Latest / Bloomberg Intelligence / Citi, Alphabet, and Munis

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Citi, Alphabet, and Munis · Bloomberg Intelligence

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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 3: A lot going on across Wall Street. One of the
0:59
Speaker 3: things that's going on, in particular to City Group, the
1:02
Speaker 3: company is shutting down. It's muni business that was once
1:05
Speaker 3: the envy of rivals, and right now to discuss that.
1:08
Speaker 3: We are going to be talking with Bloomberg Finance team
1:11
Speaker 3: leader Sally Bakewell, who has been leading the coverage all
1:14
Speaker 3: over everything developing with City. Sally just kind of give
1:18
Speaker 3: us a thirty thousand foot look of what this means
1:21
Speaker 3: for City Group. As our CEO, Jane Fraser, still continues
1:25
Speaker 3: to reshape the company in its operations.
1:29
Speaker 4: Right, well, it means a lot of this City Group
1:31
Speaker 4: and it means a lot for the muni market there
1:32
Speaker 4: because City had really dominated that four trillion space of
1:36
Speaker 4: underwriting local and state debt for most of the past decade.
1:39
Speaker 4: In fact, it ranked among the two biggest of municipal
1:43
Speaker 4: bond underwriters by volume. It's been on deals like the
1:46
Speaker 4: rebuilding of the World Trade Center, on rebuilding the portal
1:50
Speaker 4: authorities of New York and New Jersey. But as City
1:55
Speaker 4: has struggled in recent years through a number of issues
1:58
Speaker 4: and including it sort of ability to deliver returns and
2:02
Speaker 4: meet financial goals. And so Jane Fraser, who has been
2:06
Speaker 4: at the helm for a number of years, her border
2:08
Speaker 4: aim is to make City a bank that you know
2:11
Speaker 4: serves large multinational corporations but also improves returns which have
2:15
Speaker 4: been trailing. So I think the muni business became incompatible
2:21
Speaker 4: with that goal for a number of reasons. I think
2:26
Speaker 4: a big one being that Hexas is the biggest state
2:30
Speaker 4: for muni bond sales. But City, owing to firearms policies,
2:35
Speaker 4: got frozen out of a number of big deals there
2:38
Speaker 4: and that did crimp a lot of its revenue and
2:40
Speaker 4: ability to generate profits. And I think deliberations continued for
2:44
Speaker 4: a number of months over this big decision, and they have,
2:48
Speaker 4: you know, decided that it would be better for City,
2:50
Speaker 4: which is undergoing a number of restructurings in other areas,
2:55
Speaker 4: if it was out of this market.
2:56
Speaker 5: Yeah, the almost the impeach, well, I guess it was
2:59
Speaker 5: in peach. It wasn't really, but the Attorney generaler Ken
3:01
Speaker 5: Paxton is kind of in charge of that, taking aim
3:04
Speaker 5: at all the big underwriters, all the money center banks
3:09
Speaker 5: that have policies with which he disagrees by freezing them
3:14
Speaker 5: out of that market. The end result was that it's
3:17
Speaker 5: taxpayers who fit the bill because they don't get the
3:22
Speaker 5: best pricing for their munis. Is there anybody around to
3:26
Speaker 5: pick up the slack or are other banks facing the
3:30
Speaker 5: same situation? Is anybody going to be left.
3:34
Speaker 6: Oh.
3:35
Speaker 4: I think the scrutiny is definitely there on all of
3:37
Speaker 4: the banks, but I think there are banks who are
3:41
Speaker 4: picking up the slack. In fact, a team of from
3:44
Speaker 4: City actually defected to Jeffries just in November after news
3:51
Speaker 4: that City was weighing pulling out.
3:53
Speaker 5: They saw the writing on the wall.
3:56
Speaker 4: I think the writing has been on the wall for
3:58
Speaker 4: a little while. In fact, City also shut the its
4:02
Speaker 4: muni prop trading desk not too long ago, which that
4:05
Speaker 4: was the desk that used the firm's own cash to
4:07
Speaker 4: trade and invest in the debt, and that has now
4:10
Speaker 4: translated to a complete wind down of the business by
4:13
Speaker 4: the end of the first quarter. But you know, City
4:15
Speaker 4: ranked number seven in terms of muni bond sale underwriting.
4:20
Speaker 4: Bank of America is first, RBC Capital Markets is second.
4:24
Speaker 4: Then you of course have the likes of JP Morgan,
4:26
Speaker 4: Jeffrey's Morgan, Stanley, Wills Fargo. So in terms of picking
4:29
Speaker 4: up the slack, there is still very much a market there.
4:32
Speaker 7: I think.
4:33
Speaker 4: You know, for City, it represented at one time, you know,
4:37
Speaker 4: a very significant business and also the ability of the
4:41
Speaker 4: bank to connect to the country on a broader, sort
4:45
Speaker 4: of deeper level because it was providing financing for you know, schools, hospitals,
4:50
Speaker 4: railroad and so on. And that's an important thing for
4:53
Speaker 4: a bank to do and to be seen to be doing.
4:56
Speaker 3: And sally, just for a sense of how crucial munis are.
4:59
Speaker 3: What how does immunis play into the broader business for
5:03
Speaker 3: these banks in terms of generating fees? Just looking at
5:05
Speaker 3: the league table that you guys have in the chart,
5:07
Speaker 3: Bank of America with an almost thirteen percent market share
5:10
Speaker 3: at forty four billion dollars of volume, how does that
5:14
Speaker 3: compare two things like IPOs and M and A and
5:16
Speaker 3: actually generating fees for these big banks.
