Latest / Bloomberg Intelligence / Arm IPO, Choice Hotels, Banks, and Microsoft (Podcast)

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Arm IPO, Choice Hotels, Banks, and Microsoft (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller.
0:05
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
0:09
Speaker 2: and Bloomberg experts, along with essential market moving news.
0:14
Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
0:17
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast. Hey,
0:21
Speaker 1: we actually have an IPO to talk about, a big
0:24
Speaker 1: one coming up here. We want to get right to it.
0:26
Speaker 1: Billy Lipschultz, he covers all that IPO stuff and all
0:29
Speaker 1: the new market stuff for Bloomberg News. He joined us
0:32
Speaker 1: here in our Bloomberg Interactive Broker studio. All right, so,
0:35
Speaker 1: Bailly arm, it's part of the soft bank. They need
0:41
Speaker 1: to convince the market that as a chip designer, they
0:45
Speaker 1: are a great play on AI. How did they do that?
0:50
Speaker 3: The big sales pitch is being in AI, being in
0:53
Speaker 3: machine learning, being in and we looked at the filings
0:58
Speaker 3: the company actually only mentioned AI about fifty times. But
1:02
Speaker 3: the big focus will be when they're talking to investors
1:05
Speaker 3: is how they can get and become really a staple
1:08
Speaker 3: of those chips that are going to increasingly be used
1:12
Speaker 3: to bring AI to things like your cell phone and
1:14
Speaker 3: be able to incorporate their technology into data centers, which
1:18
Speaker 3: obviously are very very lucrative for the technology in the
1:21
Speaker 3: semiconductor space now.
1:23
Speaker 1: So the challenge there for sorry rot but is because
1:27
Speaker 1: the challenge is, if I'm sitting on the other side
1:29
Speaker 1: of the table or I'm at the Rubber Chicken lunch
1:32
Speaker 1: in New York, my thing is, but you guys aren't.
1:35
Speaker 1: So I have to believe that you aren't now really
1:37
Speaker 1: an AI play, but I have to believe that you're
1:40
Speaker 1: going to get there right.
1:41
Speaker 3: Yeah, And they, according to their data, are in something
1:44
Speaker 3: like ninety nine percent of smartphones. So their whole pitch
1:47
Speaker 3: is that smartphone market is drying. We've seen that play
1:50
Speaker 3: out with earnings from Qualcom, earnings from Apple. Well, now
1:53
Speaker 3: they're trying to skate to where the puck's going to
1:55
Speaker 3: be data centers AI and being able to use their
1:57
Speaker 3: technology and have customers used their blueprints, which they sell,
2:01
Speaker 3: collect royalties, some nice royalties off of other companies using that,
2:06
Speaker 3: and that's kind of where they're trying to position themselves,
2:09
Speaker 3: really not saying in video is one of their many customers,
2:12
Speaker 3: but they name dropped in Vida a few times as
2:14
Speaker 3: people who they're operating and working with and letting them
2:17
Speaker 3: use some of their AI technologies.
2:19
Speaker 2: So what has in Nvidia said about ARM? I mean,
2:23
Speaker 2: aren't the two pretty closely connected more than just sort
2:26
Speaker 2: of a customer relationship.
2:29
Speaker 3: And Video was set up to buy the company a
2:32
Speaker 3: few years ago and that deal fell apart. The big
2:34
Speaker 3: thing when you look at some of these Bloomberg reports
2:37
Speaker 3: is that ARM is talking to what they're framing as
2:41
Speaker 3: strategic investors in Vidia, according to Bloomberg reports, among those
2:45
Speaker 3: potential investors alongside the likes of Amazon and Intel, to
2:48
Speaker 3: actually buy into the IPO. So you're trying to look
2:50
Speaker 3: at the way ARMS positioning itself to benefit from not
2:53
Speaker 3: only selling to these customers and benefiting from their sales,
2:56
Speaker 3: but also getting them to buy into the stock, which
2:59
Speaker 3: creates kind of that familial environment for soft Bank, which
3:03
Speaker 3: has had a pretty rough go losing thirty billion dollars
3:06
Speaker 3: last year.
