1 00:00:01,400 --> 00:00:04,120 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 2 00:00:04,120 --> 00:00:06,200 Speaker 1: with my co host of Bonnie Quinn. Every business day 3 00:00:06,240 --> 00:00:10,320 Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts, 4 00:00:10,400 --> 00:00:13,600 Speaker 1: along with essential market moving news. Find the Bloomberg Markets 5 00:00:13,600 --> 00:00:17,000 Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts, 6 00:00:17,000 --> 00:00:21,560 Speaker 1: and on Bloomberg dot com. So it's a major uncertainty 7 00:00:22,079 --> 00:00:25,040 Speaker 1: whether and when sports come back, either on the field 8 00:00:25,160 --> 00:00:29,400 Speaker 1: or even on TV. It's all going to depend on sponsors, advertisers, 9 00:00:29,440 --> 00:00:32,120 Speaker 1: and of course consumers. Let's bring in somebody who's been 10 00:00:32,120 --> 00:00:33,600 Speaker 1: thinking a lot about this now. He used to be 11 00:00:33,640 --> 00:00:36,839 Speaker 1: former where he is, former president of CBS Sports. He 12 00:00:36,960 --> 00:00:39,880 Speaker 1: is now founder and president of Pilson Communications. I'm talking 13 00:00:39,880 --> 00:00:44,320 Speaker 1: about Neil Pilson. Neil, thanks so much for joining. Good morning. 14 00:00:45,440 --> 00:00:48,280 Speaker 1: So we have You know, the NFL season supposed to 15 00:00:48,320 --> 00:00:51,280 Speaker 1: be starting off, and yet there really is no NFL 16 00:00:51,560 --> 00:00:54,680 Speaker 1: plan yet. For example, even though training camps are set 17 00:00:54,720 --> 00:00:57,280 Speaker 1: to fully begin at the end of this month, What's 18 00:00:57,520 --> 00:00:59,560 Speaker 1: what are leagues supposed to do at a time like this, 19 00:00:59,680 --> 00:01:04,240 Speaker 1: Neil leaks or all the leagues are doing what what 20 00:01:04,280 --> 00:01:08,280 Speaker 1: they need to do. They're assessing the data there trying 21 00:01:08,319 --> 00:01:14,479 Speaker 1: to create strategies. We see different plans in effect for uh, 22 00:01:14,520 --> 00:01:21,680 Speaker 1: the NBA, the NHL, UH, the NFL. UH. So the 23 00:01:22,080 --> 00:01:26,560 Speaker 1: leaks are they're they're caught between the uh, you know, 24 00:01:26,640 --> 00:01:30,319 Speaker 1: the interest of the American public to watch sports and 25 00:01:30,400 --> 00:01:34,400 Speaker 1: the risks that they have to understand if they're going 26 00:01:34,440 --> 00:01:36,920 Speaker 1: to put the sports on the air. But all of 27 00:01:36,959 --> 00:01:41,039 Speaker 1: the professional leagues, including Major League Soccer, do have a plan, 28 00:01:41,120 --> 00:01:46,640 Speaker 1: they have a strategy and we'll see how it works out. So, Neil, 29 00:01:46,720 --> 00:01:50,720 Speaker 1: we know that sports is just a huge, huge, multi 30 00:01:50,840 --> 00:01:54,480 Speaker 1: billion dollar business. There's rights fees all over the place, 31 00:01:54,600 --> 00:01:57,960 Speaker 1: and it's it's a key programming component for a lot 32 00:01:57,960 --> 00:02:01,240 Speaker 1: of broadcast and cable networks here. But let's start with ESPN. 33 00:02:01,560 --> 00:02:05,640 Speaker 1: It is a sports network after all. You know, how 34 00:02:05,960 --> 00:02:08,520 Speaker 1: how at risk are they here of just you know, 35 00:02:08,639 --> 00:02:13,919 Speaker 1: a prolonged shutdown of sports. Well, the answer is in 36 00:02:14,000 --> 00:02:17,320 Speaker 1: your question, Yes they are at risk. They are doing 37 00:02:17,360 --> 00:02:19,760 Speaker 1: the best they can with I was watching the Eagles 38 00:02:19,800 --> 00:02:24,919 Speaker 1: concert last night on the ESPN. I've been watching their boxing, 39 00:02:24,919 --> 00:02:28,560 Speaker 1: I've been watching some of their other programming. UH. What 40 00:02:28,680 --> 00:02:32,320 Speaker 1: they've done is they've looked to reduce their costs, keep 41 00:02:32,360 --> 00:02:37,720 Speaker 1: in mind that while the networks, including ESPN, had serious 42 00:02:37,880 --> 00:02:42,320 Speaker 1: revenue shortfalls due to the lack of sports, they are 43 00:02:42,400 --> 00:02:45,280 Speaker 1: also I won't use the word enjoying, but they are 44 00:02:45,360 --> 00:02:50,960 Speaker 1: experiencing some significant cost savings. Uh. They are not paying 45 00:02:51,000 --> 00:02:54,040 Speaker 1: the rights fees that they would otherwise pay since they're 46 00:02:54,080 --> 00:02:58,480 Speaker 1: not getting the games, and they're not incurring the production 47 00:02:58,560 --> 00:03:03,760 Speaker 1: costs which they would otherwise have to uh spend to 48 00:03:03,919 --> 00:03:08,040 Speaker 1: cover the games. So UH, while the impact is negative 49 00:03:08,080 --> 00:03:11,280 Speaker 1: in the sense that it's not a h they make 50 00:03:11,360 --> 00:03:15,200 Speaker 1: profits and that's what they're for going right now. UH, 51 00:03:15,200 --> 00:03:19,880 Speaker 1: it is they can weather the storm. They're Obviously ESPN 52 00:03:20,000 --> 00:03:24,519 Speaker 1: is well financed with a very large company as it's 53 00:03:24,639 --> 00:03:29,640 Speaker 1: as his owner, Disney. UH. The other networks Comcast owns NBC, 54 00:03:31,040 --> 00:03:34,240 Speaker 1: UH CBS is with Viacom, which is not as big 55 00:03:34,240 --> 00:03:39,280 Speaker 1: a company as Comcast. Fox is a little thinner in 56 00:03:39,400 --> 00:03:43,680 Speaker 1: terms of their financial strength, that given the changes in 57 