WEBVTT - Cisco Buys Splunk for $28 Billion 0:00:01.360 --> 0:00:05.720 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.920 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:18.720 --> 0:00:21.400 Hey takes kind of pointing out there's a great writing 0:00:21.480 --> 0:00:23.919 and story on that Cisco Splunk deal today. It says 0:00:24.280 --> 0:00:25.440 the deluge of data. 0:00:25.560 --> 0:00:27.280 I got to give Charlie Pellett the credit here. He's 0:00:27.280 --> 0:00:28.040 the one who told us this. 0:00:28.280 --> 0:00:30.240 He did. Charlie like sick. 0:00:30.280 --> 0:00:32.159 He's left, but I think we love you Charlie. 0:00:32.200 --> 0:00:33.839 Well, Charlie, we love you all right. So, if the 0:00:33.920 --> 0:00:36.760 daylus of data in the modern world is increasingly overwhelming, 0:00:37.000 --> 0:00:39.920 Splunk claims to have been ready for it for twenty years. 0:00:39.920 --> 0:00:42.960 The company's name reflects the act of burrowing deep down 0:00:43.080 --> 0:00:47.080 into the earth to explore caves, the adventure of data splunking. 0:00:47.640 --> 0:00:49.720 And so Charlie, of course just talked about this. We're 0:00:49.720 --> 0:00:53.360 talking about this because Cisco did its biggest ever deal 0:00:53.640 --> 0:00:55.040 and it bought Splunk. 0:00:54.760 --> 0:00:57.600 Twenty eight billion dollars for a company that was started 0:00:57.600 --> 0:01:00.160 by three friends back in two thousand and three. The 0:01:00.240 --> 0:01:04.400 co founder and ex chief CEO of Yahoo, drawing on 0:01:04.440 --> 0:01:06.959 his past or should say ex chief executive officer, drawing 0:01:07.000 --> 0:01:08.959 on his past building search engines at Yahoo. 0:01:09.000 --> 0:01:09.800 We just talked with him. 0:01:09.880 --> 0:01:10.760 Yeah, it's really cool. 0:01:10.920 --> 0:01:12.039 It's a very cool company. 0:01:12.160 --> 0:01:13.160 Right yeah. 0:01:13.280 --> 0:01:14.480 Does it make sense for Cisco? 0:01:14.640 --> 0:01:14.959 I don't know. 0:01:15.040 --> 0:01:17.080 Cisco shares her down more than three point nine percent 0:01:17.160 --> 0:01:17.399 right now? 0:01:17.480 --> 0:01:18.920 All right, so let's get into it. Because they're pay 0:01:18.920 --> 0:01:20.920 one hundred and fifty seven dollars a share in cash, 0:01:21.319 --> 0:01:26.080 thirty one percent premium to spunks closing price yesterday, and 0:01:26.120 --> 0:01:29.040 the purchase represents roughly ten percent of Cisco's market value. 0:01:29.160 --> 0:01:31.759 That feels like a lot with us. Is Bloomberg Intelligence 0:01:31.800 --> 0:01:34.520 Senior Technology Alice wu Jinho. He's down Zoom from BI 0:01:34.560 --> 0:01:37.520 headquarters in Princeton, New Jersey. Wugen, thank you for being 0:01:37.560 --> 0:01:40.640 back with us. You described the deal as the moby 0:01:40.760 --> 0:01:43.280 Dick of deals that's been talked about for quite some time. 0:01:43.720 --> 0:01:45.880 Tell us more and what it means for Cisco. 0:01:46.800 --> 0:01:49.480 Sure, so, I think you characterize it fairly well. 0:01:49.560 --> 0:01:49.680 Right. 0:01:50.000 --> 0:01:54.080 This blog actually borrows really deep and trying to fairly 0:01:54.160 --> 0:01:57.080 understand an enterprise's data. If you think about where all 0:01:57.120 --> 0:01:59.320 the data traffic flows through it has to go through 0:01:59.720 --> 0:02:03.280 a one of Cisco's boxes. So Cisco is trying to 0:02:03.360 --> 0:02:07.360 help their users and customers better understand the data that 0:02:07.400 --> 0:02:10.640 goes through their boxes. And now they can monetize the 0:02:10.680 --> 0:02:13.200 information that goes to their boxes buyers, plug deal. 0:02:13.880 --> 0:02:17.760 Okay, So explain what that means for, you know, someone 0:02:17.800 --> 0:02:19.880 like me. Carol's also I can think in this campcter, 0:02:19.960 --> 0:02:21.360 she's looking like, Okay, what's going on here? 0:02:21.600 --> 0:02:23.400 Well, why does Cisco need this? Is it just a 0:02:23.440 --> 0:02:26.280 case of making everything more secure? And that's crucial? 