5:20
Speaker 4: Yeah, I think it's a very substantial part of what
5:24
Speaker 4: any any bank that's involved in the market does. I mean,
5:28
Speaker 4: there is an sort of unending s figot of material
5:32
Speaker 4: and deals to work on if you're in the in
5:35
Speaker 4: the municipal space. So it is definitely a blow for
5:42
Speaker 4: City that it was unable to really participate, for example,
5:46
Speaker 4: in the Texas market specifically, and it's a big it's
5:51
Speaker 4: a very substantial change for the company which historically had
5:54
Speaker 4: been such a big player in this space going back decades.
5:59
Speaker 4: But you know, City is currently going through a big
6:02
Speaker 4: overhaul that it unveiled in September its biggest overhaul in decades,
6:05
Speaker 4: where it's trying to refocus on five core areas. The
6:09
Speaker 4: goal is to make it a leaner, more efficient organization,
6:12
Speaker 4: to remove layers of management again with that broader, broader
6:18
Speaker 4: aim of improving returns, and that is going to spark
6:23
Speaker 4: a lot of change at the bank, which we've already
6:25
Speaker 4: started to see. We know that there will be job cuts,
6:28
Speaker 4: and there have already been some job cuts and we
6:29
Speaker 4: can anticipate more next year. But yes, the goal is
6:34
Speaker 4: to make City at a lina organization, and I think
6:39
Speaker 4: focusing on more higher revenue, higher margin businesses is the
6:44
Speaker 4: goal and Immunia business didn't quite align with that anymore.
6:47
Speaker 3: Well, yeah, Sally, we had the news earlier in the
6:50
Speaker 3: week from our colleagues in London about City offering partial
6:53
Speaker 3: early bonuses amid this restructuring. So as you talk about
6:57
Speaker 3: and look at what the path forward looks like, does
7:00
Speaker 3: twenty twenty four actually look like for City Group to
7:03
Speaker 3: rein in their spending and costs and also compete in
7:06
Speaker 3: what still seems to be a very hot war for
7:09
Speaker 3: talent on Wall Street, right, And.
7:12
Speaker 4: That's a really good point to bring up the bonuses
7:14
Speaker 4: with City, because yes, it offered a select number of
7:18
Speaker 4: staff the ability to take a portion of their guaranteed
7:21
Speaker 4: bonus now and leave rather than risk next year potentially
7:28
Speaker 4: losing their jobs under this restructuring, but being left with
7:32
Speaker 4: no job and no bonus. I think it kind of
7:34
Speaker 4: underscores it's a fairly shocking move, you know, to basically
7:39
Speaker 4: ask people to do this, And I think it underscores
7:42
Speaker 4: the urgency with which Jane Fraser knows she has to
7:46
Speaker 4: start to deliver. The bank had already tried to or
7:50
Speaker 4: has nearly completed an exit of a number of its
7:54
Speaker 4: global retail markets. And I think, you know, it's undertaken
7:59
Speaker 4: other men to try and write the ship that perhaps
8:02
Speaker 4: weren't deemed to be fully effective, and this latest overhaul
8:06
Speaker 4: is a real attempt to show shareholders that it can
8:11
Speaker 4: set financial targets and meet them, that it can improve returns.
8:15
Speaker 4: And I think for twenty twenty four, actually things possibly
8:20
Speaker 4: are looking fairly solid. We just had Mike Mayo, who
8:24
Speaker 4: is the Wells Fargo very well known bank analyst. He
8:26
Speaker 4: actually named City as his top pick among large cat
8:30
Speaker 4: banks heading into twenty twenty four, replacing JP Morgan Chase
8:34
Speaker 4: as his favorite. So, you know, he said he's been
8:38
Speaker 4: long and wrong on City Group, but he thinks that
8:41
Speaker 4: the restructuring is making them more simple, the management is addressing,
8:45
Speaker 4: you know, two decade or problems at the banks, and
8:47
Speaker 4: that it's seeming to get expenses under wraps. So perhaps
8:52
Speaker 4: the subtotal of all of these measures in twenty twenty
8:55
Speaker 4: four is when we do start to see them pay off.
8:58
Speaker 5: Are going to see similar moves by other banks dropping
9:01
Speaker 5: their municipal departments.
9:06
Speaker 4: It's hard to say. I think it depends on the
9:09
Speaker 4: level of scrutiny from Paxton. It will depend on the
9:13
Speaker 4: economic viability of the business under that scrutiny. The other
9:18
Speaker 4: banks don't have the same issues as City, though, they
9:21
Speaker 4: don't have to make these dramatic moves to kind of
9:25
Speaker 4: really reshape the organizations. So that I think is why
9:30
Speaker 4: City was slightly unique in feeling the impact of the
9:35
Speaker 4: situation in Texas and having to weigh up the viability
9:39
Speaker 4: of its business. It is doing this against this backdrop of,
9:43
Speaker 4: as Mike mos said, a decades long sort of problem
9:45
Speaker 4: at the bank of not being able to generate the
9:48
Speaker 4: kind of returns that the other banks were able to
9:50
Speaker 4: do so. I think there will be under scrutiny, but
9:53
Speaker 4: they probably won't feel that need to act in the
9:57
Speaker 4: same way that city has.
9:58
Speaker 5: City dropping its municipal business. Sally bankwell with the story
10:04
Speaker 5: for Bloomberg News. Sally, thanks very much, appreciate your time.
