Latest / Bloomberg Intelligence / Amazon to Buy Satellite Operator Globalstar for $90 a Share

Transcript

Amazon to Buy Satellite Operator Globalstar for $90 a Share · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
0:10
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
0:14
Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg
0:17
Speaker 1: Business App. Listen on demand wherever you get your podcasts,
0:21
Speaker 1: or watch us live on YouTube.
0:23
Speaker 2: A little m and a trade today here, not so
0:25
Speaker 2: little for this seller here, But we're Amazon, Amazon, which
0:28
Speaker 2: doesn't do a lot of acquisitions, and you agreed to
0:30
Speaker 2: acquire satellite operator Global Start in a roughly eleven point
0:33
Speaker 2: six billion dollar deal to boost its satellite operation. Okay,
0:37
Speaker 2: Michelle Davis, she's got the detailed senior deals reporter for
0:40
Speaker 2: Bloomberg News. Here, Michelle, what's Amazon up to these days?
0:44
Speaker 3: You know this deal is all about basically, you know,
0:47
Speaker 3: there's a massive rate to race to dominate space based productivity.
0:51
Speaker 3: All the tech giants are trying to do it. SpaceX
0:54
Speaker 3: is obviously the leader. Amazon also has a big ambitions
0:58
Speaker 3: to be a leader in satellites and this steal is
0:59
Speaker 3: all about spectrum. Global Star has really valuable spectrum, which
1:03
Speaker 3: is think of it as real estate. That's you know,
1:05
Speaker 3: a scarce asset. Whoever got it first was able to
1:08
Speaker 3: sell it later on, and that's that's how Global Star
1:11
Speaker 3: ended up, you know, being able to sell this to Amazon.
1:14
Speaker 3: And not only are they getting spectrum with this deal,
1:16
Speaker 3: they're also getting infrastructure on the ground and a massive
1:19
Speaker 3: customer in Apple, Apples one of global Stars customers. As
1:24
Speaker 3: part of the deal, Amazon was able to negotiate basically,
1:28
Speaker 3: you know, keeping Apple on board, they'll be using the
1:31
Speaker 3: Apple will be using its services to provide you know,
1:34
Speaker 3: emergency services. If you're out hiking and there's no no
1:37
Speaker 3: cell service, you can use satellites to call nine one one,
1:40
Speaker 3: or you know, people can find you and find my friends.
1:42
Speaker 4: Basically, is there reason to think that anyone would raise
1:46
Speaker 4: their hand object to this deal?
1:48
Speaker 5: Would regulators get in the way.
1:50
Speaker 3: It's a good question. We've seen regulators be pretty open
1:54
Speaker 3: to these spectrum deals. I mean, the regulators themselves are
1:57
Speaker 3: the ones who auction off spectrum when it is of
2:00
Speaker 3: available in the open market. But in a deal like
2:03
Speaker 3: this where you know Global Star was the owner of it,
2:05
Speaker 3: of course, you know they get to be the.
2:07
Speaker 6: Ultimate decider of who buys it.
2:09
Speaker 3: And because Amazon isn't the big leader in this space,
2:13
Speaker 3: you know, it doesn't seem like it'd be an issue,
2:15
Speaker 3: but you never know, I think what's interesting.
2:18
Speaker 6: About but all of this is while this does.
2:20
Speaker 3: Kind of help Amazon accelerate its ambitions to be a
2:22
Speaker 3: big leader in satellite SpaceX still you know, light years
2:27
Speaker 3: ahead of it has way more satellites in orbit. Amazon
2:31
Speaker 3: hasn't been able to launch as many as SpaceX, so
2:35
Speaker 3: that will be something else that it has to do.
2:38
Speaker 4: And PAULA was just noticing that Global Star CEO is
2:41
Speaker 4: Paul Jacobs, the former CEO of Qualcom.
2:44
Speaker 2: Okay, so I mean Amazon does have this low earth
2:48
Speaker 2: orbit satellite network Amazon LEO exactly, but I don't hear
2:53
Speaker 2: much about that.