0:02:27.160 --> 0:02:31.120 Well, it's it's all about network visibility, right, I don't 0:02:31.120 --> 0:02:33.720 know what is going through point A to point B 0:02:33.919 --> 0:02:35.839 if they're good guys, are bad guys. 0:02:35.560 --> 0:02:37.680 Going in point A to point b? 0:02:38.280 --> 0:02:42.480 Or even something a little bit more benign, such as 0:02:42.600 --> 0:02:46.040 how much YouTube is going through my network or how 0:02:46.120 --> 0:02:49.080 much social media is going through my network? And you 0:02:49.200 --> 0:02:50.720 want to better. 0:02:51.160 --> 0:02:54.120 Doing this before? Forgive me for interrupting, but wasn't Cisco 0:02:54.200 --> 0:02:55.800 doing this before? Wujin or no? 0:02:56.240 --> 0:02:56.760 They were? 0:02:57.520 --> 0:02:58.960 They are, okay, right? 0:02:59.280 --> 0:03:02.680 The issue is is that they just they want to 0:03:02.720 --> 0:03:06.200 better understand the better data traffic patterns that are going there. 0:03:06.240 --> 0:03:06.440 Now. 0:03:06.600 --> 0:03:10.000 Now the challenge for Cisco has been is how do 0:03:10.080 --> 0:03:13.280 they make a software deal large enough or the software 0:03:13.280 --> 0:03:15.520 business large enough to make it more meaningful as part 0:03:15.520 --> 0:03:17.520 of the business transformation. And that's one of the reasons 0:03:17.520 --> 0:03:20.640 why they made this deal. It's it was a business 0:03:20.639 --> 0:03:23.640 decision as much as a technology decision. 0:03:24.040 --> 0:03:26.560 How do you explain this price? This is quite the premium, 0:03:26.800 --> 0:03:29.520 thirty one percent premium to the closing price on Wednesday, 0:03:29.520 --> 0:03:31.799 one hundred and fifty seven dollars a share, ten percent 0:03:31.919 --> 0:03:35.400 roughly of Cisco's market value. Cisco shares down close to 0:03:35.440 --> 0:03:38.360 four percent right now. How do you explain the deal size? 0:03:38.840 --> 0:03:42.520 Well, I'm actually quite comfortable with the deal size. Get 0:03:42.520 --> 0:03:44.360 if we walk away from the actual twenty eight billion 0:03:44.400 --> 0:03:48.960 dollars on the largest deal that Cisco's ever made. Cisco 0:03:49.600 --> 0:03:54.200 rarely does large software acquisitions. They've made small software acquisitions 0:03:54.200 --> 0:03:56.480 and try to tuck it in. What they've learned is 0:03:56.520 --> 0:03:59.560 that it hasn't been successful in driving what they want 0:03:59.600 --> 0:04:03.120 to do on the recurring revenue side. They needed to 0:04:03.160 --> 0:04:06.080 pay up a software evaluation and if you look at 0:04:06.400 --> 0:04:09.240 if you will look at traditional software M and A metrics, 0:04:09.800 --> 0:04:13.440 this Splunk is going at six times forward sales and 0:04:14.400 --> 0:04:18.159 faster growth. Software companies typically go anywhere between eight times 0:04:18.200 --> 0:04:21.680 to twelve times sales, So you know, you're getting a 0:04:21.680 --> 0:04:24.560 lot of good value from the sense of recurring revenue base, 0:04:24.640 --> 0:04:26.920 which is something that Cisco has been trying to trying 0:04:26.920 --> 0:04:28.480 to grow over the last couple of years. And you're 0:04:28.480 --> 0:04:32.359 getting different with Plunked. You're getting a high margin software 0:04:32.360 --> 0:04:35.440 revenues and you're getting that from splunk And you know, 0:04:35.520 --> 0:04:37.760 one of the things one of the reasons why Cisco 0:04:37.880 --> 0:04:40.360 could not get into the software business was because everything 0:04:40.400 --> 0:04:44.159 was just so darn expensive back in the pandemic days. 0:04:44.279 --> 0:04:46.760 And now they found the window with evaluations coming down. 0:04:46.839 --> 0:04:49.600 So explains the share price reaction from Cisco right now. 0:04:49.640 --> 0:04:52.159 And granted we're having a down day