10:09
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10:23
Speaker 5: Making the energy transition no easy tasks as we try
10:28
Speaker 5: to decarbonize utilities across the United States. Let's bring in
10:32
Speaker 5: our next guest. Maria Pope is the CEO of Portland
10:36
Speaker 5: General Electric. We got a picture of just how difficult
10:40
Speaker 5: that transition is. I think it was today or yesterday
10:43
Speaker 5: with California the governor there in his attempts to recommission
10:47
Speaker 5: the Diablo Nuclear Power Plant Diablo Canyon because they need it. Basically,
10:54
Speaker 5: they can't just do it alone with renewable sources. So Maria,
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Speaker 5: what is the timeline for you guys with your utility,
11:03
Speaker 5: Portland General Electric to decarbonize and are on track at
11:07
Speaker 5: this point.
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Speaker 9: So we're looking to decarbonize the energy supply eighty percent
11:13
Speaker 9: by twenty thirty and then net zero by twenty forty.
11:17
Speaker 9: Obviously we'll need new technologies by twenty forty, but we
11:20
Speaker 9: are on track with forty percent of our customer's energy
11:24
Speaker 9: coming from renewable sources today.
11:27
Speaker 3: And with that technology transition, is that developed in house,
11:30
Speaker 3: are you licensing it from startups or kind of how
11:32
Speaker 3: does that play out?
11:34
Speaker 9: It really comes from a variety of sources, first legacy hydro,
11:38
Speaker 9: then we take solar and wind, battery storage. We have
11:42
Speaker 9: the second largest installation of battery storage outside of California
11:46
Speaker 9: taking place right now, and we use a lot of
11:50
Speaker 9: technologies to integrate all of those renewables for safe, reliable, affordable,
11:55
Speaker 9: clean energy for our customers.
11:57
Speaker 5: Hey, Maria, just how vulnerable is your utility to droughts?
12:02
Speaker 5: You mentioned hydro power and even wildfires with the transmission lines.
12:08
Speaker 9: You know, it's something a lot of people ask. We're
12:10
Speaker 9: in actually a drought period right now in the Pacific Northwest,
12:13
Speaker 9: and we've actually been relying a lot more on energy
12:16
Speaker 9: from markets outside of this region. Much of that is
12:20
Speaker 9: renewable solar and other sources. That come into this area,
12:25
Speaker 9: but also being able to construct new wind resources, new
12:29
Speaker 9: solar resources is augmenting our legacy Hydro. As we look
12:34
Speaker 9: going forward, we will need ever increasing amounts of renewable energy,
12:38
Speaker 9: which are today price competitive with other sources.
12:41
Speaker 3: And how much does that cost? What's your capex looking
12:43
Speaker 3: like to make some of these investments.
12:46
Speaker 9: You know, we have taken our investment up over time,
12:49
Speaker 9: and in the last three years, our invested asset base
12:53
Speaker 9: has actually grown about thirty percent overall. Our revenues are
12:57
Speaker 9: also up about thirty seven percent. As we see customer growth.
13:01
Speaker 9: We have five percent more customers today than we did
13:04
Speaker 9: three years ago, and they're using ten percent more energy.
13:08
Speaker 5: In terms of the total return opportunity for the stock
13:12
Speaker 5: based on the earnings per share. I mean, you guys
13:14
Speaker 5: have been beaten up to some extent because of worries
13:18
Speaker 5: over the things that we mentioned. Where do you hint from?
13:23
Speaker 5: What's your message to investors at this point?
13:26
Speaker 9: You know, we're committed to growing at five to seven percent.
13:29
Speaker 9: We've been leaders actually in addressing wildfire. While one can
13:33
Speaker 9: never predict what will happen, we've invested tremendously in reducing
13:37
Speaker 9: those risks. And again are committed to the five percent
13:40
Speaker 9: earnings growth projectory.
13:42
Speaker 3: And when you look at expectations for twenty twenty four
13:44
Speaker 3: and even beyond, looking at some of the energy transition
13:48
Speaker 3: mission there or goals that you guys have in the
13:50
Speaker 3: state of Oregon and really broadly around the world has
13:53
Speaker 3: laid out, how does that How does twenty twenty four
13:56
Speaker 3: look for your business?
13:58
Speaker 9: You know, twenty twenty four looks really good. We actually
14:01
Speaker 9: will see revenues probably about fourteen to fifteen percent higher
14:05
Speaker 9: year on years we turn into twenty twenty four. I'd
14:08
Speaker 9: also say that we're focused on meeting our customers' needs,
14:11
Speaker 9: whereas the largest semiconductors and global manufacturers to small startups
14:16
Speaker 9: and over two million residential customers who are focused on
14:20
Speaker 9: the clean energy transformation and ensuring that we do so
14:23
Speaker 9: with a smart integrated grid.
14:25
Speaker 5: Yeah, as we make that transition, I mean, overall the
14:28
Speaker 5: grids in the United States, are they prepared for all this?
14:32
Speaker 5: And what sort of infrastructure upgrades do they need? And
14:37
Speaker 5: you know, are you getting any help from the Biden
14:39
Speaker 5: administration on that front.
14:42
Speaker 9: So we've been investing in grid technologies as well as
14:45
Speaker 9: infrastructure for a long time, where the fourth largest electric
14:49
Speaker 9: vehicle market is an example, and have been thinking about
14:51
Speaker 9: those new technologies for years. From the Biden administration, We're
14:56
Speaker 9: very fortunate to have received several very significant grand one
15:00
Speaker 9: in particular around technology is a partnership with Nvidia and
15:04
Speaker 9: the startup Utili Data, the three of us coming together
15:08
Speaker 9: and bringing our unique capabilities to deliver for customers, to
15:13
Speaker 9: grow earnings, and to ensure really a solid clean energy
15:17
Speaker 9: future is attainable in a very short period of time.
15:20
Speaker 5: That sounds like the intersection of artificial.
