WEBVTT - Microsoft, First Republic, the Debt Ceiling, and Watches 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.360 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:21.079 --> 0:00:23.520 All right, let's talk tech. The tech geeks are out 0:00:23.600 --> 0:00:27.760 in force today. MSFT put up some numbers. Let's bring 0:00:27.800 --> 0:00:30.920 in anaag Ran and man Deep Singh, our tech analyst 0:00:30.920 --> 0:00:33.160 at Bloomberg Intelligence. And we can't get rid of these guys. 0:00:33.320 --> 0:00:36.680 They keep sticking around. So on, rog, let's start with 0:00:36.720 --> 0:00:40.400 you Microsoft. I mean, this is a two trillion dollar 0:00:40.520 --> 0:00:44.160 market cap company and stocks up seven percent today. Talk 0:00:44.159 --> 0:00:48.360 to us first about the earnings and then second about activision. 0:00:48.720 --> 0:00:50.839 Yeah, you know, Paul, you've known that I've liked this 0:00:50.880 --> 0:00:53.400 company for many years. But frankly, going into the quota, 0:00:53.520 --> 0:00:55.400 I was a little worded that they were going to 0:00:55.640 --> 0:00:58.440 not only miss, but actually guide downwards. And the exact 0:00:58.520 --> 0:01:03.520 opposite happened. Almost every major product category performed better compared 0:01:03.560 --> 0:01:07.640 to last quarter, and you know, increasing revenue run rates, 0:01:07.640 --> 0:01:10.240 So I have no words. I mean, they just blow 0:01:10.280 --> 0:01:10.920 it out of the park. 0:01:10.920 --> 0:01:15.640 Frankly, all right, activision. Activision is big, I mean sucks big. 0:01:16.120 --> 0:01:18.720 Not hurting Microsoft, though, I should point out that, you know, 0:01:18.840 --> 0:01:21.920 Microsoft was up like eight percent in the pre market trade. 0:01:22.319 --> 0:01:24.840 Then the headline came across from the UK that the 0:01:24.880 --> 0:01:28.279 regulator there is going to bigfoot this sixty nine billion 0:01:28.360 --> 0:01:31.880 dollar purchase and Microsoft is still up seven percent. 0:01:32.560 --> 0:01:34.720 Yeah, that's fair, but they are up on you know 0:01:35.520 --> 0:01:37.679 numbers and not lets you know, not that it had 0:01:37.720 --> 0:01:39.600 nothing to do with the you know, the acquisition in 0:01:39.640 --> 0:01:42.200 our vue. But this is going to be a big 0:01:42.240 --> 0:01:44.800 problem in terms of how this thing gets settled. Now, 0:01:44.800 --> 0:01:46.480 it's going to be a lot of court fighting and 0:01:46.560 --> 0:01:49.840 legal issues. And I mean this just shows that regulators 0:01:49.840 --> 0:01:52.720 around the world don't want big tech companies to buy anything. 0:01:52.760 --> 0:01:55.520 I mean, this is so basically buybacks, more buybacks. 0:01:56.000 --> 0:01:58.160 I saw Jenary on Bloomberg Television. I get to see 0:01:58.160 --> 0:02:00.200 what she said. What is Jenry, who was our was 0:02:00.200 --> 0:02:02.280 our anti trust expert in Bloomberg Intelligence, What is she 0:02:02.320 --> 0:02:02.760 saying about it? 0:02:02.800 --> 0:02:04.920 She thinks it's just going to be an ongoing legal 0:02:04.960 --> 0:02:07.080 battle to try to get this resolved. I mean, that's 0:02:07.080 --> 0:02:08.600 it's just going to take a lot more time to 0:02:08.639 --> 0:02:11.560 figure out. Microsoft not going to back down anytime, honoring. 0:02:11.639 --> 0:02:15.840 Why does Microsoft need call of duty? You know, why 0:02:15.880 --> 0:02:18.359 do they need activision which makes call of duty? Now 0:02:18.400 --> 0:02:21.040 that they have AI powered bing? 0:02:23.240 --> 0:02:25.400 Well, you've told me this many times that you know 0:02:25.800 --> 0:02:27.959 the cloud gaming is not ready here right now, and 0:02:28.040 --> 0:02:29.840 you know maybe it will be ready three to five 0:02:29.880 --> 0:02:33.320 years from now, and the whichever company has more content 0:02:33.480 --> 0:02:35.440 is going to be dominant, is going to be one 0:02:35.440 --> 0:02:37.919 of the dominating force there. And gaming has been a 0:02:37.919 --> 0:02:40.640 big part of Microsoft since southiat Okoba. 