WEBVTT - BI Weekend: Commerzbank Move, Apple’s Rise 0:00:02.920 --> 0:00:07.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:10.560 --> 0:00:14.400 This is Bloomberg Intelligence with Alex Steinhl and Paul'sweenye. 0:00:14.520 --> 0:00:17.720 The real app performance has been in US corporate high yield. 0:00:17.880 --> 0:00:20.240 Are the companies lean enough? Have they trimmed all the fats? 0:00:20.320 --> 0:00:23.880 The semiconductor business is a really cyclical business. 0:00:23.600 --> 0:00:27.200 Breaking market headlines and corporate news from across the globe. 0:00:27.240 --> 0:00:29.880 Do investors like the M and A that we've seen? 0:00:30.080 --> 0:00:31.000 These are two. 0:00:31.040 --> 0:00:33.159 Big time blue chip companies. 0:00:33.320 --> 0:00:36.920 The window between the peak and cut changing super fast. 0:00:37.080 --> 0:00:41.680 Bloomberg Intelligence with Alex Steinhl and Paul'sweenye on Bloomberg Radio. 0:00:43.400 --> 0:00:45.720 On Today's Bloomberg Intelligence Show, we dig inside the big 0:00:45.720 --> 0:00:48.120 business stories impacting Wall Street and the global markets. 0:00:48.320 --> 0:00:50.240 Each and every week, we provide in depth research and 0:00:50.320 --> 0:00:52.080 data on some of the two thousand companies and one 0:00:52.159 --> 0:00:54.800 hundred and thirty industries our analysts cover worldwide. 0:00:54.840 --> 0:00:56.840 Today, we'll look at a potential bank takeover that could 0:00:56.880 --> 0:00:58.320 reshape Europe's banking landscape. 0:00:58.360 --> 0:01:01.200 Plus we'll discuss why German automake are now sinking deeper 0:01:01.240 --> 0:01:03.000 into an industry wide crisis. 0:01:03.280 --> 0:01:06.280 For first, we dive into US politics, Vice President Kamala 0:01:06.280 --> 0:01:09.040 Harris and former President Donald Trump are in a closely 0:01:09.080 --> 0:01:11.640 contested race to be president, and we're now less than 0:01:11.680 --> 0:01:13.160 two months away from election day. 0:01:13.319 --> 0:01:16.160 Recently, Bloomberg Intelligence took another deep dive into the US 0:01:16.240 --> 0:01:19.279 presidential election. The research looked at how a potential Harris 0:01:19.360 --> 0:01:22.360 or Trump presidency could impact different sectors and policies in 0:01:22.400 --> 0:01:22.840 the US. 0:01:23.000 --> 0:01:24.840 For more on this, we were joined by Nathan Dean, 0:01:24.920 --> 0:01:27.040 Bloomberg Intelligence Senior policy analyst. 0:01:27.280 --> 0:01:29.160 We first asked Nathan to break down some of the 0:01:29.200 --> 0:01:31.440 sectors that could be impacted after the US election. 0:01:31.880 --> 0:01:33.680 In some of our key sectors to watch where we're 0:01:33.680 --> 0:01:36.360 like renewables tied to the Inflation Reduction Act. There's a 0:01:36.400 --> 0:01:38.679 lot of tax carrots, if you will, in there that 0:01:38.760 --> 0:01:41.600 are spurring renewable investment, especially in cap backs and a 0:01:41.600 --> 0:01:44.560 lot of up states. Others involved the banks, you know, 0:01:44.640 --> 0:01:47.000 the Basel three end game, a proposal that would increase 0:01:47.040 --> 0:01:49.640 capper requirements around nine percent for the investment banks. 0:01:49.640 --> 0:01:51.960 If President Trump wins, that may not go forward. 0:01:52.200 --> 0:01:54.920 Other things are global manufacturers due to the tax change's 0:01:55.080 --> 0:01:58.000 healthcare there are twenty five billion dollars in Obamacare subsidies 0:01:58.160 --> 0:02:00.960 that are up for renewal next year. Only big tech 0:02:01.320 --> 0:02:03.280 you know, whether if you be Kamala Harris, wins, are 0:02:03.280 --> 0:02:06.240 gonna have a continuation of the very stringent M and 0:02:06.280 --> 0:02:09.040 a anti trust authority that the Biden era regulators are 0:02:09.040 --> 0:02:09.919 putting on big tech. 0:02:10.080 --> 0:02:10.760 But if JD. 0:02:10.840 --> 0:02:13.760 Vance's idea of economic populism gets into the White House, 0:02:13.960 --> 0:02:15.720 you could see a Republican president. 