15:22
Speaker 3: Bringing an AI. It's everything. I well, I guess this
15:26
Speaker 3: is my question, Maria. We've been talking about this transition
15:29
Speaker 3: and we've seen some things happen. I guess are you
15:32
Speaker 3: surprised with where we are going into twenty twenty four,
15:34
Speaker 3: with how quickly or slowly things have evolved? And do
15:37
Speaker 3: you expect that to kind of pick up in the
15:40
Speaker 3: coming years.
15:42
Speaker 9: You know, it's interesting. We're very optimistic about the future.
15:45
Speaker 9: I mean, when we come together in partnership, we're able
15:48
Speaker 9: to do great things. And the acceleration of clean energy
15:52
Speaker 9: has been remarkable not only for our company but across
15:55
Speaker 9: the entire United States and really globally. But we'll see
15:59
Speaker 9: coming out of There's no question that this will continue
16:01
Speaker 9: to accelerate and then we'll work together on new technologies.
16:05
Speaker 9: One of the other grants that we received was part
16:08
Speaker 9: of the Northwest Hydrogen a billion dollars to invest in hydrogen.
16:12
Speaker 9: And then we also have received two hundred and fifty
16:14
Speaker 9: million dollars on a consortium with the Confederated Tribes of
16:17
Speaker 9: the Warm Springs where we have worked together with them
16:21
Speaker 9: co owning a four hundred and fifty megawatt facility hydro
16:26
Speaker 9: power that we will now be able to increase the
16:28
Speaker 9: transmission with a two hundred and fifty million dollars grant
16:32
Speaker 9: enabling further renewable energy development on the reservation for the
16:36
Speaker 9: benefit of the future employment of the tribes as well
16:40
Speaker 9: as renewable energy across the state.
16:43
Speaker 5: Is climate change the far and away the biggest risk
16:46
Speaker 5: or that you face in the future.
16:50
Speaker 9: Oh, I think we were facing a lot of risk
16:52
Speaker 9: as we go through a transformation. Clearly, we're using technologies,
16:55
Speaker 9: we're changing at a pace that is unusual for utilities
16:58
Speaker 9: but very exciting, and so as we manage everything from
17:02
Speaker 9: a changing and warming climate to changing expectations by customers
17:07
Speaker 9: to new technologies at what ares Managing risks is also
17:11
Speaker 9: managing opportunities.
17:13
Speaker 5: Ria Pleasure, Thanks for stopping by. Appreciate it. Maria Poulp,
17:17
Speaker 5: the CEO of a Portnam General Electric, the ticker symbol
17:21
Speaker 5: por and as they look at it right now among
17:24
Speaker 5: the analysts, seven buys, five holes, and zero sales. The
17:28
Speaker 5: average price target for the stock, according to data compiled
17:31
Speaker 5: by Bloomberg, forty eight dollars per Sure.
17:34
Speaker 3: Just recently got upgraded this week over at Barclays talking
17:37
Speaker 3: about the upside and despite it being a wildfire stock,
17:41
Speaker 3: they kind of point out that we're exiting wildfire season,
17:44
Speaker 3: and as someone who's spent the first eighteen years of
17:46
Speaker 3: my life in California, were season is the thing.
17:50
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18:10
Speaker 5: Let's switch to fixed income right now. Alex Batrand, our
18:13
Speaker 5: next guest, the director of Fixed Income at Rockefeller Asset Management.
18:18
Speaker 5: I missed out on five percent, But is what are
18:22
Speaker 5: we looking at four forty one or three ninety two
18:25
Speaker 5: right now in the ten are those screaming buys?
18:27
Speaker 7: I mean three ninety two is the new five percent?
18:30
Speaker 8: Right?
18:31
Speaker 7: Isn't that how we we shift?
18:33
Speaker 10: And if you want spicy and not sleepy into the
18:37
Speaker 10: end of the year, that is what we have right now.
18:40
Speaker 7: Quite clearly, rates drive in the market. The FED FOMC. J.
18:45
Speaker 10: Powell Williams happy to unpack that, making it fun for
18:49
Speaker 10: us into your act.
18:50
Speaker 5: With all That'speiag and Williams today, I mean, how do
18:52
Speaker 5: you set strategy with all these different narratives out there?
18:56
Speaker 6: Yeah?
18:56
Speaker 7: Absolutely great question.
18:57
Speaker 10: I mean, we are long term investors have said for
19:01
Speaker 10: quite some time as we think about what was driving
19:03
Speaker 10: markets in twenty twenty three, it was the rate story
19:06
Speaker 10: driving Muni's driving Corporus in twenty twenty four. That is
19:08
Speaker 10: going to be no different from here. The message is
19:12
Speaker 10: quite clear this week from the FED, even with Williams today.
19:16
Speaker 10: Williams came in and tried to walk back some of
19:19
Speaker 10: this dubvish interpretation of what was a dubvish meeting. Three
19:24
Speaker 10: cuts instead of two. Many people were caught off guards
19:26
Speaker 10: by that.
19:27
Speaker 5: The view from me, he was walking it back at
19:30
Speaker 5: the instructions of mister Powell. He was walking in the
19:34
Speaker 5: instructions from.
19:35
Speaker 7: Someone or he's a loose canon.
19:37
Speaker 10: Whether that is the case is not for us to
19:39
Speaker 10: necessarily try to decide. But if you unpack what Williams
19:43
Speaker 10: said is he said that we are not talking about
19:46
Speaker 10: cuts right now. That doesn't mean that they're not talking
19:49
Speaker 10: about cuts.
19:50
Speaker 7: So when you look at the summary of.
19:51
Speaker 10: Economic projections, the dot pot, what does it tell us?