3:07
Speaker 1: Yeah, this would be a big home run for them.
3:08
Speaker 1: Great great story related to this on the Bloomberg terminal
3:11
Speaker 1: by my buddy Alex Barinka and min Yng Lee. It
3:15
Speaker 1: says ARM needed thirty five hundred words to explain it's
3:19
Speaker 1: China risk before IPO. Wow, So they've got a China
3:23
Speaker 1: risk here, So I guess investors have to get what
3:25
Speaker 1: is that risk?
3:26
Speaker 3: I guess ARM laid out that they generate about a
3:29
Speaker 3: quarter of their revenue from China and that's driven by
3:33
Speaker 3: ARM China, a unit that basically them in soft Bank
3:36
Speaker 3: are partnered with but they don't control. So there's uncertainty
3:39
Speaker 3: around slowing demand in China, which we've been seeing play out.
3:42
Speaker 3: We've seen in the filing that the company's royalties coming
3:45
Speaker 3: from China actually slowed in the last fiscal year.
3:47
Speaker 1: They warned that could continue to slow.
3:49
Speaker 3: And that's all on top of geopolitical risk with the
3:52
Speaker 3: US UK anything going on as it relates to China
3:56
Speaker 3: in Western countries. And you look at some of the
3:58
Speaker 3: reactions we've seen from Bloomberg and two eligence really laying
4:01
Speaker 3: out that China risks paired with slumping smartphone and consumer
4:06
Speaker 3: electronic sales, those are the key concerns for investors going
4:09
Speaker 3: through that's filing that hit yesterday evening.
4:11
Speaker 2: By the way, in terms of the proceeds, this is
4:13
Speaker 2: a sixty to seventy billion dollar valuation right as far
4:16
Speaker 2: as we've reported as far as we've reported, which means
4:20
Speaker 2: what they walk away.
4:21
Speaker 1: With soft Bank.
4:23
Speaker 3: Last week reported soft Bank would walk away with the
4:25
Speaker 3: eight to ten billion dollars because they bought back the
4:27
Speaker 3: remaining twenty five percent from their own vision fund, so
4:30
Speaker 3: they are selling shares into the open market eight to ten.
4:33
Speaker 3: We've been reporting that maybe it's going to be a
4:35
Speaker 3: bit lower because now they own the entirety of the company,
4:38
Speaker 3: So soft Bank actually brings in all of the sales
4:40
Speaker 3: and none of that money is going.
4:41
Speaker 2: To exactly that's the point. So none of these proceeds
4:46
Speaker 2: go get reinvested into arms business. Yep, that's an important point.
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Speaker 3: And it goes back to soft Bank being able to
4:53
Speaker 3: take that cash and redeploy it to some of the
4:55
Speaker 3: other startups that they've tried to back and are looking
4:59
Speaker 3: to back and try to.
5:00
Speaker 1: All Right, here's another thing. I wonder what our reporting
5:03
Speaker 1: is showing, because last quarter day the company had little
5:05
Speaker 1: to know revenue growth dropped about one percent year. Okay,
5:09
Speaker 1: so give you that background. Is there any view coming
5:12
Speaker 1: from the street on valuation?
5:13
Speaker 3: Yet we saw in yours truly reported on this, we
5:18
Speaker 3: saw a burnstea note laying out expectations around forty billion.
5:21
Speaker 3: That was last month when we crunched the numbers looking
5:24
Speaker 3: at some comps they've We've been taught hearing investors in
5:28
Speaker 3: Wall Street talking up Synopsis and Cadence as better comps.
5:31
Speaker 3: When you look at a price of sales trailing on
5:33
Speaker 3: a twelve month average, evaluation comes.
5:35
Speaker 1: Closer to thirty two to forty three billion, So and
5:38
Speaker 1: the company is looking for what sixty to seventy as
5:40
Speaker 1: far as we've and they bought back that bit spread there.