0:02:15.360 --> 0:02:18.079 Also be very skeptical of big tech. So a lot 0:02:18.120 --> 0:02:19.519 of what ifs, but a lot of. 0:02:19.400 --> 0:02:21.880 You know, you know, scenarios in which those industries could 0:02:21.880 --> 0:02:22.720 be heavily impacted. 0:02:22.880 --> 0:02:26.240 You know, I listened to former President Trump's economic planeting 0:02:26.400 --> 0:02:29.480 Economic Club of New York. I don't know hard time 0:02:29.480 --> 0:02:31.120 making heads or tails out of it, but I guess 0:02:31.120 --> 0:02:34.160 it was lower taxes, higher tariffs. Is that kind of 0:02:34.240 --> 0:02:37.760 the basis of his economic I guess platform. 0:02:38.120 --> 0:02:38.360 Yeah. 0:02:38.440 --> 0:02:41.520 I think that's the really good point to point out, 0:02:41.560 --> 0:02:43.760 because I think it's almost like a phase one, phase 0:02:43.760 --> 0:02:45.520 two type of deal with President Trump. 0:02:45.560 --> 0:02:45.800 Wins. 0:02:45.840 --> 0:02:48.080 Phase one is tariffs. You know, this is something that 0:02:48.120 --> 0:02:49.639 he can do. The power of the presidency is a 0:02:49.680 --> 0:02:52.400 lot more powerful there, and so sorry the first half 0:02:52.440 --> 0:02:54.079 of twenty twenty five, you could see a lot more 0:02:54.120 --> 0:02:54.760 tariffs coming in. 0:02:54.840 --> 0:02:56.480 Now. I would argue that a lot. 0:02:56.320 --> 0:02:59.200 Of these tariffs are negotiation ploys. You know, if he 0:02:59.240 --> 0:03:01.320 holds up an execut order and says I'm going to 0:03:01.400 --> 0:03:03.840 sign a tariff, there's probably a language in that executive 0:03:03.880 --> 0:03:05.679 order saying two hundred and seventy days from now, it 0:03:05.720 --> 0:03:08.320 won't go into fruition until then, because you're gonna give 0:03:08.320 --> 0:03:11.320 the opposite side multiple times to negotiate. But it's certainly 0:03:11.320 --> 0:03:13.160 something that he's comfortable with and I think, you know, 0:03:13.320 --> 0:03:15.920 would easily put out if he feels that it's necessary. 0:03:16.080 --> 0:03:18.000 But then the tax reform debate is what's going to 0:03:18.040 --> 0:03:20.080 come next, because at the end of twenty twenty five, 0:03:20.360 --> 0:03:23.720 those Trump Ara tax cuts for individuals expire. Now President 0:03:23.760 --> 0:03:26.280 Trump has said fifteen percent corporate tax rate. I'm not 0:03:26.280 --> 0:03:27.840 sure he'll be able to get that. You know, he's 0:03:27.880 --> 0:03:29.519 gonna have to negotiate. We've seen a little bit of 0:03:29.560 --> 0:03:32.480 statements from House Republicans saying, yeah, maybe we should go 0:03:32.520 --> 0:03:35.160 down to twenty or nineteen or eighteen percent. But being 0:03:35.200 --> 0:03:37.160 able to pay for that fifteen percent it's going to 0:03:37.200 --> 0:03:40.240 be somewhat difficult for these deficit hawks. So but you know, 0:03:40.280 --> 0:03:42.320 there's a lot of provisions of the Trump are tax 0:03:42.360 --> 0:03:44.720 cuts that have already expired for industry, and I think 0:03:44.760 --> 0:03:46.920 President Trump is going to try and institute those though 0:03:47.040 --> 0:03:49.360 at a large level, think Trump two point zero is 0:03:49.400 --> 0:03:51.240 going to do another version of the same tax cut. 0:03:51.400 --> 0:03:54.840 I literally remember having the exact same conversation in twenty fifteen, 0:03:54.920 --> 0:03:57.600 twenty sixteen, like the phase to how you get it done, 0:03:58.240 --> 0:04:00.960 et cetera. So what's an interesting to me, though, is 0:04:01.000 --> 0:04:04.280 the lack of response though in say, high tax companies 0:04:04.760 --> 0:04:07.120 versus low tax companies, like the things that would make 0:04:07.200 --> 0:04:10.560 sense because those policies are so different, say on corporate taxes. 0:04:10.760 --> 0:04:13.080 Are we seeing that reflected within market moves? 