0:02:41.040 --> 0:02:41.480 All right. 0:02:41.720 --> 0:02:46.840 Mendeed, Meta platform slash Facebook in this studio stock is 0:02:46.919 --> 0:02:51.160 up seventy seven year to date. I thought these guys 0:02:51.160 --> 0:02:54.600 had a problem with costs going crazy on something like 0:02:54.720 --> 0:02:56.680 called the metaverse, which I don't know what that is. 0:02:57.440 --> 0:03:01.200 Advertisers pulling back because there's a recession. How did they 0:03:01.200 --> 0:03:03.880 turn the narrative around here for meta. 0:03:03.320 --> 0:03:06.760 Well, it is still driven by cost cuts. Nothing has 0:03:06.880 --> 0:03:09.799 changed in terms of the top line expectations. I think 0:03:09.840 --> 0:03:13.560 what Alphabet did yesterday was to la fears that, you know, 0:03:14.040 --> 0:03:17.280 digital advertising was going down the cliff. I don't think 0:03:17.320 --> 0:03:21.040 that's happening anymore. And look, there will be at pricing headminds. 0:03:21.080 --> 0:03:23.720 Search is the most resilient, which is what the alphabet 0:03:23.800 --> 0:03:28.320 number showed. I do expect some at pricing headminds in 0:03:28.400 --> 0:03:32.480 the results tonight, But when you are cutting ten billion 0:03:32.560 --> 0:03:36.480 dollars in costs, I think it's always a good story 0:03:36.520 --> 0:03:39.240 to sell, given we know these models are so good 0:03:39.280 --> 0:03:41.600 in terms of you know, throwing out free cash flow. 0:03:41.680 --> 0:03:44.600 So that's what's driving the stock right now. 0:03:44.640 --> 0:03:50.440 Does Google have a weakness here? I know they dominate 0:03:50.440 --> 0:03:54.080 in search with something like ninety percent of the global 0:03:54.080 --> 0:03:58.800 search market right and Microsoft they're being had like six 0:03:58.920 --> 0:04:02.520 or seven percent. But now they've got this AI powered bing. 0:04:02.880 --> 0:04:05.840 I used it this morning to ask what kind of 0:04:05.880 --> 0:04:10.640 infrastructure upgrades are needed on the US electricity grid if 0:04:10.800 --> 0:04:15.320 people start adopting a higher share of evs rather than 0:04:15.600 --> 0:04:19.160 ic E cars. You asked chat, I asked bing in 0:04:19.240 --> 0:04:23.200 one in one sent in one you know search query, 0:04:23.640 --> 0:04:26.159 I said, what kind of infrastructure upgrade does the US 0:04:26.240 --> 0:04:29.040 electric grid need if we start buying more and more evs? 0:04:29.360 --> 0:04:30.520 And the and the and the. 0:04:30.600 --> 0:04:34.320 And the AI chat bot came back with an incredibly 0:04:35.120 --> 0:04:42.320 elegant UH and direct answer, citing three different sources saying, look, 0:04:42.360 --> 0:04:44.480 we're gonna need one and a half to two trillion 0:04:44.560 --> 0:04:48.320 dollars of infrastructure upgrades by twenty thirty just to maintain 0:04:49.440 --> 0:04:52.320 the electric grid where it is today. That's incredibly smart. 0:04:52.400 --> 0:04:54.120 Google couldn't do anything near that. 0:04:54.800 --> 0:04:57.000 Well, they will be, and that's the risk when you 0:04:57.040 --> 0:05:00.800 have a ninety percent share in search. It's like anything 0:05:00.880 --> 0:05:04.159 that comes on the horizon is always an imminent threat. 0:05:04.200 --> 0:05:06.120 So in this case, clearly. 0:05:05.800 --> 0:05:08.000 But there's never been anything on the horizon before. 0:05:08.200 --> 0:05:11.560 Well no, I would disagree because a lot of people 0:05:11.760 --> 0:05:16.320 and companies have tried PageRank. They've tried to copy Google's algorithm, 0:05:16.520 --> 0:05:19.159 but they've never been as good in search as Google. 