19:54
Speaker 10: It tells us three cuts, doesn't tell us when. And
19:56
Speaker 10: so the market feels like it got a little bit
19:58
Speaker 10: of itself pricing in sick. Some people calling for March,
20:01
Speaker 10: some people calling for June. What the FED is telling
20:05
Speaker 10: us is they are comfortable with this level of employment.
20:08
Speaker 3: But how how independent will the FED be in an
20:11
Speaker 3: election year, in a year where there's expectations that looking
20:14
Speaker 3: at the.
20:14
Speaker 5: World, Oh, it's that fantasy.
20:16
Speaker 10: I mean, well, listen, we are here to think about
20:19
Speaker 10: market volatility relative value. I can have many cocktail discussions
20:24
Speaker 10: around the independence of the FED. That is a fun
20:27
Speaker 10: topic to really go down a rabbit hole. Or maybe
20:31
Speaker 10: Abigail mentioned Twitter. I'm sure there's plenty of things there.
20:34
Speaker 10: Our goal simply is, to your point, John three ninety two,
20:38
Speaker 10: relative value or not fair value.
20:40
Speaker 7: And what we start to look at is where do we.
20:42
Speaker 10: See the trend line over the next three months, six months,
20:45
Speaker 10: twelve months across the rates market? And then most importantly,
20:49
Speaker 10: how is that going to impact a municipal market on
20:51
Speaker 10: a go forward basis?
20:53
Speaker 5: How is it going to be impact market on a
20:56
Speaker 5: EKO forward?
20:56
Speaker 10: Thank you for letting me continue that. I think from
20:59
Speaker 10: our perspective it's quite simple. Ratios continue to matter here.
21:04
Speaker 10: With this move lower in rates, you have a tremendous
21:07
Speaker 10: amount of demand that's come back into the market. So
21:10
Speaker 10: we look at rates, we look at technical supply and
21:12
Speaker 10: demand supply driven by new issuers stepping into the market,
21:17
Speaker 10: supply driven by whether retail is a net buyer net seller,
21:21
Speaker 10: retail is stepped back in there a net buyer.
21:23
Speaker 5: Tangential to that? Can I just ask go quick with
21:26
Speaker 5: the city group story dropping of their municipal department, how
21:31
Speaker 5: looney is the municipal market getting when you take into
21:35
Speaker 5: context the whole ken Paxton, Texas thing.
21:38
Speaker 10: Another key risk factor that we really think about is
21:42
Speaker 10: liquidity dynamics in the municipal market. What you've seen since
21:46
Speaker 10: my early days PREGFC till now is this consolidation of
21:53
Speaker 10: desks across the street. When we look at that as
21:57
Speaker 10: the dealer community shrinks, it is a really fortunate thing
22:01
Speaker 10: for the UNI market. For investors. Liquidity dynamics change. There
22:05
Speaker 10: is more friction in those periods of mentioning technicals where
22:09
Speaker 10: there are outflow cycles and you have fewer people stepping
22:12
Speaker 10: in to provide liquidity. It can create some more challenges
22:15
Speaker 10: for those who need liquidity. It can create a lot
22:17
Speaker 10: more opportunities for those who are looking to be the
22:20
Speaker 10: source of liquidity. So while we don't like to see it,
22:23
Speaker 10: it's looking through that and really emphasizing managing the liquidity.
22:27
Speaker 5: For a new homeowner like Bailey. It's just like probably
22:30
Speaker 5: means is taxes are going to go up at some point.
22:32
Speaker 5: I mean it's right if you're having trouble doing these
22:35
Speaker 5: deals or having an underwriter and the market is impacted
22:39
Speaker 5: that way, ultimately it's going to be more expensive gas.
22:42
Speaker 7: You know, Let's make no mistake.
22:44
Speaker 10: If you look at the market yesterday, you have issues
22:48
Speaker 10: that are there. They are able to bring deals Illinois
22:51
Speaker 10: toll example, yesh Day fifteen to twenty times over subscribed
22:55
Speaker 10: spreads were half of what they were back in April
22:58
Speaker 10: when they brought a deal.
23:00
Speaker 7: You will still see deals being brought.
23:02
Speaker 10: I expect issuance picks up materially heading into next year,
23:06
Speaker 10: both in terms of corporate risk as well as muni
23:08
Speaker 10: risk because guess what, the FED has just made it
23:11
Speaker 10: a much better entry point. These deals will get done.
23:14
Speaker 10: It will just continue to be consolidated from here.
23:17
Speaker 3: Well how much I guess how quickly does the FED
23:20
Speaker 3: need to cut for some of those deals to come
23:23
Speaker 3: to market or does that not matter as much?
23:25
Speaker 10: Well, they're coming now, right, We're seeing it. We're seeing
23:27
Speaker 10: deals that are added to the calendar. Abigail was talking
23:30
Speaker 10: about a sleepy week we in the municipal market. We
23:32
Speaker 10: hope that next week we can catch up on all
23:34
Speaker 10: the work that we didn't necessarily do, you know, maybe
23:37
Speaker 10: trade on the margins. There are deals that are stepping
23:40
Speaker 10: in that weren't on the calendar. In particular, it's really
23:45
Speaker 10: across the board. We're seeing healthcare, we're seeing general obligation risk.
23:49
Speaker 10: It is deals that we're tagged to come at some
23:51
Speaker 10: point likely in the first quarter, first half of next year,
23:54
Speaker 10: and they're saying, let's do it today based on what
23:57
Speaker 10: we're seeing at the moment. So regardless, even prior to
24:01
Speaker 10: the FMC call it pivot towards a softer tone, we
24:05
Speaker 10: expected that issuance was going to pick up in twenty
24:08
Speaker 10: twenty four, somewhere to the twoe of four hundred and
24:10
Speaker 10: fifty billion or so.