0:04:14.160 --> 0:04:14.360 You know? 0:04:14.880 --> 0:04:16.840 I think so, But you know a lot I've been 0:04:16.880 --> 0:04:19.159 talking to a lot of investors over the last few weeks, 0:04:19.160 --> 0:04:21.160 and a lot of folks come to me and they say, 0:04:21.480 --> 0:04:23.560 we just really don't know what's going to happen on 0:04:23.640 --> 0:04:26.560 tax until we know the makeup of Congress. And the 0:04:26.600 --> 0:04:29.080 reason being is is that if President Trump wins but 0:04:29.160 --> 0:04:32.039 the Democrats take the House, pretty much all of his 0:04:32.279 --> 0:04:36.440 tax vision, if you will, is going to be curtailed, negotiated, 0:04:36.480 --> 0:04:38.719 and a lot more restricted. Now, if he ends up 0:04:38.760 --> 0:04:41.440 winning the House and the Senate, they can use reconciliation 0:04:41.520 --> 0:04:44.719 to essentially bypass the Democrats, and they have a very 0:04:44.720 --> 0:04:47.159 broad net that they can cast. So a lot of 0:04:47.200 --> 0:04:49.120 people that I've been talking to you of saying, look, 0:04:49.160 --> 0:04:53.039 we understand the Trump era desires and we understand that 0:04:53.120 --> 0:04:57.240 these broads deficit inducing tax cuts potentially could be on 0:04:57.279 --> 0:04:59.920 the horizon, but we're not excited about it. Just yes, 0:05:00.160 --> 0:05:01.919 because we need to see how the House and Senate 0:05:02.000 --> 0:05:03.120 races play out. 0:05:03.400 --> 0:05:07.360 What is the thinking currently in Washington, Nathan about how 0:05:07.360 --> 0:05:08.880 that will play out in Congress? 0:05:09.560 --> 0:05:11.320 Well, look, I mean, you know, if you go to 0:05:11.320 --> 0:05:14.160 the function on the terminal WSL election, you can see 0:05:14.160 --> 0:05:16.240 all the data there. But I think you know when 0:05:16.279 --> 0:05:18.359 it comes to the Senate, that's going to be somewhat 0:05:18.480 --> 0:05:20.719 very difficult for the Democrats to control because right now 0:05:20.760 --> 0:05:22.880 it's fifty one to forty nine. You're gonna lose West 0:05:22.960 --> 0:05:25.960 Virginia because Senator Joe Manchin is retiring, So now you're 0:05:25.960 --> 0:05:28.080 at a fifty fifty and the Democrats essentially have to 0:05:28.160 --> 0:05:30.679 run the board just to keep that fifty to fifty. 0:05:30.760 --> 0:05:33.559 Think of Senator Shery Brown in Ohio, Senator John Tester, 0:05:33.640 --> 0:05:36.880 and Montana Senator Jackie Rose in Nevada. So assuming that 0:05:36.920 --> 0:05:39.479 if the Democrats lose one, the Republicans are most likely 0:05:39.520 --> 0:05:41.880 going to take the Senate. And if President Trump wins, 0:05:42.080 --> 0:05:44.200 then obviously allow him the ability to put in. 0:05:44.200 --> 0:05:46.960 Judges and his regulatory leadership when it comes to the House. 0:05:46.960 --> 0:05:48.279 I've seen pulling up both sides. 0:05:48.320 --> 0:05:50.599 But my general view, and this is just my personal view, 0:05:50.839 --> 0:05:52.880 is that whoever wins the President also wins the House. 0:05:53.200 --> 0:05:56.159 Our thanks to Nathan Dean, Bloomberg Intelligence Senior Policy Analyst. 0:05:56.520 --> 0:05:58.760 We next take a look at the coffee chains Starbucks. 0:05:58.839 --> 0:06:02.120 Starbucks CEO Brian Nicchol officially took office this week, and 0:06:02.200 --> 0:06:03.880 expectations for him are high. 0:06:04.040 --> 0:06:06.720 The company shares sort of eighteen percent after it named 0:06:06.800 --> 0:06:10.080 Nicol CEO, and this comes after two consecutive quarters of 0:06:10.200 --> 0:06:13.200 sales slumps. For more, we were joined by Michael Halen, 0:06:13.279 --> 0:06:15.920 Bloomberg Intelligence Senior Restaurant and Food service centerals. 