2:54
Speaker 6: It's not really in use yet.
2:56
Speaker 3: There's still kind of literally getting it off the ground,
3:00
Speaker 3: and they're hoping that by twenty twenty eight, especially after
3:05
Speaker 3: this deal, they will be able to launch a.
3:07
Speaker 6: Direct to device service.
3:09
Speaker 3: Which is like having a cell phone tower up in space,
3:12
Speaker 3: and it basically means, you know, consumers companies would be
3:16
Speaker 3: able to get voice text data without having to use
3:21
Speaker 3: a cell tower, but by using their statellites.
3:23
Speaker 4: Paul, you had mentioned that Amazon does not make a
3:25
Speaker 4: lot of big deals. If you go to the buyp
3:28
Speaker 4: function on the Bloomberg terminal, it shows you the buyer profile.
3:32
Speaker 4: And the biggest deal is that Amazon has made direct
3:35
Speaker 4: M and a Whole Foods was back in twenty seventeen
3:38
Speaker 4: for thirteen point six billion dollars Global Star of course
3:41
Speaker 4: what we're reporting on today, and MGM holdings the Library
3:44
Speaker 4: for ten point two billion, that was back in twenty
3:46
Speaker 4: twenty one. Otherwise, Amazon kind of builds it itself and
3:50
Speaker 4: we'll see how things shake.
3:51
Speaker 5: Out before it decides what the I don't know this one. Yeah,
3:54
Speaker 5: you could sort by recent and by largest.
3:58
Speaker 2: So what's Amazon saying is their strategy here? I mean,
4:00
Speaker 2: are they going to invest in this business?
4:03
Speaker 7: Yeah?
4:03
Speaker 3: I mean what they're really saying is that this, you know,
4:05
Speaker 3: is part of their vision to provide connectivity to people
4:08
Speaker 3: and be a leader on Earth, connecting people, you know,
4:12
Speaker 3: through groceries and deliveries and now you know, voice, text
4:16
Speaker 3: and data.
4:17
Speaker 2: And this is separate from Jeff Bezos' own little rocket. Yeah.
4:20
Speaker 4: Well that's why Michelle said on Earth, because at some
4:22
Speaker 4: point it's going to expand to in space as well.
4:26
Speaker 5: Stay with us more from Bloomberg Intelligence coming up after this.
4:32
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
4:36
Speaker 1: weekdays at ten am. He's done on Apple, Cocklay and
4:39
Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand
4:42
Speaker 1: wherever you get your podcasts, or watch us live on YouTube.
4:47
Speaker 4: Let's talk about another group that obviously is affected directly
4:50
Speaker 4: by the surgeon oil prices, and that is the airline sector.
4:55
Speaker 4: There's a really interesting story today, Paul, about the United
4:58
Speaker 4: CEO pitching President Trump about a possible combination with American
5:04
Speaker 4: that kind of just struck me as bananas because it
5:06
Speaker 4: would create a behemoth.
5:07
Speaker 2: Yep, and they didn't let smaller airlines get together. I'm
5:10
Speaker 2: not sure why they let these big ones get together.
5:11
Speaker 4: All right, So let's bring in Sid philipp Is, our
5:13
Speaker 4: chief correspondent for Global aviation. So, I mean, as Pop
5:17
Speaker 4: pointed out, they didn't let Jet Blue and Spirit get together,
5:20
Speaker 4: why would someone okay a United American Airlines combination?
5:24
Speaker 7: So, Scarlett, this is this is obviously a story that
5:27
Speaker 7: we've sort of heard from multiple sources, and I think
5:30
Speaker 7: the airlines are looking to test the administration on how
5:34
Speaker 7: willing they would be to approve of deals. I mean,
5:36
Speaker 7: the last administration was pretty clear that they did not
5:39
Speaker 7: see consolidation as sort of beneficial to customers, but they
5:45
Speaker 7: sort of Trump administration has been more business friendly, and
5:48
Speaker 7: so United Airlines has sort of floated this idea to
5:52
Speaker 7: the President. In terms of merging with American Airlines, I mean,
5:55
Speaker 7: it would create the largest airline on the planet, and
5:59
Speaker 7: it's just still wouldn't be I mean, they still only
6:01
Speaker 7: have a third of the US market check combined, so
6:04
Speaker 7: it's not quite this would sort of dominate the market.