5:42
Speaker 3: My friend, Well, they also bought back with that repurchase
5:45
Speaker 3: from SoftBank, they paid about sixteen billion for that twenty
5:49
Speaker 3: five percent stake, so sixty four billion dollars baked in.
5:51
Speaker 3: But the one thing that was interesting in the filing
5:54
Speaker 3: is SoftBank's warns, and this is verbatim. Investors are cautioned
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Speaker 3: that the purchase price paid may not be indicative of
6:00
Speaker 3: it is not intended to reflect expectations regarding the completed deal.
6:05
Speaker 3: So they basically are warning that they paid sixty evaluation
6:09
Speaker 3: of sixty four billion, forget that that's part of a
6:12
Speaker 3: different deal. Don't worry about ascribing that valuation money, because
6:15
Speaker 3: that's the first place I would go to exactly, and
6:17
Speaker 3: that's what we're talking to investors and people who want.
6:20
Speaker 1: It's not going to be an easy deal, is it.
6:23
Speaker 1: It's going to be a fascinating deal.
6:24
Speaker 3: I mean, we've talked about at length about the dearth
6:26
Speaker 3: of IPOs, and the one view that I've been getting
6:29
Speaker 3: from a number of my sources is that arm is
6:31
Speaker 3: the type of company and they've stuck to their plans
6:33
Speaker 3: to go public this year that could really go public
6:35
Speaker 3: in most any market. It was public once before, back
6:38
Speaker 3: in twenty sixteen. Soft Bank took it private. It's more
6:41
Speaker 3: of an almost pe style play as opposed to your
6:44
Speaker 3: traditional money burning VC.
6:47
Speaker 2: Backed company, and it's the only game in town if
6:49
Speaker 2: you want access to a new issue. If it does well,
6:53
Speaker 2: I guess there'll be a cascade of IPOs that follow.
6:56
Speaker 3: Yes and no. We're expecting potentially Instacart to flip their
6:59
Speaker 3: S one sometime as early as this week. Clay Vio's
7:01
Speaker 3: another company. The big thing that I've been talking to
7:04
Speaker 3: my contacts, their view is fourth quarter twenty twenty three
7:10
Speaker 3: will be interesting with some of these big companies that
7:12
Speaker 3: probably should have or could go at most anytime. But
7:14
Speaker 3: the big focus is going to be early twenty twenty
7:16
Speaker 3: four when you're going to get more of those sweet
7:18
Speaker 3: spot IPOs.
7:19
Speaker 2: Just on a different topic completely. We were talking and
7:25
Speaker 2: have been talking for a long time with Ira Jersey
7:27
Speaker 2: about soccer, and I know messis come here, so it's
7:31
Speaker 2: pretty exciting for a sport that otherwise is just deadly
7:35
Speaker 2: boring to watch. Why doesn't professional lacrosse get a big
7:41
Speaker 2: pick up in this country? And I ask you, Bailey,
7:44
Speaker 2: because I've noticed that you were a lacrosse beat reporter
7:48
Speaker 2: at Citrus TV.
7:50
Speaker 1: Yeah.
7:50
Speaker 3: Man, I cut my teeth at at Syracuse University covering
7:53
Speaker 3: which I still view is probably the best men's lacrosse
7:56
Speaker 3: college team that did not win a national title.
7:58
Speaker 1: They were absolutely stacked. Yeah, And back when we were kids,
8:01
Speaker 1: that was it. It was Em and Jane Johns Hopkins
8:03
Speaker 1: and then now everybody plays its big tens all getting
8:06
Speaker 1: in on it. No.
8:06
Speaker 3: But that's interesting, Matt, because coming from the West Coast,
8:08
Speaker 3: I knew like two.
8:09
Speaker 1: People who played lacrosse.
8:10
Speaker 3: It was a rich kid San Diego sport that being
8:14
Speaker 3: east of LA was like, we play football, that's what
8:16
Speaker 3: men do.