0:05:19.240 --> 0:05:23.080 And that's why that mode has been penetrable, because no 0:05:23.160 --> 0:05:25.800 one has been as good in search. So clearly, this 0:05:26.000 --> 0:05:28.240 is something new on the horizon. It has a lot 0:05:28.240 --> 0:05:31.920 of promise. We think it's going to raise Google's cost 0:05:31.960 --> 0:05:35.640 of revenue because the cost of infrastructure goes up. But 0:05:36.000 --> 0:05:38.920 will it be as good and as simple to use 0:05:38.960 --> 0:05:41.480 as Google Search. The answer so far is no, and 0:05:41.520 --> 0:05:44.680 it hasn't heard their revenue, which is why search are 0:05:44.760 --> 0:05:45.680 performed last night. 0:05:45.839 --> 0:05:48.000 But Matt had a I can't believe Matt put that 0:05:48.080 --> 0:05:48.520 query in. 0:05:48.560 --> 0:05:51.640 That's pretty yes, And that's where the search market could 0:05:51.720 --> 0:05:54.880 grow because now you could search in terms of you know, 0:05:55.000 --> 0:05:57.920 long questions, which you weren't able to do before, and 0:05:57.960 --> 0:06:00.600 you don't have to browse through the links that they showing. 0:06:00.600 --> 0:06:03.320 You said, this is a better way to consume Internet 0:06:03.360 --> 0:06:06.520 content because you can search in paragraphs like long queries. 0:06:06.560 --> 0:06:08.800 And I just like liquor store near me. That was 0:06:10.120 --> 0:06:13.960 man so Ana Rod talk to us about just tech 0:06:14.040 --> 0:06:17.360 spending overall. I mean, you know, really over the last 0:06:17.360 --> 0:06:20.440 fifteen twenty years, it's just it seems like it's never slowed. 0:06:20.680 --> 0:06:22.960 You guys think you're smart, but reality is you're just 0:06:23.160 --> 0:06:26.479 you're just behind this great tech wave. I mean, anybody 0:06:26.520 --> 0:06:29.839 could do that. But now we actually have some headwinds 0:06:30.160 --> 0:06:32.599 to tech spending. Where are we seeing some of those headwinds? 0:06:32.720 --> 0:06:34.680 How pronounced are they How long do you think they'll 0:06:34.839 --> 0:06:35.680 they'll persist? 0:06:35.839 --> 0:06:38.400 See, before last night, I thought it would last by 0:06:38.440 --> 0:06:40.200 the end of the year. But to be very honest, 0:06:40.240 --> 0:06:42.760 after Microsoft, you know, we could already be at that 0:06:42.800 --> 0:06:44.839 pivot at this point, and you know it will take 0:06:44.839 --> 0:06:46.599 a few more couple of months more for us to 0:06:46.600 --> 0:06:49.520 figure it out. I have no doubt that once all 0:06:49.560 --> 0:06:51.840 of this thing you know, settles in next year or 0:06:51.880 --> 0:06:54.440 whenever that you know twelve month period is over, we're 0:06:54.440 --> 0:06:56.239 going to see a bounce back and a major bounce 0:06:56.320 --> 0:07:00.239 back in growth rates. Because the shift or digital sift 0:07:00.279 --> 0:07:02.560 to AI shift, all of these things is still in 0:07:02.800 --> 0:07:06.240 such early innings that there is no reason for companies 0:07:06.240 --> 0:07:08.120 not to spend on technology products. 0:07:08.720 --> 0:07:09.000 Mandy. 0:07:09.960 --> 0:07:13.080 I mean in your in the companies you cover, where 0:07:13.200 --> 0:07:16.400 you seeing some of the biggest growth in tech spending. 0:07:16.600 --> 0:07:20.880 Is there the next cloud out there? What's the next 0:07:20.880 --> 0:07:21.280 big thing? 0:07:21.480 --> 0:07:24.120 I think the next big thing is clearly large language 0:07:24.160 --> 0:07:28.320 models and generative AI. That's what these generative AI, generative 0:07:29.160 --> 0:07:32.320 generative AI, That's what Matt's query is about, you know, 0:07:32.520 --> 0:07:36.120 in terms of looking at content that's out there on 0:07:36.160 --> 0:07:39.840 the web and giving a smart long form results where 0:07:39.880 --> 0:07:42.360 you don't have to go through different types of links. 0:07:42.360 --> 0:07:45.560 And you can apply that concept with images, with different 0:07:45.560 --> 0:07:48.520 types of content, so it's not just text based searches. 