6:07
Speaker 7: I mean it would because I mean they would have
6:09
Speaker 7: all the important rules like Dallas and Chicago, where United
6:14
Speaker 7: and American control a large junk of the market, but
6:17
Speaker 7: in other places like we've seen other airlines as well.
6:20
Speaker 7: So it does look like it's unlikely to go through
6:24
Speaker 7: because I mean, this would be opposed by all the
6:27
Speaker 7: airlines who are not part of it, It would be
6:29
Speaker 7: opposed by consumer rights activists, and may also sort of
6:32
Speaker 7: not find fail with the legislators, and so we have
6:36
Speaker 7: to see how this will go through.
6:38
Speaker 2: Do we have any feeling from the regulators in the past,
6:41
Speaker 2: because again, as Scarla mentioned, all we kind of know
6:43
Speaker 2: is is observers is that they didn't want they didn't
6:46
Speaker 2: let too little, anty bitty airlines get together. How would
6:49
Speaker 2: this happen?
6:50
Speaker 7: So we still we're still looking on We're still waiting
6:53
Speaker 7: to see any sort of commentary from it. I mean,
6:55
Speaker 7: the sort of the most direct commentary we've heard was
6:58
Speaker 7: from Sean Duffy, the trap Transportation Secretary, when he spoke
7:01
Speaker 7: last week and told CNN the CNBC that the President
7:06
Speaker 7: likes big deals and he would any sort of and
7:10
Speaker 7: when asked about a specific large merger, he said that
7:14
Speaker 7: they may have to share assets. And so that's the
7:16
Speaker 7: only thing we've really heard. But in terms of whether
7:19
Speaker 7: or not this administration will be willing to sign off
7:21
Speaker 7: on such a big deal, that's still to be seen.
7:24
Speaker 4: Okay, So there's a bit of a backstory here in
7:26
Speaker 4: that United CEO Scott Kirby was the one who said
7:28
Speaker 4: that this is something he kind of floated, and he
7:31
Speaker 4: has a history with American Airlines, so it didn't come
7:33
Speaker 4: from out of nowhere.
7:34
Speaker 7: Absolutely. I mean, this is also personal for Scott Kirby
7:37
Speaker 7: because Scott Kirby was previously the president of American Allies
7:41
Speaker 7: and he left in twenty sixteen when it became clear
7:44
Speaker 7: that he wasn't going to be CEO of American Alliance,
7:47
Speaker 7: and then he sort of joined the United airlines and
7:49
Speaker 7: he rose to the top job. And that's really his
7:52
Speaker 7: sort of backstory. And so American and United have been
7:56
Speaker 7: sort of always been one uptering each other. I mean
7:59
Speaker 7: at the most recent is that they've been battling in
8:01
Speaker 7: Chicago over gates and market share, and then the FA
8:05
Speaker 7: had to come in and sort of restrict flights because
8:08
Speaker 7: there's too many airlines adding flights in Chicago and the
8:11
Speaker 7: airport can't actually handle those coupes.
8:13
Speaker 2: So what does it mean for I mean, I'm looking
8:15
Speaker 2: at Jet Blue that stocks up eleven percent today? Are
8:18
Speaker 2: people in the industry saying whoa whoa whoa?
8:20
Speaker 3: What?
8:20
Speaker 2: People would talk about it United in American? How about
8:23
Speaker 2: everybody else? Getting together?
8:25
Speaker 7: Absolutely? I mean the fact that this deals out there,
8:29
Speaker 7: it also sort of opens the doors for other combinations.