across the board 0:04:52.240 --> 0:04:55.120 for tech companies, not that much, but not very much. 0:04:56.760 --> 0:05:00.840 Yeah, yeah, fair question. So so was running the math 0:05:00.880 --> 0:05:02.960 and it's actually the deal is going to be deluded 0:05:03.000 --> 0:05:05.360 for the first year by about two to three percent, 0:05:05.800 --> 0:05:07.640 So that's going to that's going to explain that a 0:05:07.640 --> 0:05:10.560 little bit. That's one number two. You know, when I 0:05:10.600 --> 0:05:13.880 was listening to the conference call earlier this morning, I 0:05:13.920 --> 0:05:18.279 think some of the analysts wanted a faster growth software 0:05:18.320 --> 0:05:22.559 company with more modern network architecture. The one criticism about 0:05:22.560 --> 0:05:27.640 Splunk is that they still cater to the legacy older 0:05:27.680 --> 0:05:33.320 technology and making that transition to modern clouds and and 0:05:33.360 --> 0:05:36.679 it's a slog right. These these transitions don't happen overnight. 0:05:36.720 --> 0:05:40.360 These are multi year transitions. But for Cisco that's okay 0:05:40.560 --> 0:05:43.719 because they still have a lot of customers on older 0:05:43.760 --> 0:05:48.000 technologies also trying to make this move to the modern cloud. So, 0:05:49.320 --> 0:05:53.120 you know, Splunk will give them a little bit more growth, 0:05:53.160 --> 0:05:56.600 faster growth, about about one hundred two hundred basis points, 0:05:56.920 --> 0:05:59.560 and they get the software that they want, you know. 0:05:59.640 --> 0:06:01.960 I mean, if we look at it from a growth perspective, 0:06:02.360 --> 0:06:05.600 Splunk is growing at around twelve percent based on Contensus 0:06:05.680 --> 0:06:08.640 forecast at Cisco is growing at one percent next year, 0:06:08.880 --> 0:06:11.360 a steady state five percent. So it's a win win 0:06:11.400 --> 0:06:12.160 for both companies. 0:06:13.839 --> 0:06:17.760 Do we need to see Splunk CEO Gary Steele stay 0:06:17.760 --> 0:06:20.280 with the company. Is that crucial important in your view? 0:06:22.920 --> 0:06:23.520 In the interim? 0:06:23.600 --> 0:06:27.280 Yes, If we think about where Splunk is going to 0:06:27.360 --> 0:06:31.600 sit in the Cisco ecosystem, we're talking about roughly eight 0:06:31.600 --> 0:06:36.320 percent of total revenue, and it's going to be five 0:06:36.440 --> 0:06:42.480 times the existing software revenue the observisibility piece, right, So 0:06:42.600 --> 0:06:46.719 they'll need somebody to help manage the integrations I suspect, 0:06:47.120 --> 0:06:51.760 and also help the Cisco salesforce who will need to 0:06:51.760 --> 0:06:54.320 wrap up really quickly on selling the Plunk products. 0:06:54.560 --> 0:06:57.240 I know you don't say to our audience. Yeah, this 0:06:57.320 --> 0:06:59.159 means it's the reason to buy or sell Cisco. But 0:06:59.279 --> 0:07:02.880 does it make Cisco a more attractive company? Because I 0:07:02.880 --> 0:07:06.440 think they've been working in a transformation of sorts and 0:07:06.480 --> 0:07:08.359 maybe trying to be more relevant. 0:07:08.800 --> 0:07:12.560 Right, and and thanks thanks for that disclaimer. The one thing, 0:07:12.760 --> 0:07:16.400 the one thing that I can say is that what 0:07:16.800 --> 0:07:20.920 I've noticed from other hardware companies that have made this 0:07:20.960 --> 0:07:25.640 transition from perpetual sales to recurring revenue sales, that should 0:07:25.760 --> 0:07:30.880 that could drive evaluation expansion, multiple expansion because of the 0:07:30.920 --> 0:07:32.160 reliability of cash flow. 0:07:32.720 --> 0:07:33.040 MM. 0:07:33.480 --> 0:07:36.760 Do you think Cisco's done making acquisitions for a while. 0:07:37.760 --> 0:07:37.920 Oh? 0:07:37.960 --> 0:07:39.800 I don't think they're done making acquisitions. 