0:07:48.840 --> 0:07:51.320 You can apply that framework to a lot of different 0:07:51.360 --> 0:07:55.120 types and I think every company right now is tinkering 0:07:55.160 --> 0:07:58.400 with it. Clearly there's a big infrastructure investment that and 0:07:58.640 --> 0:08:01.680 Rog was alluding to. So that's going into that tech 0:08:01.720 --> 0:08:04.400 spend is you have to upgrade your infrastructure. You can 0:08:04.840 --> 0:08:07.480 use your existing data centers and run those queries and 0:08:07.560 --> 0:08:10.440 that's a big, big tailwind for it spent. 0:08:10.600 --> 0:08:12.640 I just asked Bing how much of a problem is 0:08:12.640 --> 0:08:14.760 the rising rate environment in the United States for big 0:08:14.800 --> 0:08:18.120 technology companies and their spending plans. And Bing says higher 0:08:18.120 --> 0:08:21.000 interest rates can hurt growing tech companies in three ways. First, 0:08:21.240 --> 0:08:23.440 they increase the cost of borrowing more money to expand 0:08:23.480 --> 0:08:25.880 a business. That's bad news for high growth tech companies 0:08:25.920 --> 0:08:28.600 which are burning cash with widening losses. Second, it reduces 0:08:28.600 --> 0:08:31.400 long term estimates for a company's earnings and free cash flow. Third, 0:08:31.440 --> 0:08:34.160 it slows down businesses cash flows and stunts their reinvestment 0:08:34.280 --> 0:08:35.720 into innovation and growth prosperty. 0:08:35.880 --> 0:08:38.120 Good good job being Men Deep Seeing on Around Rock 0:08:38.160 --> 0:08:39.239 and a Bloomberg Intelligence. 0:08:40.640 --> 0:08:44.040 You're listening to the team Ken's our live program Bloomberg 0:08:44.080 --> 0:08:46.280 Markets weekdays at ten am Eastern. 0:08:46.120 --> 0:08:48.960 On Bloomberg dot com, the iHeartRadio app. 0:08:48.800 --> 0:08:51.679 And the Bloomberg Business App, or listen on demand wherever 0:08:51.720 --> 0:08:52.880 you get your podcasts. 0:08:54.679 --> 0:08:57.920 We have state of the art facilities, and we literally 0:08:57.920 --> 0:09:02.200 met and I sit at a round table, which means 0:09:02.200 --> 0:09:05.320 we can actually have rounds at tables with smart anamals. 0:09:05.400 --> 0:09:08.120 We just did it with the tech geeks on our agrana, 0:09:08.160 --> 0:09:10.240 Man Deep Sing from Bloomberg Intelligence, two of the best 0:09:10.280 --> 0:09:12.800 on the street. Now we do it with the banks. 0:09:12.840 --> 0:09:15.559 We have two other top analysts here, Herman Channey follows 0:09:15.559 --> 0:09:18.880 the regional banks, Neil Sipes. He follows the big boy banks, 0:09:19.120 --> 0:09:21.680 the money center banks, along with Alison Williams. We got 0:09:21.679 --> 0:09:24.040 them here at our Bloomberg Interactive Broker studio. We're round 0:09:24.040 --> 0:09:24.839 tabling this thing. 0:09:25.080 --> 0:09:25.360 Herman. 0:09:25.440 --> 0:09:27.840 Let's start with you're you're the problem child here in 0:09:27.880 --> 0:09:31.600 the banking space at this First Republic thing. It's down 0:09:31.640 --> 0:09:34.680 another gajillion percent today, it was down fifty percent yesterday. 0:09:35.320 --> 0:09:37.720 Is this thing a going concern? Is this something that 0:09:37.760 --> 0:09:40.120 the fdi SE has to come in and just say, okay, 0:09:40.480 --> 0:09:41.440 we're in charge now. 0:09:41.320 --> 0:09:42.320 Don't take going concern. 0:09:42.960 --> 0:09:44.880 I just did. I just did. 0:09:45.000 --> 0:09:47.720 At this point, the bank's running out of options. There's 0:09:47.800 --> 0:09:51.000 been reports from Bloomberg that they're looking to sew up 0:09:51.000 --> 0:09:53.480 to one hundred and fifty or one hundred billion dollars 0:09:53.880 --> 0:09:56.000 in assets. Which I think it's going to be a 0:09:56.000 --> 0:09:58.560 tough We talked about this earlier. They only have about 0:09:58.559 --> 0:10:02.600 fourteen billion dollars capital and any sort of haircut is 0:10:02.600 --> 0:10:05.839 going to eat in that capital, and so it's they 0:10:05.840 --> 0:10:08.520 don't have a lot of good negotiating power at this point. 