00:03:44,160 --> 00:03:47,520 Speaker 1: their corporate structure in the past couple of years. But 58 00:03:47,600 --> 00:03:51,240 Speaker 1: none of the networks really are are in danger in 59 00:03:51,360 --> 00:03:55,080 Speaker 1: just in terms of the financials on sports. The real 60 00:03:55,240 --> 00:03:59,640 Speaker 1: problem is what's going to happen next? UH. And let 61 00:03:59,640 --> 00:04:03,400 Speaker 1: me give you quick example. Let's say the NFL comes 62 00:04:03,440 --> 00:04:06,760 Speaker 1: back and they're playing their games, and the networks are 63 00:04:06,800 --> 00:04:12,640 Speaker 1: now responsible to pay rights fees. However, the sponsor market 64 00:04:12,920 --> 00:04:17,800 Speaker 1: may not be as strong as it normally would be 65 00:04:17,800 --> 00:04:21,039 Speaker 1: because sponsors are very concerned that the American public is 66 00:04:21,080 --> 00:04:24,240 Speaker 1: just not in a buying mood. I mean, how are 67 00:04:24,240 --> 00:04:27,120 Speaker 1: you going to buy a car this fall? With the 68 00:04:27,240 --> 00:04:32,960 Speaker 1: COVID experience threatening almost every state in the country. Uh So, 69 00:04:33,040 --> 00:04:36,200 Speaker 1: it could be that the networks get caught in a 70 00:04:36,279 --> 00:04:40,200 Speaker 1: situation where the games are being played and they're providing 71 00:04:40,240 --> 00:04:44,560 Speaker 1: television coverage, but the advertising and sponsor market is not 72 00:04:44,839 --> 00:04:49,680 Speaker 1: as strong as you would hope, even though the ratings 73 00:04:49,720 --> 00:04:52,480 Speaker 1: are good. We all expect the ratings are going to 74 00:04:52,560 --> 00:04:54,560 Speaker 1: be good for sports when they come back. But what 75 00:04:54,680 --> 00:04:57,880 Speaker 1: we don't know at this point is whether the sponsor 76 00:04:57,920 --> 00:05:03,320 Speaker 1: an advertising market will be as strong as it normally 77 00:05:03,440 --> 00:05:08,840 Speaker 1: is for fall sports. So what will happen to pricing then, Neil, 78 00:05:08,920 --> 00:05:12,359 Speaker 1: Will there be a big discount for those sponsors that 79 00:05:12,400 --> 00:05:15,640 Speaker 1: are willing to keep spending and for those advertisers that 80 00:05:15,680 --> 00:05:19,159 Speaker 1: are willing to keep spending or will you know, networks 81 00:05:19,160 --> 00:05:21,520 Speaker 1: somebody say, look there are more eyeballs on these we 82 00:05:21,560 --> 00:05:26,240 Speaker 1: need to up the price. Well, that's the trick of 83 00:05:26,839 --> 00:05:30,520 Speaker 1: television advertising. There is no is a rate card, but 84 00:05:31,160 --> 00:05:35,400 Speaker 1: that doesn't mean anything. If the networks can't sell at 85 00:05:35,440 --> 00:05:41,160 Speaker 1: the number that they're asking, then they'll drop their number. Uh. 86 00:05:41,400 --> 00:05:46,640 Speaker 1: Network commercials are like seats on an airplane. Once the 87 00:05:46,680 --> 00:05:50,960 Speaker 1: plane takes off, you can't sell that seat. Well, once 88 00:05:51,040 --> 00:05:54,960 Speaker 1: the game takes place, you can't sell that commercial. So 89 00:05:55,320 --> 00:05:58,640 Speaker 1: what you have is a fluid marketplace with supply and 90 00:05:58,720 --> 00:06:04,640 Speaker 1: demand being the determinator in terms of pricing. Uh. It's 91 00:06:04,720 --> 00:06:09,839 Speaker 1: it's relatively simple. It's very complex in operation. But the networks, 92 00:06:09,880 --> 00:06:13,000 Speaker 1: if they can't sell their their time, will drop their 93 00:06:13,040 --> 00:06:17,960 Speaker 1: price to UH to the market. If they can sell 94 00:06:18,040 --> 00:06:23,200 Speaker 1: their time, then the marketplace will bid for the units 95 00:06:23,240 --> 00:06:26,200 Speaker 1: and the price will go up. NOL. Just real quickly here, 96 00:06:26,240 --> 00:06:30,560 Speaker 1: do you think consumer behavior maybe changing? Here? We're streaming 97 00:06:30,560 --> 00:06:32,840 Speaker 1: more content at home because we're stuck at home. Do 98 00:06:32,880 --> 00:06:35,920 Speaker 1: you think streaming is going to come to big time 99 00:06:36,000 --> 00:06:38,880 Speaker 1: sports packages like the NFL? Will you see Amazon or 100 00:06:39,040 --> 00:06:43,840 Speaker 1: Facebook bid for major major sports package? Uh? Not as 101 00:06:43,920 --> 00:06:48,839 Speaker 1: quickly as some people think, because the basic advantage of 102 00:06:49,520 --> 00:06:54,400 Speaker 1: the networks is they guarantee the pricing when they buy 103 00:06:54,440 --> 00:06:57,360 Speaker 1: a long term deal with the NFL, the NBA. They're 104 00:06:57,400 --> 00:07:02,680 Speaker 1: guaranteeing billions of ours. UH. It remains to be seen 105 00:07:02,760 --> 00:07:07,480 Speaker 1: whether Amazon or Google or Netflix is prepared to guarantee 106 00:07:08,240 --> 00:07:11,560 Speaker 1: the kind of money that the networks have traditionally provided 107 00:07:11,600 --> 00:07:15,160 Speaker 1: the leagues, And until that happens, I think you're going 108 00:07:15,240 --> 00:07:19,960 Speaker 1: to see streaming as a supplementary UH delivery system and 109 00:07:20,080 --> 00:07:25,000 Speaker 1: quite effective, but not the primary distribution platform. Kind of 110 00:07:25,040 --> 00:07:27,360 Speaker 1: everybody's waiting for that day. I know the league's are 111 00:07:27,400 --> 00:07:30,840 Speaker 1: as well to get another well healed and wealth financed 112 00:07:31,040 --> 