8:31
Speaker 7: I mean, especially at times of crisis for the airline industry,
8:36
Speaker 7: mergers and acquisitions tend to happen. I mean, we saw
8:39
Speaker 7: that in the aftermath of the two thousand and eight
8:41
Speaker 7: financial crisis, and for the airline industry at the moment,
8:45
Speaker 7: this sort of surgeon oil prices is a massive blow
8:48
Speaker 7: because there's only a limit as to how much a
8:51
Speaker 7: consumer will be willing to pay before they sort of say, okay,
8:53
Speaker 7: we'll hold off on travel this summer. And for the airlines,
8:57
Speaker 7: fuel is the biggest sort of single biggest cost aside
9:00
Speaker 7: from stuff costs, and so they have to sort of
9:03
Speaker 7: figure out how they can actually make money on with
9:06
Speaker 7: fuel being where it's at, and that sort of time
9:09
Speaker 7: when typically consolidation happens where weekup players tend to get
9:13
Speaker 7: snapped up by the more sort of robusts financially. Financially
9:16
Speaker 7: robust ones.
9:18
Speaker 5: Stay with us.
9:19
Speaker 2: More from Bloomberg Intelligence coming up after this.
9:25
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
9:29
Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
9:32
Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever
9:35
Speaker 1: you get your podcasts, or watch us live on YouTube.
9:40
Speaker 2: I'm not into the EV thing yet. I did get
9:42
Speaker 2: one hybrid for the number four Offspring episode.
9:44
Speaker 5: Who's in California, So like that's the context here.
9:47
Speaker 2: Six dollars guests. So one of the EV companies I
9:50
Speaker 2: kind of forget about it. It's just me is a
9:52
Speaker 2: lucid group they.
9:53
Speaker 5: Make because you're not a Timothy shalomy fan.
9:55
Speaker 2: Oh?
9:55
Speaker 3: Is that it?
9:56
Speaker 5: Yeah, he's the global brand ambassador.
9:58
Speaker 2: All right, the stocks you got two point nine billion
10:00
Speaker 2: dollar valuation down sixteen percent this year, down sixty five
10:04
Speaker 2: percent or the trailing twelve months. But they have some
10:06
Speaker 2: news out today. They're going to new CEO and now
10:10
Speaker 2: seven hundred and fifty million dollars of fresh investment from
10:12
Speaker 2: two big backers here. So let's see what's going on
10:14
Speaker 2: with Lucid. Ticker ELCID is the Bloomberg ticker. Craig Trudeall,
10:19
Speaker 2: Global Autors, editor for Bloomberg News. He joins from London. Craig,
10:23
Speaker 2: what's Lucid doing here to try to turn things around?
10:27
Speaker 8: We knew it was going to be a busy morning
10:29
Speaker 8: for them. It was an even busier morning than we anticipated.
10:33
Speaker 8: We spoke with Sylvio Napoli, the former head of Shindler
10:40
Speaker 8: holding of Elevator and you know, moving Walkway fame. He's
10:47
Speaker 8: going to take over as CEO, the person who's been
10:51
Speaker 8: filling that seat for over a year now on an
10:53
Speaker 8: interim basis, Mark winter Off. He will return to the
10:57
Speaker 8: role of COO. He took over from the CEO who
11:01
Speaker 8: actually kind of took this company public. I think, you know,
11:05
Speaker 8: Lucid in addition to you know, you mentioned that the
11:08
Speaker 8: you know, commitment as well from the Saudi Public Investment
11:12
Speaker 8: Fund and Uber. The other news here was as part
11:16
Speaker 8: of this capital raising which they're doing some raising beyond
11:20
Speaker 8: just from the PIFF, and Uber is releasing some preliminary
11:24
Speaker 8: earnings which did not look great. So this is a
11:27
Speaker 8: company that has really been struggling to execute make some
11:30
Speaker 8: really appealing and interesting electric vehicles, but has really struggled
11:34
Speaker 8: to make them in higher volumes than doing so in
11:38
Speaker 8: profitable or remotely profitable way. So, you know, I think
11:43
Speaker 8: in short, Napoli has his work cutout for him.