0:06:16.080 --> 0:06:18.360 We first asked Michael just how long the market gives 0:06:18.440 --> 0:06:19.760 Nicol before judging him. 0:06:20.160 --> 0:06:22.839 It's tough to say, right, you know, I think really 0:06:23.520 --> 0:06:25.760 it's going to take some time. You know, you don't 0:06:25.760 --> 0:06:28.120 turn around an aircraft carrier on a dime, you know, 0:06:28.200 --> 0:06:31.680 Starbucks is a behemoth of a company, so I think 0:06:31.720 --> 0:06:34.040 the market gives him some time. He's got a phenomenal 0:06:34.080 --> 0:06:37.320 track record, right what he's done at Taco Bell and 0:06:37.320 --> 0:06:41.240 then Chipotle, obviously we're very impressive, you know, and he's 0:06:41.279 --> 0:06:43.719 really you know, the first thing he's going to do, 0:06:43.760 --> 0:06:45.720 I think is just try to change that culture, right, 0:06:45.760 --> 0:06:49.640 bringing in a culture of transparency, accountability. He's going to 0:06:49.720 --> 0:06:53.720 talk about hard work and compensating his employees for doing 0:06:53.760 --> 0:06:56.719 a good job, because you know, those are some of 0:06:56.720 --> 0:07:00.479 the things he talked about changing at Chipotle on his 0:07:00.560 --> 0:07:02.960 first earnings call there. So you know, all that stuff's 0:07:02.960 --> 0:07:04.320 going to take a little bit of time, and because 0:07:04.360 --> 0:07:07.239 of his track record he'll get he'll get a pretty 0:07:07.240 --> 0:07:07.680 long leash. 0:07:07.720 --> 0:07:10.560 I think, what are the challenges facing this company? Because 0:07:10.680 --> 0:07:13.560 just as a consumer, I mean the Starbucks and Route 0:07:13.560 --> 0:07:15.520 thirty five in Wall Township, New Jersey, they do a 0:07:15.560 --> 0:07:18.320 great job. People are great. It just works like a 0:07:18.400 --> 0:07:20.920 charm stores in great shape. The one in Summit's good, 0:07:20.960 --> 0:07:23.120 it's always packed. What do they need to do here? 0:07:23.200 --> 0:07:24.239 I don't think anything's broken. 0:07:24.600 --> 0:07:26.720 You know, it sounds like that location is doing pretty well. 0:07:26.720 --> 0:07:29.800 But they have of thousands and thousands of locations across 0:07:29.840 --> 0:07:32.360 the globe. I mean, you know, in the US, operations 0:07:32.440 --> 0:07:35.679 is a big issue. You know, drink orders have become 0:07:35.720 --> 0:07:41.640 more complicated. Digital orders have kind of changed the experience 0:07:41.680 --> 0:07:46.080 for the in cafe customer, right, Like it was it 0:07:46.200 --> 0:07:49.480 became popular because the briests new your name, right, and 0:07:50.280 --> 0:07:53.160 the level of service was phenomenal for a chain of 0:07:53.200 --> 0:07:58.960 that size, right, and through digital ordering and these very 0:07:59.000 --> 0:08:02.680 complicated orders, you know, they've lost some of that, right, 0:08:02.760 --> 0:08:05.680 and so so operations, you know, they're losing a lot 0:08:05.680 --> 0:08:07.640 of orders because people are trying to place them on 0:08:07.680 --> 0:08:10.560 the app and the wait times are are kind of 0:08:10.560 --> 0:08:15.000 obnoxious at times, right, And so I think operations is 0:08:15.040 --> 0:08:19.000 going to be his primary focus. Running the best cafes 0:08:19.080 --> 0:08:22.280 possible is really going to be job number one. But 0:08:22.320 --> 0:08:24.880 there's a bunch of different issues, you know, operations is 0:08:24.960 --> 0:08:28.480 just one of them. Politics has been an issue, right. 0:08:28.960 --> 0:08:32.199 Starbucks has always been a brand that kind of puts 0:08:32.240 --> 0:08:35.280 their politics in your face, and I think Brian Nichol 0:08:35.360 --> 0:08:37.280 is going to want to step back from that, right 0:08:37.360 --> 0:08:39.719 because you know, all the issues they've had with their 0:08:39.760 --> 0:08:43.200 customer base, right, people haven't been happy with you know, 0:08:43.200 --> 0:08:46.640 there's been some boycott talks online about their stance on 0:08:46.640 --> 0:08:50.040 the Israel Hamas War, about their stance and how they've 0:08:50.080 --> 0:08:53.559 handled the union negotiations. You know, So that's a big thing. 