0:10:08.600 --> 0:10:10.600 So it's we're gonna wait to see. 0:10:10.720 --> 0:10:14.880 So what does the FDI see? How does that organization work? 0:10:14.920 --> 0:10:17.720 How did they decide when to step Are they asked 0:10:17.720 --> 0:10:19.880 to step in? Do they look at the situation say 0:10:20.000 --> 0:10:20.880 we are stepping in? 0:10:21.080 --> 0:10:22.199 How does that work? At this point? 0:10:22.240 --> 0:10:26.200 The regulators are embedded into First Republic over I would 0:10:26.200 --> 0:10:29.240 say the past few weeks a month or so, and 0:10:29.559 --> 0:10:31.680 they're seeing all the numbers that are coming in in 0:10:31.720 --> 0:10:34.080 terms of deposit outflow, in terms of how they're managing 0:10:34.120 --> 0:10:36.840 the balance sheet, so that they have a pulse on 0:10:36.880 --> 0:10:40.679 the situation. And it's really up to their determination that 0:10:40.760 --> 0:10:42.199 if they want to come in and close the doors. 0:10:42.240 --> 0:10:44.199 And Mat I want to bring in Neil Sipes. This 0:10:44.240 --> 0:10:46.160 is a dude we hired as a summer associate in 0:10:46.160 --> 0:10:49.120 Bloomberg Intelligence. Now he's pretty much running the whole place. 0:10:49.280 --> 0:10:51.880 I mean, you know, so like Alison Williams, we love. 0:10:51.960 --> 0:10:54.080 She's kind of the rock star. But my you know, 0:10:54.160 --> 0:10:56.320 she's got people. You can't get through to her because 0:10:56.320 --> 0:10:58.480 she's got people to kind of shielder. So now we've 0:10:58.520 --> 0:11:00.480 got Neil Sypes. He's research chalnels covering some of the 0:11:00.480 --> 0:11:01.600 bigger banks, and. 0:11:01.559 --> 0:11:03.000 He studied in the great state of Ohio. 0:11:03.040 --> 0:11:05.520 Is that you're a DA flyer, that's right, that's right, 0:11:05.559 --> 0:11:06.080 one of the few. 0:11:06.280 --> 0:11:09.080 I was right next door at Antioch College, not studying, 0:11:09.559 --> 0:11:10.280 not studying. 0:11:10.679 --> 0:11:13.720 Yeah, the University of Dayton, home of a great healthcare analyst, 0:11:13.720 --> 0:11:18.440 former bi analyst Michael Manns. Now it's sit investments in Minneapolis. 0:11:18.480 --> 0:11:22.400 So nice lineage there of good analyst, research channels, command 0:11:22.440 --> 0:11:24.120 of Uniers of Dayton. You know, talk to us about 0:11:24.120 --> 0:11:27.679 what we've seen some of the bigger banks here. How 0:11:27.679 --> 0:11:29.319 are they performing in terms of just kind of the 0:11:29.480 --> 0:11:32.760 core banking business as well as their capital markets businesses. 0:11:33.040 --> 0:11:33.240 Yeah. 0:11:33.280 --> 0:11:35.200 Sure, And I think it is a little bit of 0:11:35.200 --> 0:11:37.400 a difference when you compare it with some of the 0:11:37.440 --> 0:11:41.440 regional peers that have had more idiosyncratic issues for themselves. 0:11:41.480 --> 0:11:43.840 And what we've seen is, you know, the larger banks 0:11:43.880 --> 0:11:46.160 have been able to weather this storm a little bit 0:11:46.720 --> 0:11:48.880 better than what you've seen at some of the regionals, 0:11:49.400 --> 0:11:51.080 or at least stay out of the headlines in the 0:11:51.120 --> 0:11:53.000 sense that they've been some of these have been the 0:11:53.040 --> 0:11:57.000 beneficiaries of some of these deposit flights what we're seeing 0:11:57.040 --> 0:12:00.360 across the industry. It's no question that deposits are on 0:12:00.400 --> 0:12:03.280 the decline, but ultimately some of these have some of 0:12:03.320 --> 0:12:07.079 these larger banks have much more diversified deposit franchises that 0:12:07.160 --> 0:12:10.679 can weather these storms and ultimately have a more diversified 0:12:10.720 --> 0:12:15.040 client base, which ultimately, you know, supports the businesses across 0:12:15.040 --> 0:12:18.400 whether it's investment banking, asset management, wealth management, et cetera, 0:12:18.840 --> 0:12:21.199 whereas some of these regionals are a little bit more narrow. 