00:07:33,600 Speaker 1: bidder set of bidders in their in addition to the 113 00:07:33,600 --> 00:07:38,280 Speaker 1: broadcasting cable networks. Neil Pilson, founder and president of Pilson Communications, 114 00:07:38,600 --> 00:07:41,560 Speaker 1: former president of CBS Sports, getting his thoughts on kind 115 00:07:41,560 --> 00:07:44,400 Speaker 1: of the lay of the land of the sports UH 116 00:07:44,520 --> 00:07:48,200 Speaker 1: landscape as this economy tries to reopen, and what it 117 00:07:48,240 --> 00:07:51,960 Speaker 1: means for the media companies that depends so heavily on 118 00:07:52,080 --> 00:07:58,400 Speaker 1: sports programming for viewership and advertising. The state of banks 119 00:07:58,520 --> 00:08:02,640 Speaker 1: earnings this mornings o JP Morgan's total revenues of seventy 120 00:08:03,520 --> 00:08:05,720 Speaker 1: year over year, but we also had credit loss provisions 121 00:08:05,800 --> 00:08:09,160 Speaker 1: higher and Jamie diamond saying expect double digit unemployment through 122 00:08:09,200 --> 00:08:13,720 Speaker 1: the first half of one city, also talking about higher 123 00:08:13,800 --> 00:08:16,600 Speaker 1: loan losses going forward, but also trying to put a 124 00:08:16,600 --> 00:08:19,160 Speaker 1: brave face forward. And then Wells Fargo, of course, is 125 00:08:19,160 --> 00:08:21,440 Speaker 1: a whole another subject. Let's bring in someone who knows 126 00:08:21,480 --> 00:08:23,560 Speaker 1: all about it. Kenley, Owner is Litable, Director of Industry 127 00:08:23,560 --> 00:08:26,720 Speaker 1: and Equity Research at ce f R. A can what 128 00:08:26,800 --> 00:08:31,560 Speaker 1: are the headlines from this morning's three reports. It's really 129 00:08:32,000 --> 00:08:38,560 Speaker 1: tell us two stories. Banks obviously are impacted by the 130 00:08:38,600 --> 00:08:43,000 Speaker 1: COVID nineteen and the recession, and it's affecting loan volumes. 131 00:08:43,440 --> 00:08:48,000 Speaker 1: It's also impacting the rate or rate. Interest rates are 132 00:08:48,160 --> 00:08:51,840 Speaker 1: much lower, but off setting that was the app and 133 00:08:51,880 --> 00:08:55,800 Speaker 1: that's the consumer. But on the corporate side, the strength 134 00:08:55,920 --> 00:08:59,479 Speaker 1: that we saw was on paralleled in terms of investment, 135 00:08:59,520 --> 00:09:04,160 Speaker 1: banking and trading, especially in fixed income, but also in 136 00:09:04,240 --> 00:09:09,679 Speaker 1: equity underwriting. So that kind of buffered a significant decline 137 00:09:09,679 --> 00:09:14,960 Speaker 1: in terms of performance of lending um And unfortunately, this 138 00:09:15,120 --> 00:09:19,000 Speaker 1: being the first quarter, full quarter of the impact of 139 00:09:19,080 --> 00:09:22,440 Speaker 1: COVID nineteen, we're likely to still see weakness in the 140 00:09:22,520 --> 00:09:25,679 Speaker 1: third quarters. So the road to recovery is looking to 141 00:09:25,800 --> 00:09:30,480 Speaker 1: be ar shaped into all right, ken, let's focus a 142 00:09:30,520 --> 00:09:32,760 Speaker 1: little bit on Wells Fargo, because the number that really 143 00:09:32,840 --> 00:09:35,800 Speaker 1: jumped out of me was the nine point five billion 144 00:09:35,840 --> 00:09:38,839 Speaker 1: dollar provision for credit losses. That's more than the consensus 145 00:09:38,840 --> 00:09:42,360 Speaker 1: of four point nine billions. So obviously, when you think 146 00:09:42,360 --> 00:09:44,960 Speaker 1: about Wells Fargo Fargo, you think about the consumer, you 147 00:09:45,000 --> 00:09:48,400 Speaker 1: think about small and mid sized businesses. So that's really 148 00:09:48,440 --> 00:09:52,560 Speaker 1: an ominous tone, isn't it. It is? But I think 149 00:09:53,400 --> 00:09:57,880 Speaker 1: Wells Fargo kind of undershot the mark on building credit 150 00:09:57,920 --> 00:10:01,960 Speaker 1: reserves in the first quarter. It was a half or 151 00:10:01,960 --> 00:10:06,400 Speaker 1: even less than its appears of Bank of America or 152 00:10:06,559 --> 00:10:09,599 Speaker 1: JP Morgan's. So I think part of this answer the 153 00:10:09,720 --> 00:10:13,840 Speaker 1: question is patched up, but it is significant. And whilst 154 00:10:13,840 --> 00:10:18,000 Speaker 1: far Ago highly relies on it's a community bank and 155 00:10:18,160 --> 00:10:23,120 Speaker 1: consumer loans, Ken City Group, you know, setting aside seven 156 00:10:23,120 --> 00:10:26,120 Speaker 1: point nine billion dollars more for so our loans, and 157 00:10:26,240 --> 00:10:28,960 Speaker 1: David Morgan obviously setting aside more than anticipated as well. 158 00:10:29,200 --> 00:10:31,840 Speaker 1: Why are loans beginning to go bad at such a 159 00:10:31,920 --> 00:10:33,840 Speaker 1: rate when the FED stepped in to try and stop 160 00:10:33,880 --> 00:10:38,480 Speaker 1: some of this. It's actually building reserves, So these are 161 00:10:38,559 --> 00:10:44,679 Speaker 1: provisions or charges um to the bank. The actual delinquencies 162 00:10:44,800 --> 00:10:48,760 Speaker 1: or loan losses are likely over the next few quarters. 