11:46
Speaker 4: I mean, is Loocid's goal to be a mass market
11:48
Speaker 4: EV company? From what I can find, it doesn't deliver
11:52
Speaker 4: a lot of cars. In twenty twenty four, for instance,
11:55
Speaker 4: it delivered more than ten thousand vehicles, but I mean
11:58
Speaker 4: that's nothing compared to something like Tesla.
12:01
Speaker 8: Yeah, it's a fraction, you know, And I do think
12:04
Speaker 8: it's been a case where the company has been sort
12:06
Speaker 8: of feeling around what exactly its play is. I think,
12:09
Speaker 8: you know, for a time they were trying to go
12:11
Speaker 8: lower volume, higher higher prices, and you know, kind of
12:16
Speaker 8: casting themselves as a premium player. But later this year,
12:19
Speaker 8: they will start production of a mid sized vehicle where
12:23
Speaker 8: they've they've flagged the rough pricing of that being around
12:25
Speaker 8: fifty thousand dollars, so that would put them more, you know,
12:28
Speaker 8: at least closer to the sort of mass market where
12:31
Speaker 8: you see, you know, like a model why you can
12:33
Speaker 8: get you know, price in that range. So you know,
12:37
Speaker 8: this is a company that has tried to compete with
12:41
Speaker 8: like the Mercedes and the Porches of the world, found
12:44
Speaker 8: that really difficult, and they are doing a bit of pivoting.
12:49
Speaker 8: How much that has been a sort of like change
12:51
Speaker 8: in plan versus the plan all along is a little
12:54
Speaker 8: bit unclear, and it's kind of depending on who you ask.
12:58
Speaker 8: I think the CEO, who is sort of placed about
13:00
Speaker 8: a year ago, I would have preferred they stayed premium,
13:03
Speaker 8: and I think they've changed attack a little bit under
13:06
Speaker 8: the new regime.
13:07
Speaker 4: So right now, the Lucid's big thing, of course, this
13:10
Speaker 4: is partnership with Uber, and this was first annunced in
13:13
Speaker 4: July where Uber said it would buy at least twenty
13:15
Speaker 4: thousand Lucid Gravity SUVs.
13:17
Speaker 5: That new vehicle you were talking about.
13:19
Speaker 4: Has this partnership with Uber amounted to anything just yet,
13:24
Speaker 4: I mean, is it getting its name out there.
13:27
Speaker 8: Yeah, I think it's going to be really interesting to
13:29
Speaker 8: see if that you know, is able to get off
13:31
Speaker 8: the ground. They have a third party that's involved in
13:34
Speaker 8: that partnership, a company called Neuro that itself was working
13:38
Speaker 8: on delivery robots and has pivoted to getting into autonomous
13:43
Speaker 8: vehicles and trying to compete with the likes of Weimo.
13:46
Speaker 8: You know, this is still very much in the sort
13:49
Speaker 8: of prototyping and testing phase, and we've not seen them
13:52
Speaker 8: actually launched vehicles. But I'm endlessly fascinated by just how
13:56
Speaker 8: much money Uber is throwing at trying to kind of
14:00
Speaker 8: you know, have its own fleet of self driving vehicles
14:04
Speaker 8: and and have you know, some competition for weimo. Even
14:07
Speaker 8: as it partners with Weimo, there's a lot of experimenting
14:11
Speaker 8: and playing around with business models in the space. And
14:15
Speaker 8: we are still so early. For all the headlines we
14:17
Speaker 8: read about you know, new cities that Weimo is entering,
14:20
Speaker 8: they still have just a few thousand cars out on
14:22
Speaker 8: US roads across the various cities where they have deployed,
14:25
Speaker 8: and so this is really really early innings. Even if
14:28
Speaker 8: people are increasingly having their first experiences with getting into
14:32
Speaker 8: a fully driverless car.
14:34
Speaker 2: Craig, what's the what's the latest with Tesla and it's
14:37
Speaker 2: bringing in a lower price model.