0:12:21.320 --> 0:12:23.120 Now, I like your coverage. You go over some of 0:12:23.160 --> 0:12:25.680 the smaller investment banks, and if I were to go 0:12:25.760 --> 0:12:27.760 back to the banking world, that's where I would go 0:12:27.800 --> 0:12:31.200 to the evercres, the moluses, maybe even ray j and 0:12:31.240 --> 0:12:34.760 Stefel talk goes out some of those smaller regional investment banks. 0:12:34.800 --> 0:12:36.640 How are they doing? How do they compete against the 0:12:36.720 --> 0:12:38.600 JP Morgans and the Morgan Stanleys of the world. 0:12:38.679 --> 0:12:41.640 Yeah, well, some of those boutique investment banks, they compete 0:12:41.679 --> 0:12:44.199 specifically in the advisory space, and like you said, that's 0:12:44.240 --> 0:12:46.480 the place you wanted to be. Maybe in twenty twenty one, 0:12:46.800 --> 0:12:49.320 maybe not so much right now, as we've seen deal 0:12:49.360 --> 0:12:51.959 activity pretty much on ice since the beginning of twenty 0:12:52.000 --> 0:12:54.240 twenty two. Keep in mind we were coming off that 0:12:54.360 --> 0:12:57.520 record twenty twenty one. But as we've seen interest rates rise, 0:12:57.559 --> 0:13:01.000 we've seen economic expectations sour a little bit, it's become 0:13:01.040 --> 0:13:03.720 a lot more difficult for deals to take place. Confidence 0:13:03.800 --> 0:13:06.720 is lower, market sentiment is weak. When you have volatility, 0:13:06.760 --> 0:13:08.800 it's a lot harder for buyers and sellers to come 0:13:08.840 --> 0:13:11.640 together on a price, and ultimately that's going to be 0:13:11.679 --> 0:13:14.680 an issue. Not to mention what we've seen with capital markets, 0:13:14.760 --> 0:13:16.920 it's a lot more difficult and a lot more expensive 0:13:17.120 --> 0:13:17.800 to raise. 0:13:17.600 --> 0:13:23.320 That capital Herman in terms of First Republic, obviously, the 0:13:23.400 --> 0:13:27.320 share price is in free fall right now, and it 0:13:27.400 --> 0:13:29.760 had been grouped together with a number of other regional banks, 0:13:29.800 --> 0:13:34.080 including pac West. Yesterday pack West was also decimated almost 0:13:34.080 --> 0:13:36.319 it was down by like nine percent. Today I noticed 0:13:36.360 --> 0:13:39.240 pac West bouncing like eighteen percent in the pre market 0:13:39.440 --> 0:13:45.400 and it's up right now another six percent. Why is that? 0:13:45.559 --> 0:13:48.800 Is it just that we thought, oh, maybe pack West 0:13:48.840 --> 0:13:50.960 isn't a doom loop as well, and now we realize 0:13:50.960 --> 0:13:51.480 they're okay. 0:13:51.880 --> 0:13:56.240 Well, they reported numbers yesterday and had some really encouraging numbers, 0:13:56.240 --> 0:14:02.840 specifically to deposits, and deposits were down twenty percent through 0:14:03.640 --> 0:14:07.800 March twentieth. They had pre announced that mid quarter, and 0:14:08.040 --> 0:14:10.079 at the end of the quarter deposits came back a 0:14:10.160 --> 0:14:14.280 little bit, and then through Friday a deposits came back 0:14:14.320 --> 0:14:18.000 more so. So the fear that that depositive flight was 0:14:18.000 --> 0:14:22.040 happening with with PacWest has been alleviated a bit, similar 0:14:22.080 --> 0:14:25.720 to what has happened with Western Alliance as well. So 0:14:25.840 --> 0:14:28.920 it does seem like the issues really are focused on 0:14:29.080 --> 0:14:29.760 First Republic. 