163 00:10:49,040 --> 00:10:52,160 Speaker 1: Think about this, this is the first full quarter yet 164 00:10:52,240 --> 00:10:56,319 Speaker 1: the banks really don't have total visibility to the health 165 00:10:56,360 --> 00:11:00,319 Speaker 1: of the consumers small business who have benefited into for 166 00:11:00,559 --> 00:11:05,160 Speaker 1: bearans or subsidies from the federal government. So the banks 167 00:11:05,160 --> 00:11:09,360 Speaker 1: are being very conservative. They have significant capital and as 168 00:11:11,400 --> 00:11:14,320 Speaker 1: I think we might have lost Ken their Vanni. But 169 00:11:14,400 --> 00:11:16,079 Speaker 1: I think he's saying, you know, I was interesting his 170 00:11:16,160 --> 00:11:18,720 Speaker 1: comments about some of these banks, you know, don't have 171 00:11:18,800 --> 00:11:22,720 Speaker 1: great visibility. So but they're still you know, taking these 172 00:11:22,760 --> 00:11:26,160 Speaker 1: big low mass reserves. I think in anticipation that this 173 00:11:26,240 --> 00:11:29,200 Speaker 1: is going to be an economy that is lower for longer. Yeah, 174 00:11:29,200 --> 00:11:31,880 Speaker 1: I mean, I think that's very very telling because right 175 00:11:31,920 --> 00:11:35,040 Speaker 1: now it seems like things are being managed pretty well. 176 00:11:35,160 --> 00:11:38,000 Speaker 1: Right the consumer is still spending to a certain extent, 177 00:11:38,120 --> 00:11:42,360 Speaker 1: and you know, even as we're seeing mass unemployment rules 178 00:11:42,360 --> 00:11:45,160 Speaker 1: of seeing mass job creation again, you know, month over month, 179 00:11:45,360 --> 00:11:48,200 Speaker 1: at the same time, if we don't have continued fiscal 180 00:11:48,280 --> 00:11:50,760 Speaker 1: stimulus from the government, who knows what the situation will 181 00:11:50,800 --> 00:11:53,040 Speaker 1: be like. And obviously the banks don't know any more 182 00:11:53,040 --> 00:11:55,160 Speaker 1: than we do as to what's going to come out 183 00:11:55,160 --> 00:11:58,120 Speaker 1: of Washington, d C. Over the next literally two weeks. Ball, 184 00:11:58,160 --> 00:12:01,840 Speaker 1: I mean that funding for the six hundred dollars per 185 00:12:01,880 --> 00:12:04,719 Speaker 1: week extra for each consumer who's out of work that 186 00:12:04,760 --> 00:12:07,800 Speaker 1: goes away in two weeks unless Congress does something about it. Yeah, 187 00:12:07,800 --> 00:12:10,640 Speaker 1: so we have Ken back. Ken Leone joins us once again, 188 00:12:10,640 --> 00:12:13,400 Speaker 1: Global director of Research at cf are A. So Ken 189 00:12:13,440 --> 00:12:15,600 Speaker 1: going to that point, what are the banks saying about 190 00:12:15,600 --> 00:12:18,800 Speaker 1: the consumer here? Um? You know, are they Jamie Diamond's 191 00:12:18,800 --> 00:12:24,240 Speaker 1: commentary seemed to be quite conservative on the margin, that's right, 192 00:12:24,679 --> 00:12:30,880 Speaker 1: and the issue really relates to UM employment, particularly if 193 00:12:30,880 --> 00:12:35,120 Speaker 1: we have adverse scenarios where unemployment, let's say for the 194 00:12:35,200 --> 00:12:39,000 Speaker 1: U S economy is still in the mid teens UM, 195 00:12:39,080 --> 00:12:41,720 Speaker 1: that will be kind of a dire outlook for the 196 00:12:41,760 --> 00:12:44,040 Speaker 1: rest of this year. So that's the worst case. You 197 00:12:44,080 --> 00:12:47,280 Speaker 1: gotta remember, banks hope for the best, but they prepare 198 00:12:47,360 --> 00:12:49,800 Speaker 1: for the worst, and that's the build up of these 199 00:12:49,880 --> 00:12:54,320 Speaker 1: credit reserves. Keep in mind, though, that what the banks 200 00:12:54,320 --> 00:12:58,000 Speaker 1: are following is in line with the Settle reserve UM 201 00:12:58,240 --> 00:13:02,440 Speaker 1: stress tests and the new scenarios on COVID back in 202 00:13:02,760 --> 00:13:06,559 Speaker 1: late June, where when you look at those thirty three 203 00:13:06,559 --> 00:13:11,040 Speaker 1: banks that participated in these stress tests, uh, the historical 204 00:13:11,160 --> 00:13:14,360 Speaker 1: framework was a worst case of a four hundred thirty 205 00:13:14,400 --> 00:13:18,040 Speaker 1: three billion with COVID. With the unemployment levels that you've 206 00:13:18,080 --> 00:13:23,400 Speaker 1: mentioned before, um possibly mid teens, eight hundred billion. So 207 00:13:23,440 --> 00:13:25,840 Speaker 1: what the banks have to do is before the reality, 208 00:13:25,960 --> 00:13:28,560 Speaker 1: they have to build reserves. The flip side if we 209 00:13:28,640 --> 00:13:33,800 Speaker 1: have this conversation later this year, is if the economic 210 00:13:33,880 --> 00:13:37,880 Speaker 1: scenario is better, then you get a reserve reverse of 211 00:13:37,920 --> 00:13:42,000 Speaker 1: these credit reserves, which would boost profitability absolutely. So we'll 212 00:13:42,080 --> 00:13:44,560 Speaker 1: keep an eye on those. We've got still more banks 213 00:13:44,559 --> 00:13:47,800 Speaker 1: to go uh tomorrow and Thursday as well. Ken le Own, 214 00:13:47,800 --> 00:13:50,599 Speaker 1: Global Director of Industry and Equity Research at c f 215 00:13:50,840 --> 00:13:54,120 Speaker 1: r A Research. We appreciate his commentary on the banks 216 00:13:54,120 --> 00:13:56,200 Speaker 1: and again kind of a mixed bag coming out here 217 00:13:56,200 --> 00:13:59,199 Speaker 1: about the consistent theme across the three banks that we 218 00:13:59,240 --> 00:14:02,080 Speaker 1: saw today is very high single digit in terms of 219 00:14:02,320 --> 00:14:06,800 Speaker 1: a billion dollar low loss reserves as they prepare for 220 00:14:06,880 --> 00:14:09,880 Speaker 1: a weaker economy for some time to come. We'll see 221 00:14:09,920 --> 00:14:14,760 Speaker 1: what we get from the big investment banks tomorrow. Well, 222 00:14:14,800 --> 00:14:17,040 Speaker 1: when you have Max Niss and there's so many ways 223 00:14:17,200 --> 00:14:21,960 Speaker 1: you can go when discussing this coronavirus on a global scale, Maxinis, 224 00:14:22,080 --> 00:14:25,560 Speaker 1: it's a biotech farm at healthcare calumnist for Bloomberg Opinion Uh, 225 00:14:25,760 --> 00:14:29,040 Speaker 1: but Max, today, I want to start with containment or 226 00:14:29,120 --> 00:14:32,800 Speaker 1: lack thereof. It's it's it's something that's come back to 227 00:14:32,880 --> 00:14:36,520 Speaker 1: the forefront of discussion of this virus containment and such 228 00:14:37,040 --> 00:14:41,600 Speaker 1: key states as California, Texas, Florida. Where are we in 229 00:14:41,720 --> 00:14:45,000 Speaker 1: some of those hotspots states? Are they bending the curve 230 00:14:45,240 --> 00:14:52,840 Speaker 1: at all? Uh? Too early to say definitively, but probably not. 231 00:14:53,120 --> 00:14:55,720 Speaker 1: And the reason is that, um, you know, with the 232 00:14:55,800 --> 00:14:59,680 Speaker 1: exception of of California, as of you know this week, uh, 233 00:14:59,760 --> 00:15:04,960 Speaker 1: no of them have really taken especially aggressive steps, you know, 234 00:15:05,080 --> 00:15:08,840 Speaker 1: really big steps back in terms of, um, you know, 235 00:15:08,880 --> 00:15:11,480 Speaker 1: the sorts of businesses that are open when you have 236 00:15:11,840 --> 00:15:15,520 Speaker 1: community spread at a certain level. UM, you know, anything 237 00:15:15,520 --> 00:15:19,960 Speaker 1: other than that either isn't going to contain the virus 238 00:15:20,000 --> 00:15:22,600 Speaker 1: at all or is going to take a really long 239 00:15:22,720 --> 00:15:25,920 Speaker 1: time over which um, you'll have a lot of infections 240 00:15:25,920 --> 00:15:28,960 Speaker 1: and death to do so. So UM, I'll be curious 241 00:15:29,000 --> 00:15:32,400 Speaker 1: to see if if California's move, which I will note 242 00:15:32,520 --> 00:15:35,960 Speaker 1: comes on the back of data that that on kind 243 00:15:35,960 --> 00:15:38,600 Speaker 1: of a statewide for capital level, is actually not as 244 00:15:38,640 --> 00:15:41,760 Speaker 1: concerning as what you see out of Florida Arizona. If 245 00:15:41,800 --> 00:15:44,240 Speaker 1: that will um, you know, pressure some other states to 246 00:15:44,320 --> 00:15:47,920 Speaker 1: take some more aggressive action given to the sort of 247 00:15:48,080 --> 00:15:51,160 Speaker 1: rates of new infection that they're seeing. Max, what's the 248 00:15:51,240 --> 00:15:57,360 Speaker 1: latest thinking on herd immunity? Um? The latest I mean, 249 00:15:57,640 --> 00:15:59,400 Speaker 1: I can give you my opinion on her immunity, but 250 00:15:59,440 --> 00:16:02,600 Speaker 1: they're they're sort of two factors. One is whether you 251 00:16:02,640 --> 00:16:06,440 Speaker 1: know it's even possible to achieve via natural infection, This 252 00:16:06,640 --> 00:16:09,520 Speaker 1: being the form of the argument you here sometimes that 253 00:16:09,600 --> 00:16:11,560 Speaker 1: you know it's going to take so long to get 254 00:16:11,560 --> 00:16:15,040 Speaker 1: a vaccine and be so economically damaging to mitigate the virus, 255 00:16:15,040 --> 00:16:18,080 Speaker 1: that we should just sort of let it run comparatively 256 00:16:18,240 --> 00:16:20,520 Speaker 1: free in order thin. But the thing that we don't 257 00:16:20,560 --> 00:16:22,960 Speaker 1: know and and still don't know is the degree to 258 00:16:23,040 --> 00:16:26,880 Speaker 1: which UM natural immunity is conferred by infection or whether 259 00:16:26,920 --> 00:16:30,120 Speaker 1: it lasts. And there's mixed evidence on this. UM. You know, 260 00:16:30,240 --> 00:16:34,400 Speaker 1: some data that antibody levels fall over time. This doesn't 261 00:16:34,440 --> 00:16:38,800 Speaker 1: confirm that that people probably can get reinfected UM, but 262 00:16:39,000 --> 00:16:41,920 Speaker 1: it does suggest that that there isn't sort of rock 263 00:16:42,000 --> 00:16:45,400 Speaker 1: solid evidence that that there is definitely gonna be durable 264 00:16:45,440 --> 00:16:48,400 Speaker 1: immunity for everybody, So UM, you know that that's one 265 00:16:48,440 --> 00:16:51,120 Speaker 1: reason to doubt that strategy. The second is just the 266 00:16:51,240 --> 00:16:54,640 Speaker 1: numbers required to get there. Even if you do have 267 00:16:55,200 --> 00:16:57,640 Speaker 1: you know, durable and consistent immunity, which we're not true 268 00:16:57,640 --> 00:17:02,520 Speaker 1: about our enormous you know, it's it's fift and to 269 00:17:02,640 --> 00:17:05,120 Speaker 1: get there. Um, if you just through the really simple math, 270 00:17:05,160 --> 00:17:08,840 Speaker 1: even an you know, a relatively low implied fatality rate 271 00:17:08,960 --> 00:17:11,880 Speaker 1: under one percent, UM, you know that that's a lot 272 00:17:11,920 --> 00:17:14,600 Speaker 1: of deaths. And on top of that, UM, we also 273 00:17:14,680 --> 00:17:18,199 Speaker 1: don't know the percentage of people that have lasting significant 274 00:17:18,240 --> 00:17:22,840 Speaker 1: punseqluences from infection. So UM, it's a wildly irresponsible and 275 00:17:22,960 --> 00:17:26,320 Speaker 1: dangerous strategy, all right. So if herd immunity is not 276 00:17:26,480 --> 00:17:30,920 Speaker 1: a valid