14:41
Speaker 8: Yeah, that was There was an interesting report out of
14:45
Speaker 8: Reuters about maybe they're dipping their toe back into making
14:49
Speaker 8: a vehicle priced below the Model three in the Model y.
14:53
Speaker 8: We saw Tesla China representatives deny that that report. But
14:59
Speaker 8: what may that's so fascinating is it's it's speaking of
15:02
Speaker 8: sort of you know, changes in strategy by companies, you know.
15:05
Speaker 8: I think Elon Musk has sort of you know, mince
15:09
Speaker 8: no words about, in his words, it being stupid for
15:12
Speaker 8: for Tesla to sort of bring cars to market that
15:15
Speaker 8: are lower price, you know, because in his mind, you know,
15:19
Speaker 8: you know, every day is you know, going to be
15:22
Speaker 8: the day that Tesla sort of flips a switch and
15:24
Speaker 8: is able to render its cars capable of driving themselves.
15:28
Speaker 8: I think regulators are extremely skeptical of that, in part
15:32
Speaker 8: because you know, those days keep you know, coming and
15:35
Speaker 8: going without that capability really being ready to where you know,
15:39
Speaker 8: people behind the wheel can actually tune out and not
15:42
Speaker 8: pay attention to the system that that Tesla sells as
15:45
Speaker 8: full self driving, which just has not lived up to
15:48
Speaker 8: the name yet.
15:49
Speaker 4: Yeah, I mean there's two components to that, right, the
15:51
Speaker 4: fact that a switch could be flipped on that and
15:53
Speaker 4: whether regulators would allow it to technologically, whether we're there yet,
15:57
Speaker 4: and whether the regulators have given that the Okay, do
16:01
Speaker 4: consumers want that?
16:03
Speaker 8: And that's a great question too. I think you know
16:05
Speaker 8: some consumers absolutely and uh, you know you will see
16:10
Speaker 8: uh Tesla super fans. Many of them happen to be investors,
16:13
Speaker 8: you know, sharing uh, you know, indications of a progress
16:16
Speaker 8: where you know they are fond of taping their drives
16:20
Speaker 8: where things go well and uh, and yet the questions
16:23
Speaker 8: that you sort of naturally, you know, raise our how
16:27
Speaker 8: sort of choosy are they being about what clips they
16:30
Speaker 8: show and don't show? And you still continue to see
16:33
Speaker 8: incidents where you know, teslos that aren't being supervised or
16:36
Speaker 8: getting into two really troubling crashes.
16:40
Speaker 5: Stay with us. More from Bloomberg Intelligence coming up after this.
16:46
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us Live
16:50
Speaker 1: weekdays at ten a m. Eastern on Apple, Cocklay and
16:52
Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand
16:56
Speaker 1: wherever you get your podcasts, or watch US Live on YouTube.
17:00
Speaker 5: It is earning season.
17:01
Speaker 4: The big banks began reporting yesterday with Goldman Sacks kicking
17:05
Speaker 4: things off, which is kind of unusual because.
17:07
Speaker 5: It's usually not the first bank to report YEP.
17:09
Speaker 4: That would be JP Morgan, JP Morgan City Group and
17:12
Speaker 4: Wells Fargo reported today.
17:14
Speaker 5: So four out of six big banks have reported.
17:16
Speaker 4: Herman Chan, of course, is our senior bank analyst here
17:21
Speaker 4: at Bloomberg Intelligence, and of course we needed to bring
17:23
Speaker 4: him in. Is it as simple as to say that
17:25
Speaker 4: the volatility in the markets is just unit directionally good
17:29
Speaker 4: news for these big banks?
17:31
Speaker 9: It is, at least for the ones that reported today. So,
17:34
Speaker 9: JP Morgan City posted really strong results on trading equities
17:39
Speaker 9: and on the fixed income side. I would contrast that
17:41
Speaker 9: a bit with what Goldman did yesterday where they disappoint
17:45
Speaker 9: a bit on the fixed income side of the trading
17:47
Speaker 9: house that was driven by areas like rates and mortgage,
17:52
Speaker 9: which seemed like they were not positioned correctly with the
17:55
Speaker 9: volatility that happened in March.