0:08:53.640 --> 0:08:56.520 And then you know, we think eventually, once they have 0:08:56.559 --> 0:08:59.320 the stores running really really well, they're going to start 0:08:59.360 --> 0:09:01.840 spending some more money on marketing. Maybe not a ton 0:09:01.880 --> 0:09:05.880 of money, but we would expect them to start spending 0:09:06.320 --> 0:09:07.120 on marketing. 0:09:07.400 --> 0:09:07.640 You know. 0:09:08.000 --> 0:09:11.040 It's not something that that Starbucks has traditionally done. But 0:09:11.080 --> 0:09:14.360 it also wasn't something that Chipotle had traditionally done, and 0:09:14.400 --> 0:09:17.600 it's been paying them dividends now for a handful of years. 0:09:17.720 --> 0:09:19.920 So I think with Chipottle though, we just maybe Paul 0:09:19.960 --> 0:09:23.160 can attest. Is it like there's a menu and it's basic, 0:09:23.320 --> 0:09:25.760 like they're add ons, right, but like it's a basic menu. 0:09:25.840 --> 0:09:29.600 Starbucks menu is like explosive, Like they can't even have 0:09:29.800 --> 0:09:32.280 all the options up on the ordering board because they're 0:09:32.320 --> 0:09:35.000 just too many. So it is working with operations and 0:09:35.040 --> 0:09:36.800 getting that better. I mean, they have to pair back 0:09:36.840 --> 0:09:37.880 their menu and get back. 0:09:37.720 --> 0:09:39.720 To their base. Yeah. 0:09:39.760 --> 0:09:40.240 Probably. 0:09:40.400 --> 0:09:43.560 You know, we had been critical of the previous management 0:09:43.600 --> 0:09:47.920 team because they kept rolling out new menu platforms and 0:09:47.960 --> 0:09:50.920 then in the in the next breath talking about improving throughput. 0:09:51.000 --> 0:09:53.840 But you can't have baths, so we we fully expect 0:09:53.840 --> 0:09:56.440 them to pair back this menu, make it easier to 0:09:56.480 --> 0:10:00.960 execute in the cafes, right, make lie it's easier for 0:10:01.600 --> 0:10:05.120 their employees and get the orders out faster. So yeah, 0:10:05.160 --> 0:10:07.760 I think that's going to be a major part of 0:10:07.840 --> 0:10:09.120 what they do going forward. 0:10:09.840 --> 0:10:13.559 I mean, Bloomberg had a story from last in twenty 0:10:13.559 --> 0:10:16.199 twenty three where I mean the variations. If you add 0:10:16.360 --> 0:10:19.280 all the potential options, there's like billions of different types 0:10:19.320 --> 0:10:21.240 of drinks that could be oh yeah, yeah, you know. 0:10:21.320 --> 0:10:23.320 So it's just at it and there's like the cold drink, 0:10:23.320 --> 0:10:25.840 there's the tea, there's the refreshers. Then there's the frozen 0:10:25.840 --> 0:10:28.640 refreshers and the blended refreshers. And I know those because 0:10:28.640 --> 0:10:30.800 my daughter likes those things. But sometimes you get them 0:10:30.800 --> 0:10:33.319 frozen and sometimes they're not. It's very complicated. 0:10:33.400 --> 0:10:36.080 I know how they do it, and my power, you know, 0:10:36.280 --> 0:10:38.360 my hats off to them. All Right, let's step back 0:10:38.440 --> 0:10:41.200 and look at the restaurant space in general. Here, You've 0:10:41.200 --> 0:10:44.319 got some research out recently restaurant promotions marketing heat up. 0:10:44.520 --> 0:10:46.360 That's not what shareholders want to hear, do. 0:10:46.400 --> 0:10:49.920 They no, But restaurants are kind of desperate right now 0:10:49.920 --> 0:10:53.680 to get some traffic into their stores. Low income consumers 0:10:54.080 --> 0:10:57.160 spending has been very weak. This seems to be spreading 0:10:57.200 --> 0:11:00.199 to the middle income consumers, right, based on the industry 0:11:00.280 --> 0:11:04.320 data that we've seen, which showed an improvement you know, 0:11:04.520 --> 0:11:07.719 last month in August, but it was still negative at 0:11:07.880 --> 0:11:12.360 casual dining restaurants, at family dining restaurants, and at quick service, right, 0:11:12.400 --> 0:11:15.720 and so they bounce from that horrific July numbers that 0:11:15.800 --> 0:11:19.880 we saw, but still are negative. And so yeah, restaurants 0:11:20.120 --> 0:11:23.480 are trying to do whatever they can to bring