strategy, then obviously the focus turns back uh 277 00:17:31,040 --> 00:17:35,080 Speaker 1: MAX to treatments and then ultimately to uh A or 278 00:17:35,200 --> 00:17:39,040 Speaker 1: multiple vaccines. Anything new on that front that we should 279 00:17:39,040 --> 00:17:42,920 Speaker 1: be paying attention to. UM, you know, the we're overall, 280 00:17:43,080 --> 00:17:45,480 Speaker 1: I'd say the situation is is pretty close to what 281 00:17:45,560 --> 00:17:48,480 Speaker 1: it's been in recent weeks, where we're we're sort of 282 00:17:48,520 --> 00:17:51,159 Speaker 1: still waiting for the beginning of of these sort of 283 00:17:51,200 --> 00:17:54,200 Speaker 1: big infirmatory trials. The news today that UM we're during 284 00:17:54,200 --> 00:17:57,800 Speaker 1: an age to start its trial on July, So that 285 00:17:57,800 --> 00:18:00,240 Speaker 1: would be the first really big trial in the US 286 00:18:00,320 --> 00:18:04,240 Speaker 1: and a significant step on the path to seeing whether 287 00:18:04,280 --> 00:18:07,000 Speaker 1: that the vaccine works. But how the thing I always 288 00:18:07,040 --> 00:18:09,720 Speaker 1: like to highlight is, you know, it's impossible to say 289 00:18:09,720 --> 00:18:12,680 Speaker 1: how long that that trial will take. You know, it's 290 00:18:12,680 --> 00:18:16,280 Speaker 1: a big endeavor people. And on top of that, it's 291 00:18:16,320 --> 00:18:21,000 Speaker 1: really difficult to handicap the possibility of success. Um, both 292 00:18:21,040 --> 00:18:24,440 Speaker 1: because you know, the metrics of possible success we're using 293 00:18:24,520 --> 00:18:27,840 Speaker 1: right now are there was antibody levels, um. You know, 294 00:18:27,880 --> 00:18:30,720 Speaker 1: the comparison for people that have made it through the virus. 295 00:18:30,840 --> 00:18:33,560 Speaker 1: That that's a metric that we don't necessarily know is valid. 296 00:18:33,680 --> 00:18:36,119 Speaker 1: So again, just highlights that it's going to be a 297 00:18:36,160 --> 00:18:40,040 Speaker 1: weight and they're they're significant and certain, especially given how 298 00:18:40,119 --> 00:18:43,520 Speaker 1: rapidly these programs have progressed a relative to the norm 299 00:18:43,640 --> 00:18:46,960 Speaker 1: for vaccine development. A lot of talk about children with 300 00:18:47,080 --> 00:18:49,800 Speaker 1: you know, back to school sort of insights and and 301 00:18:49,880 --> 00:18:54,000 Speaker 1: not in sits in other places. What about children? What 302 00:18:54,080 --> 00:18:57,719 Speaker 1: do we know about how much they transmit this disease 303 00:18:57,760 --> 00:19:01,879 Speaker 1: these days? Um? You know, again still something where where 304 00:19:01,920 --> 00:19:06,040 Speaker 1: the evidence is evolving and and not conclusive. Um. I 305 00:19:06,359 --> 00:19:09,440 Speaker 1: think it's it's broadly correct to say that the children 306 00:19:09,480 --> 00:19:15,240 Speaker 1: are at substantially lower risk of of severe consequences of infection. UM. 307 00:19:15,280 --> 00:19:19,080 Speaker 1: That's been a pretty consistent finding. Whether it's no risk 308 00:19:19,359 --> 00:19:22,440 Speaker 1: UM is still is probably not the case. And then 309 00:19:22,440 --> 00:19:26,119 Speaker 1: the broader question about beyond you know, the level of 310 00:19:26,240 --> 00:19:29,800 Speaker 1: risk UM is the fact that you know, in starting 311 00:19:29,840 --> 00:19:33,399 Speaker 1: up school you're encouraging a lot more travel, you have 312 00:19:33,440 --> 00:19:37,479 Speaker 1: to think about teachers UM. So overall, even if children 313 00:19:37,480 --> 00:19:40,760 Speaker 1: are are relatively less vulnerable, UM, if you don't have 314 00:19:40,840 --> 00:19:44,800 Speaker 1: the virus contained, it's still going to be in one 315 00:19:44,840 --> 00:19:50,120 Speaker 1: way or another, UM, pretty seriously unsafe to open schools broadly. Max, 316 00:19:50,200 --> 00:19:52,280 Speaker 1: it's always a pleasure to have you on. I really 317 00:19:52,280 --> 00:19:54,080 Speaker 1: don't know how you find the time to read everything 318 00:19:54,119 --> 00:19:56,639 Speaker 1: and keep up with everything. It's just constant and a 319 00:19:56,840 --> 00:19:59,600 Speaker 1: very difficult job these days. Well, Max Mason is biotech, 320 00:19:59,600 --> 00:20:03,479 Speaker 1: pharmac and healthcare columnist for Bloomberg Opinion, and he's up 321 00:20:03,480 --> 00:20:06,719 Speaker 1: with all the latest news surrounding the coronavirus and you know, 322 00:20:06,800 --> 00:20:10,080 Speaker 1: every single drug trial that's underway, and and really you 323 00:20:10,160 --> 00:20:12,800 Speaker 1: have the whole world on the case of this, Paul, 324 00:20:12,920 --> 00:20:16,359 Speaker 1: and it's you know, it's I don't know when we 325 00:20:16,480 --> 00:20:21,600 Speaker 1: last saw a global effort as you know, uh hefty 326 00:20:21,760 --> 00:20:24,080 Speaker 1: as the one we're seeing right now. It's just a 327 00:20:24,119 --> 00:20:26,400 Speaker 1: matter of when we'll get something that will break through. 