0:07:40.720 --> 0:07:40.920 You know. 0:07:43.520 --> 0:07:46.640 What I've what I do think they'll do is try 0:07:46.680 --> 0:07:50.760 to digest Blunk and make several smaller acquisitions around it, 0:07:51.000 --> 0:07:56.320 whether it's adding more semiconductor technology or some hardware technology, 0:07:56.760 --> 0:07:59.320 or or even more software technology. But maybe in the 0:07:59.320 --> 0:08:02.120 one hundred of millions instead of the billions. 0:08:02.160 --> 0:08:04.680 But this is one that moves the financial needle correct 0:08:04.720 --> 0:08:09.080 for the company, for Cisco and building some business exactly. 0:08:09.120 --> 0:08:12.200 So if we think about it from a software revenue perspective, 0:08:12.360 --> 0:08:16.360 I said, it's five times there. They're five times the 0:08:16.480 --> 0:08:21.800 size of their existing enterprise software base. But the overall 0:08:21.880 --> 0:08:26.119 software mix is now going to go to roughly about 0:08:26.280 --> 0:08:30.040 thirty five percent of total sales. And that's a good thing. 0:08:30.200 --> 0:08:34.520 Hey really quickly forgot totally spaced fifteen seconds. Any regulatory 0:08:34.559 --> 0:08:36.240 problems with this one really quickly. 0:08:36.960 --> 0:08:39.800 Nope, very little China business. It's going to go through 0:08:40.120 --> 0:08:42.080 one percent overlap. 0:08:42.880 --> 0:08:43.439 No issues. 0:08:43.559 --> 0:08:46.360 That was quick as can. You shall receive nope. 0:08:46.080 --> 0:08:49.079 You listen, man, I love it, Love it. Bloomberg Intelligence 0:08:49.120 --> 0:08:52.120 senior technology analyst. We didn't joining us on zoom from 0:08:52.160 --> 0:08:55.160 BI headquarters in Prince, New Jersey, Wojdin, Thank you so much. 0:08:55.200 --> 0:08:58.080 And as to mention, Cisco shares under pressure, no surprise, 0:08:58.120 --> 0:09:01.360 though often as the acquirer, it's also in a down market. 0:09:01.640 --> 0:09:05.200 You're listening to the Bloomberg Business Week podcast. Catch us 0:09:05.240 --> 0:09:08.600 live weekday afternoons from three to six Eastern Listen on 0:09:08.640 --> 0:09:12.679 Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business app, 0:09:12.960 --> 0:09:25.480 or want us live on YouTube. 0:09:27.040 --> 0:09:28.400 All right, we are going to take it to the bank. 0:09:28.480 --> 0:09:30.040 We're going to take it to a bank CEO who's 0:09:30.040 --> 0:09:32.880 going to give us some clarity. My fingers crossed in 0:09:32.960 --> 0:09:35.600 terms of what's going on. We're definitely seeing the effects 0:09:35.600 --> 0:09:37.400 of the FED move. We just talked about it. But 0:09:37.480 --> 0:09:38.440 let's get right to our guests. 0:09:38.640 --> 0:09:40.559 Yeah, very please start back with us founder, chairman and 0:09:40.640 --> 0:09:43.640 CEO of Connect One Bank, Frank Sorrentino. Connect One Bank 0:09:43.679 --> 0:09:46.120 has about two dozen locations in New York, New Jersey, 0:09:46.200 --> 0:09:48.600 and Florida, and Frank joins us this afternoon from New 0:09:48.679 --> 0:09:50.679 York City. Frank, good to have you with us. I 0:09:50.679 --> 0:09:52.320 don't know to what extent you were able to catch 0:09:52.360 --> 0:09:54.600 the tail end of our conversation there where it kind 0:09:54.600 --> 0:09:56.160 of gave away all the questions that I wanted to 0:09:56.200 --> 0:09:58.160 ask you, but I want to dive right into it. 0:09:58.200 --> 0:10:00.800 I mean, thank you, thank you for that preview. 0:10:01.040 --> 0:10:03.400 Yeah, no problem, But we do love it when you join 0:10:03.480 --> 0:10:05.040 us because you guys have such a great read on 0:10:05.080 --> 0:10:07.800 the economy. So let's start big picture here. What are 0:10:07.840 --> 0:10:10.880 you seeing right now? In September of twenty twenty three, 0:10:11.000 --> 0:10:14.559 when the markets are in turmoil, rates are high. Give 0:10:14.640 --> 0:10:17.000 us an idea of what you're seeing at your locations 0:10:17.000 --> 0:10:17.720 around the country. 