you know, 0:11:23.880 --> 0:11:27.160 those low income consumers and middle income consumers back into 0:11:27.160 --> 0:11:29.160 their restaurants. You know, just for example, it was you know, 0:11:29.240 --> 0:11:31.640 I think it's thirty five out of the last thirty 0:11:31.679 --> 0:11:35.760 seven quarters quick service chains have had negative traffic, right, 0:11:35.800 --> 0:11:39.120 And so that's that's not a sustainable type of situation 0:11:39.160 --> 0:11:41.480 when you have same source sales rising because your prices 0:11:41.520 --> 0:11:45.000 are going up, but traffic can continues to decline. Eventually 0:11:45.040 --> 0:11:48.120 there's a tipping point, and that's what we've seen this year. 0:11:48.559 --> 0:11:51.320 So to that point, then, which ones are do you 0:11:51.360 --> 0:11:53.640 have faith that can maintain some kind of margin and 0:11:53.760 --> 0:11:55.960 also grow their top line. 0:11:56.200 --> 0:11:59.120 You know, it's some of these chains that have a 0:11:59.160 --> 0:12:03.040 big gas on pricing, you know, in terms of you know, 0:12:03.320 --> 0:12:04.400 they've been pricing less. 0:12:04.280 --> 0:12:05.079 Than their competitors. 0:12:05.120 --> 0:12:07.880 Right, So if you you're providing a lot of value, 0:12:08.280 --> 0:12:10.600 and value can be two ways. It can be a 0:12:10.640 --> 0:12:12.760 better price, but it also can be a lot more 0:12:12.800 --> 0:12:16.160 food for what you pay. But some of these companies 0:12:16.200 --> 0:12:21.080 that people see value at, you know, Winkstop, Chipotle, Texas Roadhouse, 0:12:21.120 --> 0:12:23.679 these are all of the chains that have been outperforming. 0:12:23.720 --> 0:12:25.520 These all of the chains that have been able to 0:12:25.640 --> 0:12:28.120 drive traffic, and a big part of it is being 0:12:28.200 --> 0:12:32.600 priced below competitors. You know, Winkstops raise prices about half 0:12:32.640 --> 0:12:35.600 as much as their competitors, and on their last earnings call, 0:12:35.640 --> 0:12:39.080 they credited that as a big reason for their phenomenal 0:12:39.200 --> 0:12:40.040 qorder our. 0:12:40.080 --> 0:12:43.480 Thanks to Michael Halen Bloomberg Intelligence, senior restaurant and food service. 0:12:43.280 --> 0:12:45.920 Centers coming up will break down Apples rise into the 0:12:46.000 --> 0:12:48.200 most valuable company in the world. 0:12:48.360 --> 0:12:51.160 You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in 0:12:51.200 --> 0:12:53.679 depth research and data on two thousand companies in one 0:12:53.760 --> 0:12:56.959 hundred and thirty industries. You can access Bloomberg Intelligence via 0:12:57.040 --> 0:12:58.840 b I go on the terminal on Paul. 0:12:58.720 --> 0:13:01.240 Sweeney and a Malex Steele. This is Bloomberg. 0:13:06.800 --> 0:13:10.720 This is Bloomberg Intelligence with now like Steele and Paul 0:13:10.760 --> 0:13:13.120 Sweeney on Bloomberg Radio. 0:13:14.120 --> 0:13:16.800 We look next at European banks. This week we heard 0:13:16.840 --> 0:13:18.800 that Unit Credit has built a nine percent stake in 0:13:18.840 --> 0:13:21.400 Commerce Bank and plans to enter into talks with the lender. 0:13:21.800 --> 0:13:24.240 This raises the possibility of a full takeover that could 0:13:24.240 --> 0:13:27.360 reshape Europe's banking landscape for more. We were joined by 0:13:27.440 --> 0:13:30.520 Philip Richards, Bloomberg Intelligence, senior analysts for European banks. 0:13:30.559 --> 0:13:32.880 We first asked Philip to break down the possibility Commerce 0:13:32.920 --> 0:13:34.240 Bank will actually be taken over. 0:13:34.600 --> 0:13:36.280 It's an interesting one. As you say, this is not 0:13:36.320 --> 0:13:38.959 a new boombed deal. It's been going on for literally 0:13:39.000 --> 0:13:41.280 well over a decade now in terms of big cross 0:13:41.280 --> 0:13:43.480 bordered deals. But the simple case of mains, any big 0:13:43.520 --> 0:13:46.920 cross border transaction among European banks so hasn't happened in 0:13:46.960 --> 0:13:49.760 the last fifteen years since the clasis. Will it happen now? Yes, 0:13:49.800 --> 0:13:52.240 it's possibility, but there's still a lot of hurdles on 0:13:52.400 --> 0:13:55.560 left in terms of the German government allow and specifically 0:13:56.120 --> 0:13:58.520 when it would flag. The German market is very different 0:13:58.520 --> 0:14:01.480 to all the other European markets, very big cooperative or 0:14:01.520 --> 0:14:04.360 mutual society. They've got the Sparcasm and the Landers banks. 