0:14:29.840 --> 0:14:32.680 Well, and look, PacWest had a fifty two week high 0:14:32.680 --> 0:14:34.760 of about thirty bucks a year. They're down to ten, 0:14:35.360 --> 0:14:38.320 so taken down by two thirds. First Republic had a 0:14:38.440 --> 0:14:40.960 fifty two week high of one seventy right, and they're 0:14:40.960 --> 0:14:45.440 trading for five dollars a year, much worse. But I 0:14:45.480 --> 0:14:50.160 don't understand why yesterday's release prompted, you know, a fifty 0:14:50.160 --> 0:14:52.840 percent drop and another thirty percent drop today. I mean, yes, 0:14:52.880 --> 0:14:55.440 they had one hundred billion dollars of outflows in the 0:14:55.440 --> 0:14:58.560 first three months, but they only had one point seven 0:14:58.680 --> 0:15:02.000 percent of outflows in April, right, So it does look 0:15:02.080 --> 0:15:03.360 like they stemmed the bleeding. 0:15:03.800 --> 0:15:06.680 It looks like they stem the bleeding. But there's overly 0:15:06.800 --> 0:15:10.520 reliance now on higher cost CDs. We're talking four and 0:15:10.520 --> 0:15:13.360 a half five percent CDs that they have to rely on, 0:15:13.800 --> 0:15:17.440 and also wholesale funding borrowing from the discount window, borrowing 0:15:17.480 --> 0:15:21.120 from the FHLB that's costly as well. So where though 0:15:21.280 --> 0:15:24.280 the costlyer funding is going to squeeze their margins and 0:15:24.520 --> 0:15:29.040 spur negative earnings for the foreseeable future. So that's really 0:15:29.120 --> 0:15:30.200 what a spooking folks. 0:15:30.240 --> 0:15:34.200 Neil has it affected the companies that you cover. I mean, 0:15:34.640 --> 0:15:38.120 it's quite different from Stefel and Evercore obviously First Republic, 0:15:38.440 --> 0:15:40.520 but they have high net worth individual maybe they have 0:15:40.720 --> 0:15:43.840 bankers from Stefel in Evercore that got their zero percent 0:15:43.920 --> 0:15:44.680 mortgages there. 0:15:44.920 --> 0:15:47.720 Yeah, it's it's definitely a different story for stephl and 0:15:47.800 --> 0:15:51.160 Raymond James because when you think about these two institutions, 0:15:51.200 --> 0:15:53.840 it's more so a wealth manager that owns a bank 0:15:53.920 --> 0:15:56.200 rather than a bank that owns other division. 0:15:56.200 --> 0:15:57.840 But I just mean, are there any knock on effects? 0:15:57.920 --> 0:15:59.840 Are you hearing people from no doubt saying like hey, 0:15:59.840 --> 0:16:02.280 I have a plan, or we're taking assets from them, 0:16:02.400 --> 0:16:03.120 or you know. 0:16:03.640 --> 0:16:06.000 Well for sure, I mean you've seen the flight of 0:16:06.040 --> 0:16:09.080 some advisors from First Republic. When you have issues at 0:16:09.080 --> 0:16:12.280 the underlying bank, at someone like First Republic, you ultimately 0:16:12.280 --> 0:16:14.360 see the flight of some of those advisors and ultimately 0:16:14.400 --> 0:16:17.440 those client assets to some of these other competitors. But 0:16:17.560 --> 0:16:20.040 to be fair, the Stefil and Raymond James of the world, 0:16:20.280 --> 0:16:23.720 they're also seeing the same issues of deposits perhaps shifting 0:16:23.800 --> 0:16:27.200 between either lower cost bank accounts all the way up 0:16:27.280 --> 0:16:29.520 to those money market funds that are ultimately leaving the 0:16:29.560 --> 0:16:32.479 balance sheet. Steefeil, on one hand, has been very aggressive 0:16:32.840 --> 0:16:36.440 in sharing that interest rate increase with its clients. Others 0:16:36.480 --> 0:16:38.760 perhaps less so when you see those deposits leave the 0:16:38.800 --> 0:16:39.360 balance sheet. 0:16:39.680 --> 0:16:41.200 Herman Chan is such a rock stary. 0:16:41.320 --> 0:16:44.840 He had to leave because TV beckond they want to 0:16:44.840 --> 0:16:46.880 know what's going on the First Republic. So he just ran, 0:16:46.960 --> 0:16:49.640 literally ran to the TV studio. When Antorres says, get 0:16:49.680 --> 0:16:52.360 in studio, Yeah, get in studio. You do not mess around. 