328 00:20:28,359 --> 00:20:31,240 Speaker 1: When you think about the industries that have been hardest 329 00:20:31,359 --> 00:20:36,000 Speaker 1: hit by the coronavirus, the airline industry is certainly front 330 00:20:36,040 --> 00:20:37,920 Speaker 1: and center among them. And we had some earnings out 331 00:20:37,960 --> 00:20:41,120 Speaker 1: this morning from Delta Airlines. It just confirmed how difficult 332 00:20:41,119 --> 00:20:43,720 Speaker 1: things are. Delta shares are off two point five percent 333 00:20:43,800 --> 00:20:46,560 Speaker 1: today and off fifty year to date. To dig into 334 00:20:46,600 --> 00:20:49,840 Speaker 1: that and all things aerospace and airlines, we welcome George Ferguson, 335 00:20:49,920 --> 00:20:54,159 Speaker 1: senior Aerospace, defense and airlines analysts for Bloomberg Intelligence. So George, 336 00:20:54,200 --> 00:20:59,359 Speaker 1: let's start off with Delta Boy, what's the takeaway here? Yeah, Paul, thanks, 337 00:20:59,720 --> 00:21:03,200 Speaker 1: I think the big takeaway from Delta was, uh, they're 338 00:21:03,240 --> 00:21:06,600 Speaker 1: burning about twenty seven million dollars a day as they 339 00:21:06,640 --> 00:21:09,879 Speaker 1: closed the quarter. They still they want to push that 340 00:21:10,040 --> 00:21:13,600 Speaker 1: to break even by year end um, but that's going 341 00:21:13,640 --> 00:21:16,399 Speaker 1: to require more demand. They explicitly said, you know, the 342 00:21:16,880 --> 00:21:19,159 Speaker 1: components going into sort of driving at the zero is 343 00:21:19,640 --> 00:21:22,719 Speaker 1: more demand, and demand is petering out. They confirmed. For US, 344 00:21:22,760 --> 00:21:26,359 Speaker 1: we've kind of been watching schedules and load factors and 345 00:21:26,400 --> 00:21:28,679 Speaker 1: it looks like the US airlines have had a lot 346 00:21:28,680 --> 00:21:32,600 Speaker 1: of capacity in the last sort of a couple of weeks. Uh, 347 00:21:32,640 --> 00:21:34,919 Speaker 1: you know, as we started to see this nascent recovery 348 00:21:35,119 --> 00:21:38,800 Speaker 1: and uh and travel. But look, with the cropping up 349 00:21:38,840 --> 00:21:43,560 Speaker 1: of outbreaks in the south and the west and quarantine 350 00:21:43,680 --> 00:21:46,840 Speaker 1: still in effect overseas, you know, we're concerned that it's 351 00:21:46,840 --> 00:21:49,240 Speaker 1: going to start to peter out. And Delta kind of 352 00:21:49,280 --> 00:21:52,520 Speaker 1: confirmed that. And so it's going to be a long road. 353 00:21:52,560 --> 00:21:55,560 Speaker 1: Delta even said that, right, it's a long road. They 354 00:21:55,640 --> 00:21:58,840 Speaker 1: talked in eighteen months to get to sort of you know, 355 00:21:59,000 --> 00:22:03,920 Speaker 1: think reasonable travel levels. Are not talking talking reasonable travel levels. 356 00:22:03,920 --> 00:22:07,280 Speaker 1: And we haven't seen business come back, business flying demand 357 00:22:07,320 --> 00:22:11,000 Speaker 1: come back, and that's really important. Delta they said, revenues 358 00:22:11,080 --> 00:22:13,159 Speaker 1: is business. You know, we kind of thought something around there. 359 00:22:13,200 --> 00:22:16,479 Speaker 1: So I think those are the big takeaways from today. 360 00:22:16,560 --> 00:22:19,040 Speaker 1: It's still a lot more a lot more distance to 361 00:22:19,080 --> 00:22:24,200 Speaker 1: travel for recovery for this industry. George Delta saying seventeen 362 00:22:24,359 --> 00:22:27,120 Speaker 1: thousand workers have now signed up to leave the airline 363 00:22:27,119 --> 00:22:30,359 Speaker 1: at it's parked more than seven hundred aircraft. How much 364 00:22:30,440 --> 00:22:35,120 Speaker 1: smaller will the future Delta be? I think again, again, 365 00:22:35,160 --> 00:22:37,720 Speaker 1: that's a really hard question. Right, It's a function of 366 00:22:38,240 --> 00:22:41,840 Speaker 1: the bounce back in demand. UM. And and right now, 367 00:22:41,880 --> 00:22:44,840 Speaker 1: you know, we still have sort of an industry that's 368 00:22:44,880 --> 00:22:49,800 Speaker 1: that's flying the passengers that they flew last year at 369 00:22:49,840 --> 00:22:52,520 Speaker 1: this time. UM, I do think people will get more 370 00:22:52,560 --> 00:22:55,360 Speaker 1: comfortable flying here in time, even if we don't have 371 00:22:55,440 --> 00:22:59,240 Speaker 1: a vaccine or an effective treatment. The question is how 372 00:22:59,320 --> 00:23:01,720 Speaker 1: much I know, you may have to strip some of 373 00:23:01,760 --> 00:23:06,560 Speaker 1: these airlines, um for a couple of years here while 374 00:23:06,680 --> 00:23:10,320 Speaker 1: you you know, fifty or while you wait for uh 375 00:23:10,760 --> 00:23:13,600 Speaker 1: demand come back. So they've come a long way, but 376 00:23:13,600 --> 00:23:15,480 Speaker 1: there's more distance to travel, and we think book four 377 00:23:15,560 --> 00:23:18,600 Speaker 1: queues when you're really going to start to see adjustments 378 00:23:18,640 --> 00:23:20,840 Speaker 1: to the workforce, because that's when the cares act money 379 00:23:21,520 --> 00:23:25,480 Speaker 1: that's basically subsidizing all their labor goes away. All right, George, 380 00:23:25,520 --> 00:23:28,160 Speaker 1: I guess it's time to go to the balance sheet 381 00:23:28,160 --> 00:23:30,719 Speaker 1: discussion here is if this demand is going to uh 382 00:23:31,040 --> 00:23:34,280 Speaker 1: perhaps come back slower than expected, we have to start 383 00:23:34,280 --> 00:23:36,879 Speaker 1: looking at which airlines can can really weather the storm. 