0:14:04.480 --> 0:14:06.880 So actually the private banks Deutsche Bank and Commerce Bank 0:14:07.040 --> 0:14:10.040 are a much smaller part of the overall market. And 0:14:10.080 --> 0:14:12.640 therefore could they take out the second biggest germin Bank? 0:14:12.800 --> 0:14:14.800 I think it is possible on our front. 0:14:14.960 --> 0:14:17.319 Would it be a good deal for Unit Credit? I 0:14:17.360 --> 0:14:19.880 guess what I'm asking is how good of a management team, 0:14:19.920 --> 0:14:22.080 how good of a franchise is UniCredit? 0:14:22.800 --> 0:14:23.040 Well? 0:14:23.160 --> 0:14:24.680 Is it a good deal? I mean that will come 0:14:24.720 --> 0:14:26.720 down to the price. And one good thing about Commerce 0:14:26.720 --> 0:14:29.840 Bank is is pricing is a low level in terms 0:14:29.840 --> 0:14:31.760 of what you get for it. Yes, the earnings have 0:14:31.840 --> 0:14:34.280 been very very weak for the last fifteen years, one 0:14:34.280 --> 0:14:36.680 of the lowest return and equity of all banks in Europe, 0:14:36.760 --> 0:14:39.640 but they have increased massively with rate risers across Europe. 0:14:39.920 --> 0:14:41.400 But of course the flip tide to that, of course, 0:14:41.480 --> 0:14:44.400 is interest rates now going down. So the question becomes 0:14:44.440 --> 0:14:46.600 what will happen to Commerce Bank's earning is going forward? 0:14:47.040 --> 0:14:49.360 And frankly they're probably going to be going down and 0:14:49.400 --> 0:14:51.480 therefore that's where the pressure on them will lie. So 0:14:51.520 --> 0:14:53.880 are they getting a good deal or they're paying almost 0:14:53.760 --> 0:14:55.960 at the top in terms of their earning potential? 0:14:56.400 --> 0:14:58.880 What company would that make UniCredit like, would this be 0:14:59.600 --> 0:15:02.880 a gient investment bank and a giant retail bank. 0:15:03.520 --> 0:15:07.200 Well, they will become the third largest European bank if 0:15:07.200 --> 0:15:09.480 they did the deal in terms of a market cap basis. 0:15:10.000 --> 0:15:12.560 Obviously Commerce Bank is almost entirely now a retail and 0:15:12.600 --> 0:15:15.360 commercial bank is sold or the investment banking operations that 0:15:15.520 --> 0:15:18.160 had after the financial crisis, So this is amount of 0:15:18.160 --> 0:15:20.680 the case of expanding in terms of that retail commercial space. 0:15:21.000 --> 0:15:23.720 UniCredit have a big presence in Germany already through hyper 0:15:23.800 --> 0:15:26.120 Variant Bank, so one of the attractions to sort of 0:15:26.200 --> 0:15:28.720 deal for them would be combining that so Commerce Bank 0:15:28.760 --> 0:15:30.920 and hyper viands and therefore trying to get the constand 0:15:30.960 --> 0:15:32.720 news out of them. But say, it's veryment on a 0:15:32.720 --> 0:15:35.240 commercial retail side rather than investment banking. 0:15:35.680 --> 0:15:38.120 So Philip talk to us about I mean, just the 0:15:38.200 --> 0:15:41.840 German banking market. Does there need to be consolidation. 0:15:41.680 --> 0:15:44.280 Does they? Yes? I mean it's probably the least consolidated 0:15:44.360 --> 0:15:46.760 market in Europe in terms of as you said, you've 0:15:46.760 --> 0:15:49.720 got this huge number of coopertive banks or sparkasms, et cetera. 