17:57
Speaker 2: What happened or what's going on with Wells Farg?
18:00
Speaker 9: Yeah, Wells Fargo, it's interesting story. They reported really strong
18:05
Speaker 9: earnings from a EPs standpoints, but the disappointment came from
18:11
Speaker 9: the net interest margin. It was down thirteen basis points
18:14
Speaker 9: quarter of a quarter. Management talked about some areas that
18:18
Speaker 9: we're driving that growth in some lower yielding markets, businesses
18:23
Speaker 9: that they're intentionally growing due to the fact that they
18:27
Speaker 9: think that will bring along business and other areas like
18:31
Speaker 9: trading in the prime brokerage business. So it's sort of
18:34
Speaker 9: like build it and they will come type action going on,
18:37
Speaker 9: and they expect some further compression in the second quarter,
18:41
Speaker 9: which is driving some of the weaker market sentiment that
18:44
Speaker 9: we're seeing today.
18:45
Speaker 4: Wells Fargo had its asset cap lifted by the Federal Reserve,
18:48
Speaker 4: which means that it can now get bigger. So do
18:50
Speaker 4: we expect, you know, some more spending, some you know,
18:56
Speaker 4: tighter margins for the foreseeable future as it tries to
18:59
Speaker 4: really build.
18:59
Speaker 9: On its assets. Yeah, you see the assets growing really quickly.
19:04
Speaker 9: They're probably going to be the fastest growing JISA bank
19:08
Speaker 9: that we cover, the largest banks that we cover in
19:10
Speaker 9: terms of long growth that's about five percent quarter.
19:12
Speaker 5: But make up a lot of lost ground it does.
19:15
Speaker 9: It has to make up a lot of lost ground,
19:16
Speaker 9: and they're sort of growing the balance sheet to hope
19:20
Speaker 9: to help offset some of the margin compression that I
19:23
Speaker 9: mentioned earlier, but that also portends the higher costs in
19:28
Speaker 9: areas like advertising and headcount growth potentially over time, but
19:34
Speaker 9: definitely you're seeing it in the advertising spend.
19:36
Speaker 2: Are the banks in general are they lending money these days?
19:39
Speaker 2: How does loanrigination look?
19:41
Speaker 5: Yeah?
19:41
Speaker 9: They are in pockets right. So there's not a lot
19:44
Speaker 9: of growth in areas like mortgage because of the rate environments.
19:50
Speaker 9: Card is seasonally softer this quarter, but it was strong
19:53
Speaker 9: last quarter given the holiday season. A lot of the
19:56
Speaker 9: growth is areas like lending to non bank finds ancial institutions.
20:00
Speaker 9: That's been the rage in the industry, lending to these
20:03
Speaker 9: private credit firms that are in the news, lending to
20:06
Speaker 9: areas like a venture capital and mortgage company. So it's
20:12
Speaker 9: a bit of a mixed bag in terms of where
20:14
Speaker 9: the long growth is coming from.
20:16
Speaker 4: We talk a lot about a K shaped economy where
20:18
Speaker 4: the upper leg of the K is doing very well.
20:21
Speaker 4: The wealthy are getting wealthier, the less wealthy, the ones
20:25
Speaker 4: that are really struggling through this are suffering more. Are
20:29
Speaker 4: banks actively using that as their strategy as well? I'm
20:32
Speaker 4: wondering if the services that they're offering, the areas are
20:35
Speaker 4: choosing to grow, is pursuing that higher end of that K.
20:38
Speaker 5: Yeah, that's right.
20:39
Speaker 9: That's been a trend over time where the largest banks
20:44
Speaker 9: are really focusing on that prime customer. So there's not
20:47
Speaker 9: a lot of lending activity towards the bottom half of
20:51
Speaker 9: the K shape, but there is deposit activity on that front.