0:10:18.600 --> 0:10:21.480 Look, I think there's some anxiety relative to the direction 0:10:21.559 --> 0:10:24.760 of interest rates. I do think that what we saw 0:10:24.840 --> 0:10:27.160 and heard yesterday is that rates are going to be 0:10:27.400 --> 0:10:31.200 at these levels for at least the foreseeable future, the 0:10:31.240 --> 0:10:35.480 next couple of quarters. And I think that there needs 0:10:35.520 --> 0:10:38.400 to be some clarity about the direction of rates. People 0:10:38.440 --> 0:10:41.280 are holding back doing things because they think maybe rates 0:10:41.320 --> 0:10:44.320 will be lower. Other folks are concerned if rates are 0:10:44.320 --> 0:10:46.880 going to go higher. And so the idea that the 0:10:46.920 --> 0:10:50.320 Fed pretty much said, we're sort of where we are 0:10:50.679 --> 0:10:53.920 and we're probably going to stay here for a while, 0:10:54.400 --> 0:10:57.400 I think gives a little bit of clarity to the 0:10:57.520 --> 0:11:00.960 environment that we're in. The vast majority of our clients 0:11:01.040 --> 0:11:06.360 and our business owners are still optimistic. They're still doing transactions. 0:11:07.080 --> 0:11:09.959 You know, builders are still building, developers are still developing. 0:11:10.600 --> 0:11:13.160 There's still a lot of opportunity in the market. Everybody 0:11:13.200 --> 0:11:16.120 still has a job. Everybody's comfortable that they're going to 0:11:16.200 --> 0:11:18.240 keep their job or that they can move to a 0:11:18.280 --> 0:11:22.480 different job. And I think that level of optimism continues 0:11:22.600 --> 0:11:26.240 as we move forward. There is now a cost of 0:11:26.360 --> 0:11:29.320 money that has to be imputed in every transaction, and 0:11:29.320 --> 0:11:31.319 I heard a little bit about that before, and I 0:11:31.360 --> 0:11:35.000 think that's really the important part. People can still do things, 0:11:35.040 --> 0:11:37.120 you just have to include what is going to be 0:11:37.160 --> 0:11:38.959 the cost of the transaction to do with. 0:11:39.120 --> 0:11:41.240 Okay, so are people are still Are people still taking 0:11:41.280 --> 0:11:41.960 out mortgages? 0:11:42.840 --> 0:11:46.120 Yes, people are still taking out mortgages despite what you're 0:11:46.440 --> 0:11:49.400 you know what what was said before. I think people 0:11:49.400 --> 0:11:54.080 are still buying homes. We are woefully under built in 0:11:54.160 --> 0:11:57.200 this country, and certainly in this market where some one 0:11:57.240 --> 0:12:01.800 point five million homes short. And so every builder that 0:12:01.880 --> 0:12:04.560 we represent when they put product on the market today, 0:12:04.840 --> 0:12:10.120 it's selling, and so I'm very optimistic about that. Rentals 0:12:10.160 --> 0:12:14.400 are still staying strong. Every project that we've gotten behind 0:12:14.520 --> 0:12:17.520 relative to financing in the multifamily space is renting up 0:12:17.520 --> 0:12:18.679 as soon as it's completed. 0:12:18.800 --> 0:12:19.240 Wow. 0:12:19.280 --> 0:12:23.160 So a lot of good indications out there, all right. 0:12:23.200 --> 0:12:26.480 The devil's in details, and sometimes it's like nanometers that 0:12:26.559 --> 0:12:29.360 gives you an idea of maybe a new trend being built. So, Frank, 0:12:29.559 --> 0:12:36.920 are you seeing any signs of softness stress? Concerns, defaults, 0:12:37.600 --> 0:12:40.959 maybe you know terms being renegotiated. Give us an idea, 0:12:41.000 --> 0:12:42.959 because again, the devil is going to be in those 0:12:43.000 --> 0:12:45.480 small minute details for us to kind of figure out 0:12:45.640 --> 0:12:47.160 if we start to see a change. 