24:11
Speaker 5: I'm not exaggerating when I say this, but I get
24:14
Speaker 5: in the mail now at least it seems like once
24:17
Speaker 5: a month a letter from I don't know, some firms
24:20
Speaker 5: saying you know we represent well. In my instance, my
24:25
Speaker 5: healthcare provider Robert Wood Johnson Hospitals, saying you know they've
24:29
Speaker 5: been hacked. We don't think your personal information, but we're
24:33
Speaker 5: not sure. In the meantime, you should really monitor your credit. Well,
24:37
Speaker 5: no kidding, is that. Let's talk about cybersecurity risk, where
24:42
Speaker 5: it figures into your business and how important it is.
24:45
Speaker 10: Yeah, when we think about risks that are forming in
24:47
Speaker 10: the municipal market, we think near term risks, so balance
24:50
Speaker 10: sheet pressures, rising costs, declining revenues, all of those things
24:55
Speaker 10: you're seeing. But then we think longer term as well,
24:57
Speaker 10: cybersecurity risk is one that's on that is on our radar,
25:01
Speaker 10: no different than companies that are facing these same pressures.
25:03
Speaker 7: And so we like to look towards our.
25:05
Speaker 10: Municipalities taking the necessary steps today to really protect data, integritory,
25:11
Speaker 10: financial SYSM scary stuff, John Ransom. Ransom, you don't want
25:15
Speaker 10: to think about that. When it comes to UNI credit,
25:17
Speaker 10: we agree they are not. It's a question of as
25:19
Speaker 10: these things, excuse me, we don't agree that they are not.
25:22
Speaker 10: Many are, But it's looking through to ensure that issuers
25:26
Speaker 10: are taking the necessary steps today just as companies are
25:29
Speaker 10: doing the same.
25:31
Speaker 3: And how is looking through some of the notes climate risk.
25:35
Speaker 3: We were talking to the CEO of Portland General Electric
25:38
Speaker 3: earlier about some of the green transition. You look at
25:41
Speaker 3: places like Florida and California where insurance companies are just leaving.
25:45
Speaker 3: So how does that factor into the marketing?
25:47
Speaker 7: You know, it's wild.
25:48
Speaker 10: It's something that we've talked about quite a bit on
25:50
Speaker 10: the desk, and as we think through bigger picture, longer term,
25:54
Speaker 10: the frequency of events, the intensity of events, they are
25:57
Speaker 10: going to get bigger, They're going to get larger. It
25:59
Speaker 10: is going to put press are on bounce sheets. So
26:01
Speaker 10: it's both some of the costs associated with rebuilding. State
26:06
Speaker 10: and local governments will need to issue more debt, both
26:10
Speaker 10: to shore up infrastructure, water resiliency rebuild, but also bigger picture,
26:15
Speaker 10: long term, what's the biggest risk for Muni's out migration right,
26:19
Speaker 10: look at Detroit, think of some of those examples, and
26:22
Speaker 10: so as you think through it, I think the average
26:25
Speaker 10: individual buying a home is not really thinking through the
26:29
Speaker 10: climate rest long term big picture airs like Florida, at
26:32
Speaker 10: some point people will and when that well.
26:34
Speaker 5: They're going to think about it when they go there
26:36
Speaker 5: and they can't get insurance homewards insurance, for instance. That's
26:40
Speaker 5: happening everywhere, not just Florida.
26:42
Speaker 10: And that's not always the case a lot of times
26:44
Speaker 10: when people really think about it, and there was a
26:45
Speaker 10: lot published on this topic earlier this year around insurance,
26:48
Speaker 10: it's when the event happens to them.
26:51
Speaker 7: So it's a little bit of hindsight.
26:53
Speaker 5: Alex, that was great. I hope we didn't get too
26:55
Speaker 5: far Afield.
26:56
Speaker 10: If you're yeah, this is fantastic, Lively Friday, Alex Patrol,
27:00
Speaker 10: the director of fixed income at Rockefeller Asset Management.
27:05
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27:09
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27:25
Speaker 5: You know, it's been a tough one for Google as
27:28
Speaker 5: of late. We had the story earlier this week about
27:31
Speaker 5: their fight with Epic Games. They lost, but is their
27:36
Speaker 5: trouble over. There's a tough, tough road ahead potentially. Let's
27:41
Speaker 5: bring in our next guest. Jenrie is the senior litigation
27:44
Speaker 5: analyst with Bloomberg Intelligence on the Anti Trust Watch. So
27:49
Speaker 5: what's the panther the head for Google at this point
27:53
Speaker 5: or should I say alphabet?
27:55
Speaker 6: Well, John and Bailey. I think Google's going to have
27:58
Speaker 6: a rough year next year. You know, first they've lost
28:02
Speaker 6: with this jury trial on the play store side, and
28:04
Speaker 6: the judge will be deciding what the appropriate remedy is
28:07
Speaker 6: next year. Now there will appeal, and they have some
28:11
Speaker 6: chances there given how different this was from Epics lawsuit
28:15
Speaker 6: against Apple, But I don't really think that they're going
28:18
Speaker 6: to win that appeal and be able to overturn this verdict.
28:21
Speaker 6: It's a very high standard, So they're going to face
28:23
Speaker 6: a remedy in that area. The other thing that's going
28:26
Speaker 6: to happen is that there will be a verdict or
28:28
Speaker 6: a ruling in the Department of Justices lawsuit against Google
28:31
Speaker 6: that finished trial earlier this year over its search business
28:35
Speaker 6: and whether or not it's maintaining a monopoly in Google Search.