20:55
Speaker 4: Right.
20:55
Speaker 9: So Wells Fargo mentioned that the higher gasoline prices is
21:00
Speaker 9: increasing the spend on energy by about one percentage point
21:04
Speaker 9: cover a quarter, and that can change every time. They're
21:06
Speaker 9: not seeing any changes in the non discretionary spend. That
21:11
Speaker 9: happens gradually, and if we do see these persistent higher
21:15
Speaker 9: energy costs, that could change as well.
21:17
Speaker 2: All Right, my good friends over at City the worst
21:20
Speaker 2: elevators on Global Wall Street, my former employer worst elevators. Yeah,
21:24
Speaker 2: there's there's two stacked on each other. Have you ever
21:27
Speaker 2: been one of those things? So you it sometimes it
21:30
Speaker 2: stops on your floor, sometimes it doesn't. Oh you're not
21:32
Speaker 2: really sure why. And I was there for like three
21:35
Speaker 2: or four years. I still didn't figure it out.
21:37
Speaker 9: So I have a former City employee as well. I
21:39
Speaker 9: remember three eighty eight Greenwich and you just had to
21:43
Speaker 9: wait forever for those elevators.
21:45
Speaker 5: The several subreddits devoted to this, Oh yeah, there is.
21:48
Speaker 5: They've turned the corner.
21:49
Speaker 2: It looks like they we can give Jane Frasier you
21:53
Speaker 2: know that, I mean.
21:54
Speaker 5: A pat on the back, right. Yeah.
21:55
Speaker 9: Yeah. You're seeing that across the board in their first
21:59
Speaker 9: quarter reporting, where they're showing really strong revenue growth throughout
22:03
Speaker 9: their businesses services which is their primary crown jewel, the
22:07
Speaker 9: trading business and markets, banking, US cards. Everything's been going
22:12
Speaker 9: really well and you can see that in their return
22:15
Speaker 9: on Tangra equity profitability metric, which was thirteen point one percent.
22:20
Speaker 9: They're targeting something about ten or eleven percent for the year,
22:23
Speaker 9: so already cleared that at least in the first quarter,
22:26
Speaker 9: and they alluded to the fact that in their upcoming
22:28
Speaker 9: investor day next month that they'll increase their targets for
22:33
Speaker 9: profitability as well. So strong momentum there. It's going to
22:37
Speaker 9: get better.
22:38
Speaker 5: It's going to get better.
22:39
Speaker 4: And of course there's a lot of excitement about what
22:42
Speaker 4: Jane Fraser has been able to do because she streamlined
22:45
Speaker 4: this company down and really deleted all.
22:47
Speaker 5: These extra management layers. She made it slimmer.
22:51
Speaker 4: Does that and of course this being banking, the next
22:53
Speaker 4: question is is she going to make it bigger?
22:55
Speaker 5: Is she going to buy something else? Right? That was
22:57
Speaker 5: a question on the call today.
22:59
Speaker 9: It was one of the first questions from the analysts
23:01
Speaker 9: because and the analyst was referring to a Bloomberg News
23:05
Speaker 9: article saying that City Group might be interested in buying
23:07
Speaker 9: a large regional bank here in the US to improve
23:10
Speaker 9: their the past funding base. Jane was unequivalent, saying that
23:16
Speaker 9: they're not interested in doing any deals. They're really focused
23:20
Speaker 9: on organic growth in order to avoid any sort of
23:25
Speaker 9: distractions that come from a merger. So we'll take her
23:28
Speaker 9: buyer word and looking forward to seeing more improvement in
23:32
Speaker 9: the franchise over the next coming quarters.
23:35
Speaker 1: This is the Bloomberg Intelligence podcast, available on Apple, Spotify,
23:40
Speaker 1: and anywhere else you get your podcasts. Listen live each
23:43
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot Com,
23:47
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
23:51
Speaker 1: You can also watch us live every weekday on YouTube
23:54
Speaker 1: and always on the Bloomberg terminal