0:12:47.800 --> 0:12:53.319 Look, we've certainly seen that our group of clients are 0:12:53.520 --> 0:12:58.480 being much more thoughtful about various projects, transactions, or business 0:12:58.520 --> 0:13:03.240 opportunities because because of that added cost of financing and 0:13:03.360 --> 0:13:07.640 so the volume of things is certainly down. I can 0:13:07.679 --> 0:13:10.760 definitely report to you that. And so we're seeing that 0:13:10.800 --> 0:13:12.640 not just hear connect one, but we're seeing that across 0:13:12.720 --> 0:13:15.760 the industry. Lending for the most part has slowed down 0:13:15.920 --> 0:13:17.920 quite a bit, and that will make its way through 0:13:17.960 --> 0:13:21.079 the economy, which is something which the FED is actually 0:13:21.120 --> 0:13:24.480 engineered to happen. So we are seeing a level of 0:13:24.520 --> 0:13:28.280 people thinking about things in a very different way, adding 0:13:28.280 --> 0:13:31.600 that cost of funding, thinking about whether or not certain 0:13:31.640 --> 0:13:34.520 things make sense and things there are things that made 0:13:34.559 --> 0:13:36.760 sense in a zero interest rate environment or a two 0:13:36.760 --> 0:13:41.360 percent interest rate environment that don't make sense today off 0:13:41.400 --> 0:13:45.120 the table. Look, any transaction that you would look at, 0:13:45.200 --> 0:13:49.680 even a builder who's going to develop a project today, 0:13:49.760 --> 0:13:52.720 the cost of money requires that project to have a 0:13:52.720 --> 0:13:57.320 different outcome, a different sales price, a different rental pro forma, 0:13:57.480 --> 0:14:01.480 and certain projects don't pencil out, others do, and the 0:14:01.520 --> 0:14:04.640 ones that do, there's money available for them, and they're 0:14:04.640 --> 0:14:06.559 continuing to move ahead and do those things. 0:14:07.000 --> 0:14:09.120 Frank, give us an update on deposits. I mean, we're 0:14:09.160 --> 0:14:10.959 in an environment I've said at you know, a dozen 0:14:11.000 --> 0:14:14.720 times today where money market funds are yielding over five percent. 0:14:14.760 --> 0:14:18.040 You've got some high interest savings accounts at some upstart 0:14:18.040 --> 0:14:20.320 banks that are yielding close to five percent. I think 0:14:20.400 --> 0:14:23.160 City has some sort of promo at five point five 0:14:23.200 --> 0:14:26.000 percent for six months if you put like, you know, 0:14:26.080 --> 0:14:28.360 one hundred grand over there or something. It's like, what 0:14:28.360 --> 0:14:30.240 are deposits looking like for you guys right now? 0:14:30.960 --> 0:14:34.240 So again, you know, we're mostly a commercial institution, and 0:14:34.320 --> 0:14:37.560 so we cater to the vast majority of businesses and 0:14:37.600 --> 0:14:41.760 small businesses, and we are seeing deposits tightening up a bit. 0:14:41.840 --> 0:14:44.160 People have a little bit less liquidity on their balance 0:14:44.200 --> 0:14:47.760 sheets today, and that's what's causing the competition, again engineered 0:14:47.760 --> 0:14:52.520 by the FED. All the qualitative easing that was brought 0:14:52.560 --> 0:14:57.000 to market in twenty twenty is now being let out 0:14:57.080 --> 0:15:01.120 of the economy through qualitative tightening and so there's less 0:15:01.120 --> 0:15:04.680 deposits to go around. Deposits are the fuel for banks 0:15:04.720 --> 0:15:09.360 to make loans, and so there's heightened competition amongst banks, 0:15:09.480 --> 0:15:14.400 amongst non banks, money market funds, all the various actors 0:15:14.400 --> 0:15:18.480 that you mentioned before. That's driving up that cost to 0:15:18.960 --> 0:15:24.280 banks and a benefit to individuals who are either opening 0:15:24.320 --> 0:15:27.760 accounts or investing money, and that's having an impact on 0:15:27.800 --> 0:15:31.240 the economy as well. So yes, we could get into 0:15:31.280 --> 0:15:34.280 an economics lesson here. Where M two declined for the 0:15:34.280 --> 0:15:38.720 first time a few months ago, it has flattened out recently. 0:15:39.240 --> 0:15:41.040 I do believe the FED is going to take their 0:15:41.080 --> 0:15:43.520 foot off the accelerator pedal there a little bit and 0:15:43.600 --> 0:15:46.800 allow some additional liquidity in the system so they don't 0:15:46.840 --> 0:15:50.080 break anything, and so we do have a soft landing. 