To Paul as Kano, Bloomberg NEF Senior Associate.
Speaker 1: That's this week's edition of Bloomberg Intelligence on Bloomberg Radio,
Speaker 1: providing in depth research and data on two thousand companies
Speaker 1: and one of thirty industries.
Speaker 3: And remember you can access Bloomberg Intelligence through Bigo on
Speaker 3: the terminal.
Speaker 1: And I'm Paul Sweeney.
Speaker 5: Stay with us.
Speaker 1: Today's top stories and global business headlines are coming up
Speaker 1: right now.
Speaker 8: M