384 00:23:36,960 --> 00:23:40,640 Speaker 1: So kind of how are you looking at that right now? Yeah? 385 00:23:40,640 --> 00:23:42,639 Speaker 1: I look, they've all put on a lot of cash 386 00:23:42,720 --> 00:23:45,560 Speaker 1: over the last bunch of months. UM. I've actually been 387 00:23:45,680 --> 00:23:48,359 Speaker 1: pretty impressed with how receptive credit markets have been for 388 00:23:48,400 --> 00:23:52,840 Speaker 1: these airlines. Many of them, you know, are in the 389 00:23:53,080 --> 00:23:57,320 Speaker 1: tens between ten and twenty billion worth of liquidity, and 390 00:23:57,400 --> 00:24:03,160 Speaker 1: so Delta said today they at eighteen for the liquidity. UM. Obviously, 391 00:24:03,200 --> 00:24:06,040 Speaker 1: I think it probably puts them in in pretty good order. 392 00:24:06,320 --> 00:24:08,639 Speaker 1: Will looks very closely as we go through earning season 393 00:24:08,720 --> 00:24:11,800 Speaker 1: for cash burn and how long they can last. Delta 394 00:24:11,920 --> 00:24:14,639 Speaker 1: entered the downturn with the better balance sheet and therefore 395 00:24:14,640 --> 00:24:18,000 Speaker 1: more ability to get um, you know, to bring more 396 00:24:18,280 --> 00:24:20,239 Speaker 1: cash out of their balance sheet. As pretty oppressed. They 397 00:24:20,280 --> 00:24:23,359 Speaker 1: talked about adjusting even their credit lines so that some 398 00:24:23,400 --> 00:24:26,720 Speaker 1: of those covenants don't trip them up. UM. I think again, 399 00:24:26,760 --> 00:24:29,000 Speaker 1: being an investigated company going into the downturn helps you 400 00:24:29,000 --> 00:24:31,560 Speaker 1: a lot. Leisure is going to perform better than business too, 401 00:24:31,600 --> 00:24:32,919 Speaker 1: and so I think that a bunch of the leisure 402 00:24:32,920 --> 00:24:36,159 Speaker 1: carriers that are that are have good balance sheets, companies 403 00:24:36,200 --> 00:24:38,159 Speaker 1: like South Pest and such a circle prepared well to 404 00:24:38,200 --> 00:24:41,720 Speaker 1: get through the downturn for a longer pair. At to time, 405 00:24:42,840 --> 00:24:48,480 Speaker 1: George Davidson Kemner that US Hedge Fund injected about two 406 00:24:48,560 --> 00:24:51,440 Speaker 1: hundred million dollars or so into Virgin Atlantic to try 407 00:24:51,440 --> 00:24:54,840 Speaker 1: and rescue the company along with Richard Branson themselves. What's 408 00:24:54,840 --> 00:25:00,119 Speaker 1: the value proposition for Davidson there? Uh you know, I 409 00:25:00,119 --> 00:25:02,600 Speaker 1: think you know, the value proposition at Britain Atlantic is 410 00:25:02,640 --> 00:25:05,200 Speaker 1: really heat throw slots. And so look today it doesn't 411 00:25:05,240 --> 00:25:07,639 Speaker 1: matter as much for it because nobody's um sort of 412 00:25:07,720 --> 00:25:09,840 Speaker 1: jumping all over themselves to get more. He throw slots 413 00:25:10,359 --> 00:25:13,960 Speaker 1: International is dead. But when the when the world recovers 414 00:25:14,160 --> 00:25:16,560 Speaker 1: and and demand comes back again, and you know, look 415 00:25:16,560 --> 00:25:18,320 Speaker 1: at me, not come back fully, but it comes back 416 00:25:18,800 --> 00:25:22,240 Speaker 1: in the large proportions that he throwed another, uh, have 417 00:25:22,280 --> 00:25:26,119 Speaker 1: another another choke point in sort of the worldout network. 418 00:25:26,160 --> 00:25:27,760 Speaker 1: Heathrow has always been that way. There's a lot of 419 00:25:27,800 --> 00:25:29,159 Speaker 1: demand again and the Heathrow and I think that's what 420 00:25:29,200 --> 00:25:32,160 Speaker 1: Emerge Atlantic really really brings. It also brings it to Delta, 421 00:25:32,200 --> 00:25:34,000 Speaker 1: by the way, because Delta was an investor in there, 422 00:25:34,000 --> 00:25:36,680 Speaker 1: and I imagine they'll still have a decent relationship even 423 00:25:36,720 --> 00:25:39,520 Speaker 1: though the equity investment might get is going to get adjusted. Here. 424 00:25:40,440 --> 00:25:43,360 Speaker 1: It's so interesting following industries as they have to adapt 425 00:25:43,400 --> 00:25:46,199 Speaker 1: to the environment. George, thank you so much for all 426 00:25:46,240 --> 00:25:49,359 Speaker 1: of your expertise. George Ferguson, a senior Aerospace, Defense and 427 00:25:49,520 --> 00:25:52,879 Speaker 1: airline analyst, and for all of the you know, consultants 428 00:25:52,920 --> 00:25:55,879 Speaker 1: and so on that have gone into companies over the 429 00:25:55,960 --> 00:25:59,600 Speaker 1: last several years and you know, restrategized and changed the strategy. 430 00:25:59,640 --> 00:26:01,639 Speaker 1: I mean, something like a global pandemic comes along and 431 00:26:01,680 --> 00:26:03,080 Speaker 1: that just all goes out the window and you have 432 00:26:03,119 --> 00:26:06,680 Speaker 1: to start from scratch again. It's really, you know, interesting 433 00:26:06,760 --> 00:26:09,359 Speaker 1: thing to watch, particularly when there's really no industry that's 434 00:26:09,440 --> 00:26:14,200 Speaker 1: not affected by this. Thanks for listening to Bloomberg Markets podcast. 435 00:26:14,359 --> 00:26:17,719 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts 436 00:26:17,840 --> 00:26:21,080 Speaker 1: or whatever a podcast platform you prefer. I'm Bonnie Quinn. 437 00:26:21,200 --> 00:26:23,879 Speaker 1: I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. 438 00:26:23,880 --> 00:26:26,520 Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you 439 00:26:26,560 --> 00:26:28,960 Speaker 1: can always catch us worldwide at Bloomberg Radio.