0:15:51.000 --> 0:15:54.080 But I do believe that competition for deposits, which I 0:15:54.080 --> 0:15:56.360 think is the question you asked, is going to continue 0:15:56.360 --> 0:15:57.400 for the foreseeable future. 0:15:57.480 --> 0:15:59.560 Hey, Frank, remind us is it sixty percent of your 0:15:59.600 --> 0:16:02.480 portfolio commercial? I know you said most you're really commercial 0:16:02.560 --> 0:16:03.040 is about some. 0:16:03.600 --> 0:16:07.000 Percentage commercial small businesses all different types of businesses in 0:16:07.040 --> 0:16:08.040 and around the New York metro. 0:16:08.280 --> 0:16:10.400 So I am curious how much of that portfolio, of 0:16:10.400 --> 0:16:13.080 those portfolio of loans is coming due anytime soon and 0:16:13.240 --> 0:16:17.160 is going to have to reap potentially at higher rates. 0:16:17.280 --> 0:16:20.200 And are you seeing any stranger stresses in that portfolio. 0:16:20.760 --> 0:16:23.600 Yeah, it's a it's a fairly small amount that come 0:16:23.720 --> 0:16:26.840 doe every quarter or even on an annual basis. We 0:16:26.920 --> 0:16:28.920 have a fair amount of fixed loans. We also have 0:16:29.080 --> 0:16:34.280 loans that reprice obviously on a variable rate basis. With 0:16:34.400 --> 0:16:36.720 the underwriting that we've done here at Connect One Bank, 0:16:37.160 --> 0:16:40.960 we've always included an interest rate shock and so the 0:16:41.040 --> 0:16:43.240 vast majority of the loans as they're coming do or 0:16:43.240 --> 0:16:47.040 well within that well within those parameters relative too. 0:16:47.320 --> 0:16:49.960 So no calls from small businesses saying hey listen, Frank, 0:16:50.040 --> 0:16:53.160 are to your team and saying we're having a little 0:16:53.160 --> 0:16:54.720 bit of a tough time. We need we need some 0:16:54.760 --> 0:16:56.720 help here. We've been with banking with you for years. 0:16:56.840 --> 0:16:57.720 What are you going to do for me? 0:16:58.360 --> 0:17:01.000 Well, I will tell you that everyone is making the call, okay, 0:17:01.000 --> 0:17:04.199 but the question is are they really struggling or not. 0:17:04.320 --> 0:17:06.120 We're seeing, you know, at the same time that we're 0:17:06.160 --> 0:17:09.680 seeing interest rates go up, we've also seen inflation push 0:17:09.800 --> 0:17:11.760 up the pricing of everything. So if we look at 0:17:11.800 --> 0:17:15.240 restaurant receipts, they're up, maybe not because of more people 0:17:15.320 --> 0:17:18.200 seated there, but we're seeing that the average price per 0:17:18.240 --> 0:17:21.480 meal has gone up. If we look at rent roll incomes, 0:17:21.520 --> 0:17:25.320 they're up because rents have gone up, so that there 0:17:25.400 --> 0:17:29.560 has been a move up and pricing for everything. And 0:17:29.640 --> 0:17:32.040 I think that's important for people to keep in mind. 0:17:32.480 --> 0:17:36.280 It's not just the interest rate component that has driven 0:17:36.359 --> 0:17:37.480 up the price of the right thing. 0:17:37.920 --> 0:17:39.439 A new stream also gone up. 0:17:39.520 --> 0:17:41.680 Yeah, you talk to landlords and you know they're saying 0:17:41.680 --> 0:17:43.560 the price of insurance has shot up so much that 0:17:43.600 --> 0:17:46.680 they've got to raise the rent in a commensurate way, 0:17:47.160 --> 0:17:47.639 and they. 0:17:47.520 --> 0:17:50.159 Are raising the rents right. We're seeing rents across the 0:17:50.200 --> 0:17:52.560 New York metro market are up somewhere in the thirty 0:17:52.960 --> 0:17:56.159 thirty range over the last two and a half to 0:17:56.240 --> 0:17:56.720 three years. 0:17:56.720 --> 0:17:59.280 Frank, we only got thirty seconds left. You have a 0:17:59.320 --> 0:18:01.879 branch in West Beach, and you have branches throughout New 0:18:01.920 --> 0:18:03.959 York and New Jersey. Where's the economy strongest right now? 0:18:04.000 --> 0:18:04.920 Based on your branches? 