28:38
Speaker 6: And I think that decision is probably going to come
28:41
Speaker 6: out maybe late first half, sometime in the second quarter.
28:46
Speaker 6: And again I think that was a bit that's a
28:48
Speaker 6: very close call, but I tend to lean toward the
28:51
Speaker 6: DOJ winning that one. So they may also be looking
28:53
Speaker 6: at a potential remedy imposed on their search business. Then
28:57
Speaker 6: the third thing, which I actually think is the most important,
29:00
Speaker 6: or I should say the riskiest lawsuit that Google's going
29:02
Speaker 6: to face, is a Department of Justice suit that's challenging
29:05
Speaker 6: its entire ad tech business, and that is in a
29:09
Speaker 6: Virginia court that moves really fast and could possibly get
29:12
Speaker 6: to trial toward the end of the first half of
29:14
Speaker 6: next year.
29:15
Speaker 5: How far does that go. It goes right up to
29:19
Speaker 5: the Supreme Court.
29:20
Speaker 6: Do you think, Well, they only go up to the
29:22
Speaker 6: Supreme Court if there's anell. If there's an appeal and the
29:25
Speaker 6: Supreme Court agrees to take the case, the Supreme Court
29:28
Speaker 6: doesn't have to, and in fact, they actually only accept
29:30
Speaker 6: a very small percentage of the cases that apply to
29:33
Speaker 6: be heard. So I guess I'm assuming Google would appeal
29:36
Speaker 6: anything that it loses. So these things could actually drag
29:39
Speaker 6: out for a couple of years. But at the very least,
29:41
Speaker 6: what it could see is some really bad headlines next
29:44
Speaker 6: year that impact the stock. Because if they have losses
29:46
Speaker 6: at the district court, while it's not over, because they
29:49
Speaker 6: will appeal and it will continue on. You know, those
29:52
Speaker 6: initial losses aren't a good thing.
29:55
Speaker 3: And just to call out this week, Alphabet down two
29:57
Speaker 3: and a half percent. That compares in a backdrop with
29:59
Speaker 3: the NASDAC up three point four percent and the S
30:01
Speaker 3: and p F two and a half percent. Jen just
30:03
Speaker 3: wondering how much could this cost Google from a monetary standpoint,
30:08
Speaker 3: given the number of cases ongoing.
30:10
Speaker 6: Well, look, it's so hard to say so on the
30:13
Speaker 6: search side. Let me start there, because I think it's
30:15
Speaker 6: the easiest. I actually don't think even if they lose
30:18
Speaker 6: on liability and there's a remedy imposed that it's really
30:21
Speaker 6: going to impact them in any significant way because at
30:25
Speaker 6: this point they're entrenched. I mean, people use Google Search.
30:28
Speaker 6: Most people prefer Google Search to being or to Duck
30:31
Speaker 6: Doc Go. And even if they're in a position where
30:33
Speaker 6: they have to offer up choice screens, Let's say somebody
30:36
Speaker 6: buys an Android device and they're using it for the
30:39
Speaker 6: first time and they get to choose the default search
30:41
Speaker 6: engine rather than Google just being automatically installed, or if
30:45
Speaker 6: they have to sort of open up open up the
30:48
Speaker 6: space to other competing search engines, people are still going
30:52
Speaker 6: to use Google. So I'm not so sure that's whatever
30:54
Speaker 6: happens there, it's going to hurt them very much. Now
30:57
Speaker 6: in the play Store, it could hurt a lot more.
30:59
Speaker 6: You know, they make a lot lot of revenues from
31:01
Speaker 6: the fifteen to thirty percent commissions they charge to developers,
31:05
Speaker 6: and that's really going to change if these remedies that
31:08
Speaker 6: we expect stick, you know, if they don't win on appeal,
31:12
Speaker 6: because they're no longer going to be able to keep
31:15
Speaker 6: competing app distributors off Android devices, which means people can
31:19
Speaker 6: download these apps outside of the play Store, and they're
31:22
Speaker 6: also no longer probably going to be able to link
31:26
Speaker 6: an app developer within the Play Store using Google's payment services,
31:29
Speaker 6: which is how they collect those fees, and so I
31:31
Speaker 6: think there will be an impact. They will obviously find
31:35
Speaker 6: some other way probably to make up for that revenue
31:37
Speaker 6: and charge developers for using their services. But if competition increases,
31:42
Speaker 6: that alone is going to force them to push down
31:44
Speaker 6: their commissions. So I think that one hurt.
31:46
Speaker 5: This Department of Justice has been particularly aggressive in antitrust cases.
31:51
Speaker 5: Can I say that absolutely? Why don't they just, like
31:55
Speaker 5: you know, try to weigh out this administration and hope
31:59
Speaker 5: for a change at the top.
32:02
Speaker 6: You know, they very well could, because if they can
32:05
Speaker 6: do whatever they can to drag their heels, you know,
32:08
Speaker 6: they can appeal, they can try to slow those appeals down,
32:12
Speaker 6: They can do those sorts of things to try to
32:15
Speaker 6: drag it out. You know, if you think about it,
32:16
Speaker 6: way back in two thousand, when Microsoft lost a really
32:20
Speaker 6: big monopolization suit, they actually got out of it in
32:23
Speaker 6: a sense because the administration changed George Bush became the president.
32:28
Speaker 6: It was remanded to the district court, and in the meantime,
32:31
Speaker 6: George Bush's administration settled the case, and so that kind
32:35
Speaker 6: of thing does happen. Things change with administration, so certainly
32:38
Speaker 6: they can try to do that. You know, I have
32:39
Speaker 6: to tell you, John, I wonder all the time why
32:41
Speaker 6: all these big deals I'm seeing get signed up don't
32:44
Speaker 6: just wait, Because they're also aggressive when it comes to
32:48
Speaker 6: challenging mergers and transactions.