0:16:52.440 --> 0:16:54.920 And Torres is a Bloomberg television producer to whom you 0:16:55.000 --> 0:16:55.840 do not say no. 0:16:55.960 --> 0:16:59.880 Exactly right. So Neil, again you follow some of these 0:17:00.000 --> 0:17:03.680 regional investment banks, they focus really heavily on advisory work, 0:17:03.680 --> 0:17:06.880 as you said, more so than capital markets. There ain't 0:17:06.960 --> 0:17:09.280 no deals happening, man, What are they saying about the 0:17:09.480 --> 0:17:11.640 m and A environment out there? 0:17:11.880 --> 0:17:15.440 Yeah, and they're saying that there's not much happening. And unfortunately, 0:17:15.560 --> 0:17:17.920 you know, back in January, we were hearing a little 0:17:17.920 --> 0:17:20.760 bit of some positive comments of saying, look, markets had 0:17:20.800 --> 0:17:22.720 turned around a little bit in the fourth quarter and 0:17:22.760 --> 0:17:25.240 that was extending in the first quarter. So there were 0:17:25.440 --> 0:17:28.760 some growing opportunities, some green shoots, so to speak. But 0:17:28.840 --> 0:17:31.000 ultimately what they've said so far this quarter is March 0:17:31.040 --> 0:17:33.320 pretty much canceled that out right, the volatility that we 0:17:33.320 --> 0:17:36.640 saw around banks that spread across broader markets. Yes, we're 0:17:36.680 --> 0:17:39.880 still up on the year, but that inherent volatility and 0:17:40.200 --> 0:17:43.639 ultimately just the lack of clarity as to where monetary 0:17:43.640 --> 0:17:45.760 policy is going to be, how the economy is going 0:17:45.800 --> 0:17:48.320 to look, how inflation is trajecting throughout the rest of 0:17:48.359 --> 0:17:51.920 the year. That's ultimately going to continue away on deal announcements, 0:17:52.240 --> 0:17:54.080 which therefore ways on future fees. 0:17:54.880 --> 0:17:56.879 You know, on a scale one to ten, ten being 0:17:56.920 --> 0:17:59.439 the best. How was your experience at the University of Dayton. 0:18:00.800 --> 0:18:01.760 Yeah, no, hesitation. 0:18:02.080 --> 0:18:03.000 You're a big fan, right, yep? 0:18:03.280 --> 0:18:06.399 Yeah. I mean I can't speak highly enough of it. 0:18:06.480 --> 0:18:08.160 And you are you a high native? 0:18:08.720 --> 0:18:09.080 I am not. 0:18:09.320 --> 0:18:11.760 I'm a Connecticut native actually. Okay, So I did a 0:18:11.760 --> 0:18:14.280 little quick trip to the Midwest and sort of came back. 0:18:14.840 --> 0:18:17.399 But ultimately, I mean it's it's a great you know, 0:18:17.600 --> 0:18:20.240 education there, and they have a student run investment fund yep, 0:18:20.720 --> 0:18:22.359 and so they're able to, you know, kind of put 0:18:22.440 --> 0:18:24.280 that hands on experience with analysis. 0:18:24.320 --> 0:18:26.720 Did you ever get a milkshake at Young's Dairy Farm? 0:18:27.720 --> 0:18:29.240 I did not. I'm not familiar with them. 0:18:29.280 --> 0:18:30.560 Have you not be into Yellow Springs? 0:18:30.680 --> 0:18:31.000 I have not. 0:18:31.359 --> 0:18:32.520 Oh, I've driven through it. 0:18:32.840 --> 0:18:34.880 I think he's all business, all the time, all business 0:18:34.880 --> 0:18:36.080 all the the kids a day. 0:18:36.119 --> 0:18:38.520 They're not out there playing around, they're studying, working hard. 0:18:38.560 --> 0:18:42.399 Neil Sipes he's equity research channelist at Bloomberg Intelligence, homegrown, 0:18:42.880 --> 0:18:45.640 home trained, and now he's a rockst Army. Appreciate getting 0:18:45.640 --> 0:18:46.879 a few miutes just time to talk about some of 0:18:46.920 --> 0:18:48.159 these banks. 0:18:48.200 --> 0:18:51.240 Here you're listening to the tape. Cat's are Live program 0:18:51.280 --> 0:18:55.240 Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, 0:18:55.400 --> 0:18:57.640 the tune in app, Bloomberg dot Com. 0:18:57.320 --> 0:18:58.760 And the Bloomberg Business App. 0:18:58.840 --> 0:19:01.240 You can also listen Love I Have on Amazon Alexa 0:19:01.320 --> 0:19:04.600