0:18:06.520 --> 0:18:08.639 I still say the New York metro market. Don't you 0:18:08.640 --> 0:18:11.560 know anyone who tries to discount that market. Don't bet 0:18:11.600 --> 0:18:14.680 against New York. Florida is doing really well for us 0:18:14.920 --> 0:18:17.200 at Connect one, but don't bet against the New York market. 0:18:17.320 --> 0:18:19.199 Got a word to describe the economy right now and 0:18:19.240 --> 0:18:24.200 just got ten seconds. I still think it's robust, robust, 0:18:24.320 --> 0:18:27.080 all right, right, listen, we were looking forward to talking 0:18:27.200 --> 0:18:29.840 with you. It's like the perfect guest the day after 0:18:29.880 --> 0:18:32.320 the FED. Frank Sarentino, b while Founder and CEO of 0:18:32.320 --> 0:18:35.320 Connect One Bank on zoom in New York City. 0:18:35.440 --> 0:18:36.240 This is Bloomberg. 0:18:41.000 --> 0:18:44.560 You're listening to the Bloomberg Business Week podcast. Catch us 0:18:44.600 --> 0:18:48.600 live weekday afternoons from three to six Eastern on Bloomberg Radio, 0:18:48.800 --> 0:18:52.080 the Bloomberg Business app, and YouTube. You can also listen 0:18:52.200 --> 0:18:55.280 live on Amazon Alexa from our flagship New York station. 0:18:55.720 --> 0:19:00.080 Just say Alexa play Bloomberg eleven thirty. 0:19:00.560 --> 0:19:02.720 All right, So the rollout of the latest COVID vaccines, 0:19:02.760 --> 0:19:05.560 they are underway beginning. I believe last Friday you got 0:19:05.560 --> 0:19:10.000 Pfizer Maderna recommended for those six months and older. So 0:19:10.040 --> 0:19:12.080 we wanted to really kind of get I know, people 0:19:12.119 --> 0:19:13.760 who are going out and getting them, but we wanted 0:19:13.800 --> 0:19:17.280 to get some clarification for everybody about the latest strain 0:19:17.359 --> 0:19:19.160 in the vaccines and kind of what we should be doing. 0:19:19.160 --> 0:19:22.200 Tim very pleased to have with us. Doctor William Moss, 0:19:22.200 --> 0:19:24.960 Professor of Epidemiology at the Johns Hopkins at Bloomberg School 0:19:24.960 --> 0:19:27.360 of Public Health that is supported by Michael R. Bloomberg, 0:19:27.400 --> 0:19:30.320 Founder of Bloomberg LP man at Bloomberg Philanthropy. He's also 0:19:30.320 --> 0:19:34.000 executive director of the International Vaccine Access Center. Doctor Moss 0:19:34.040 --> 0:19:36.880 joins us on Zoom from Baltimore. Good to have you 0:19:37.040 --> 0:19:41.159 with us. I was surprised last week to see the 0:19:41.320 --> 0:19:44.359 news from the vaccine makers saying that they expect twenty 0:19:44.400 --> 0:19:47.880 four percent uptake for this vaccine the COVID won at least, 0:19:47.880 --> 0:19:51.840 which is actually higher than it was in previous boosters. 0:19:52.080 --> 0:19:53.159 What do you make of that number? 0:19:54.320 --> 0:19:58.399 Yes, thanks Tim for having me. I mean it's disappointing 0:19:58.440 --> 0:20:02.320 but probably realistic. We know that of individuals who receive 0:20:02.440 --> 0:20:07.880 the primary series, only seventeen percent overall receive the by 0:20:08.000 --> 0:20:11.800 veil and booster. That proportion was much higher in the 0:20:11.880 --> 0:20:14.400 highest risk group, which is a good thing in those 0:20:14.480 --> 0:20:17.160 older than sixty five years of age, but was still 0:20:17.160 --> 0:20:23.080 only about forty three percent. So unfortunately, I think people 0:20:23.119 --> 0:20:27.840 have gotten tired. There's a lot of misinformation about the 0:20:27.880 --> 0:20:32.479 COVID nineteen vaccines, and so I think that probably is 0:20:32.520 --> 0:20:35.760 a realistic expectation. I hope we do better than that. 0:20:35.920 --> 0:20:38.840 Do people who are not in high risk groups actually 0:20:38.880 --> 0:20:41.000 need to get vaccinated against COVID nineteen. 0:20:42.640 --> 0:20:45.840 Yes, it's an important question to ask, and I think 0:20:46.080 --> 0:20:49.240