32:50
Speaker 3: And when you look at some of the antitrust battles
32:53
Speaker 3: that Alphabet is working through, are there similar cases that
32:55
Speaker 3: come to mind that you can kind of look back
32:57
Speaker 3: at as examples of what could play out in the
33:00
Speaker 3: coming months and years.
33:02
Speaker 6: Well, the Microsoft case I mentioned, even though it's really
33:04
Speaker 6: old at this point, is one of the best examples.
33:07
Speaker 6: Up until now, Up until the last two years, the enforcers,
33:11
Speaker 6: which includes the Federal Trade Commission too, not just the
33:13
Speaker 6: Department of Justice, rarely ever sued a big company for
33:17
Speaker 6: a monopolistic conduct. This is really new. So you had Microsoft,
33:21
Speaker 6: you had a few other little cases, and then about
33:24
Speaker 6: five years ago, the Trade Commission suit Qualcom for monopolization
33:28
Speaker 6: in the chip markets. They lost that case. They wanted
33:32
Speaker 6: the diss report, they lost on appeal. That case ended
33:34
Speaker 6: when the Supreme Court refused to review. So we don't
33:38
Speaker 6: have a lot of examples, and what we saw with Microsoft.
33:41
Speaker 6: I think that's really important for all these cases is
33:44
Speaker 6: that while Microsoft was found guilty, one of the things
33:46
Speaker 6: the appellate court said is that a structural remedy in
33:50
Speaker 6: these instances is really drastic, and it has to be
33:53
Speaker 6: applied only with enormous caution, and the least sort of
33:57
Speaker 6: imposing or intrusive remedy that will fix the problem is
34:01
Speaker 6: the one that should be used. And so it suggests
34:03
Speaker 6: to me that if the courts are following that precedent,
34:06
Speaker 6: even if there is liability found here with Google, that
34:09
Speaker 6: structural remedies are really unlikely.
34:11
Speaker 5: And then when it comes to social media and the
34:13
Speaker 5: debate over whether or not it's addictive, particularly for youngsters,
34:18
Speaker 5: what's happening on that front, and what are the risks
34:21
Speaker 5: to Google alphabet.
34:25
Speaker 6: You know, there's a lot of activity on that front.
34:27
Speaker 6: But on that one, I'm afraid I'm going to have
34:29
Speaker 6: to refer you to my colleague Matt Chattenhelm, who is
34:32
Speaker 6: covers more of the consumer protection side of the Federal
34:34
Speaker 6: Trade Commissioning. He has been all over what's happening on
34:37
Speaker 6: the privacy front, and I think you'll have to speak
34:40
Speaker 6: to him. Because on the FTC side, when it comes
34:43
Speaker 6: to Facebook Meta, I should say I am much more
34:46
Speaker 6: focused on the current lawsuit that the FTC has to
34:49
Speaker 6: try to force Meta to sell off Instagram and WhatsApp.
34:52
Speaker 6: That's the one that I'm following more so than the
34:55
Speaker 6: privacy seats, although the privacy seats have more immediacy right now.
35:00
Speaker 3: I guess what other you mentioned it? But what other
35:03
Speaker 3: trials are you keeping an eye on or should we
35:05
Speaker 3: be keeping an eye on in terms of whether it's
35:07
Speaker 3: the anti trust space or kind of other big tech names.
35:12
Speaker 6: Well, you know, we have a lot going on, as
35:14
Speaker 6: you both mentioned earlier, against big tech, So there's been
35:17
Speaker 6: a lot of focus on Google. There are a lot
35:19
Speaker 6: of cases against Google. But bear in mind we also
35:22
Speaker 6: have a pretty big case against Amazon that's pending by
35:25
Speaker 6: the Federal Trade Commission, and that's challenging some of Amazon's
35:29
Speaker 6: third party seller practices anti discounting practices they call it.
35:34
Speaker 6: That basically force sellers to provide the lowest price that
35:37
Speaker 6: they provide anywhere on Amazon. So that's pending. The lawsuit
35:42
Speaker 6: I've just mentioned is also pending and could even get
35:44
Speaker 6: to trial next year, where the Federal Trade Commission has
35:47
Speaker 6: challenged Meta, saying, hey, you just run around and you
35:50
Speaker 6: have for years buying up your competitors so that you
35:53
Speaker 6: don't have viable competitors down the road. You look at
35:56
Speaker 6: these nascent up and coming startups and if you think
35:58
Speaker 6: they could threaten you down the road, buying them so
36:01
Speaker 6: as not to compete with them. And that's what the
36:03
Speaker 6: FTC allege has happened with WhatsApp and with Instagram, and
36:06
Speaker 6: so we have that pending too. So among kind of
36:09
Speaker 6: the big four big tech platforms that we all understood
36:12
Speaker 6: were under scrutiny, the only ones, if are that isn't
36:15
Speaker 6: facing a Department of Justice or Federal Trade Comission law
36:18
Speaker 6: Foo is Apple, and that could still happen. I understand
36:20
Speaker 6: that investigation is still.
36:22
Speaker 5: Ongoing, and we haven't brought up Europe and the regulators there,
36:26
Speaker 5: but that's a discussion for another day. Jen. Thanks. It
36:29
Speaker 5: always a pleasure to see Jen Reed, the senior litigation
36:33
Speaker 5: analyst Anti Truns with the Bloomberg Intelligence.
36:36
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