0:15:50.480 --> 0:15:53.200 So it is a very difficult and diluted market. But 0:15:53.240 --> 0:15:55.160 the fact is, you know, Commerce Bank itself has got 0:15:55.160 --> 0:15:57.640 a sub ten percent market share. So even if you 0:15:57.800 --> 0:15:59.880 got it, did buy it and combined hyper virans with it, 0:16:00.200 --> 0:16:03.080 they're still probably just getting over about that ten percent mark. 0:16:03.720 --> 0:16:06.280 So will it change the dial in Germany not at all, 0:16:06.440 --> 0:16:09.120 you know, because we're only talking in a thirty percent subsector. 0:16:09.160 --> 0:16:11.720 In terms of the private banks, we're seventy percent or 0:16:11.720 --> 0:16:14.880 so off the market you know, is in this mutual side. 0:16:15.160 --> 0:16:17.000 So you were talking earlier that this has been rumored 0:16:17.040 --> 0:16:18.880 for ten years. I remember talking about this at least 0:16:18.920 --> 0:16:21.880 six plus years ago. Also, why do you think that 0:16:22.120 --> 0:16:24.240 now could be actually the moment. 0:16:24.560 --> 0:16:26.080 Well, you asked us about you know, what they get 0:16:26.120 --> 0:16:27.920 in terms of the Commerce Bank. We heard your CEO 0:16:28.000 --> 0:16:30.120 of Commerce Bank said he will not renew a tenor 0:16:30.160 --> 0:16:31.920 which I missed fires at the end of next year. 0:16:32.240 --> 0:16:34.000 So you know that does open a hole at the 0:16:34.080 --> 0:16:36.240 top of the bank would obviously be in traction for them. 0:16:36.880 --> 0:16:39.200 There's one potential way of doing it. Who would have 0:16:39.200 --> 0:16:41.760 bought Commerce Bank given the excessive risks they had, say 0:16:41.800 --> 0:16:44.000 three or four years ago, where we had the commercial 0:16:44.040 --> 0:16:46.000 real estate risks, we had the bank trading at point 0:16:46.080 --> 0:16:49.200 three times book value. We had earnings are very very low. 0:16:49.400 --> 0:16:51.360 So in a way the risk has gone away a 0:16:51.360 --> 0:16:53.960 lot of Commerce Bank because simply because the earnings are 0:16:54.040 --> 0:16:56.880 much stronger now because of those rate rises. Also, the 0:16:56.920 --> 0:16:59.040 German government took a big stake in the bank, so 0:16:59.120 --> 0:17:01.760 as they sell that than further down. That's part of 0:17:01.760 --> 0:17:05.200 the way Unichledate built their state. Today that obviously becomes 0:17:05.200 --> 0:17:07.520 more and more attractive because it comes more into the private sector. 0:17:08.040 --> 0:17:10.160 So there are numbers more reasons why it could happen, 0:17:10.240 --> 0:17:13.160 but doesn't mean anything will happen then, No, is. 0:17:13.080 --> 0:17:15.320 This going to ignite maybe a little bit more discussion 0:17:15.359 --> 0:17:18.080 about more across M and A trades just broadly defined 0:17:18.160 --> 0:17:19.360 across Europe. 0:17:19.359 --> 0:17:22.160 Without any doubt it will trigger more emine spectation today, 0:17:22.160 --> 0:17:23.680 And I think the fact that you said they build 0:17:23.720 --> 0:17:26.200 a temperate stake and yet the share then rally twenty 0:17:26.240 --> 0:17:28.399 percent shows that the market doesn't think this is the 0:17:28.440 --> 0:17:30.000 end of the story and there's going to be more 0:17:30.000 --> 0:17:32.800 of a deal and the potential by bid for Commerce 0:17:32.840 --> 0:17:35.240 Bank is possible. That said, you know, why has there 0:17:35.320 --> 0:17:37.400 been no big m and A across the sector now 0:17:37.400 --> 0:17:40.000 for fifteen years? And because a number of the regularly 0:17:40.080 --> 0:17:42.240 hurdles are main You know, there's not a single rule 0:17:42.240 --> 0:17:45.479 book across Europe, government interference, people don't want to leave 0:17:45.480 --> 0:17:48.120 their biggest banks and be taken over by a foreign institution, 0:17:48.560 --> 0:17:51.359 et cetera. All these hurdles and nothing's actually changed on 0:17:51.400 --> 0:17:54.399 that front. So you know, no big deals have happened. 0:17:54.440 --> 0:17:56.879 Could this be the first, Yes, but it's by no 0:17:56.960 --> 0:17:58.159 means certain it will. 0:17:58.119 --> 0:18:02.000