8:17
Speaker 2: And in Ohio, by the way, same thing. Growing up
8:20
Speaker 2: in Ohio lacrosse with something only kids in like New
8:23
Speaker 2: Jersey and Connecticut played. But now at you know the
8:26
Speaker 2: schools that I all the schools I got kicked out
8:28
Speaker 2: of in Central Ohio, they all play lacrosse.
8:30
Speaker 1: Well, it's accelerating. The issue is in the this is
8:33
Speaker 1: the pitch.
8:34
Speaker 3: And I did a small stint covering sports here at
8:36
Speaker 3: Bloomberg and sports business is lacrosse is going to be
8:40
Speaker 3: gaining from parents who maybe don't want their kids to
8:43
Speaker 3: play football for fear of injuries, head injuries. The issue,
8:46
Speaker 3: the one kind of drawing factor is and the reason
8:49
Speaker 3: it's compared to hockey is it's.
8:51
Speaker 2: Not a cheap sport.
8:52
Speaker 3: There aren't a lot of fields to play. So if
8:54
Speaker 3: you don't have a tremendous amount of income where you
8:56
Speaker 3: can find a stick in a ball and find someone
8:58
Speaker 3: to play with, you can't go pick up and play
9:01
Speaker 3: like soccer, football or basketball where there's a court or
9:04
Speaker 3: there's just a grass field.
9:05
Speaker 1: You end the number one high school team in the
9:07
Speaker 1: country this year, the Lawrenceville School. Thank you very much,
9:10
Speaker 1: Thank you Bailly good stuff. Bell Leadership's covers the markets.
9:14
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9:46
Speaker 1: Let's talk about the hotel business, particularly the extended stay
9:49
Speaker 1: part of the business, which is probably a part of
9:50
Speaker 1: the business we don't talk about enough. And Skazafava joins us.
9:54
Speaker 1: She's the general manager and senior vice president of Extended
9:57
Speaker 1: Stay brands at Choice Hotels. Troyti, of course, is a
10:01
Speaker 1: New York Stock Exchange listed company. Ce HH is the
10:05
Speaker 1: ticker to load into your Bloomberg Professional Service and thanks
10:08
Speaker 1: so much for joining us. We appreciate you coming in
10:10
Speaker 1: all the way from Rockville, Maryland. Talk to us about
10:13
Speaker 1: the extended stay business. What are the drivers of your
10:17
Speaker 1: business and what are the trends been I guess over
10:20
Speaker 1: the last several years as the world's kind of reinvented
10:22
Speaker 1: itself a little bit.
10:22
Speaker 5: Yeah, no, that's great. So extended say caters primarily to
10:26
Speaker 5: non discretionaries day so think traveling nurses, construction crews. So
10:30
Speaker 5: we have a lot of tailwinds coming to us with
10:32
Speaker 5: the Infrastructure Bill, the Chips Act, etc. So we see
10:34
Speaker 5: a lot of demand in our future ahead of us
10:37
Speaker 5: at this point in time, I would say the one
10:39
Speaker 5: thing about the extended day brands is that they're pretty resilient.
10:42
Speaker 5: So even in face of recessions and pandemics, we tend
10:45
Speaker 5: to have an occupancy premium over the rest of traditional hotels.
10:49
Speaker 5: So even right now in the first half of the year,
10:51
Speaker 5: economy extended day has a nineteen percent occupancy point percentage
10:56
Speaker 5: over just regular economy transient hotels. So it's a very
11:00
Speaker 5: resilient business model.
11:02
Speaker 2: I guess your biggest competitor right now would be Airbnb.
11:05
Speaker 2: Is that fair to say? I mean, if I was
11:07
Speaker 2: going to go someplace and I had to stay there
11:09
Speaker 2: for two weeks, that would be sorry to say, my
11:11
Speaker 2: first thought.
11:13
Speaker 6: Yeah, I think Airbnb.
11:14
Speaker 5: Though when we look at that their price points are
11:16
Speaker 5: a little bit different, and those guests don't tend to
11:18
Speaker 5: look for kind of the standard guest experience that we
11:22
Speaker 5: provide across that. So the way we think about extended
11:25
Speaker 5: s A is that it's apartment like amenities with a
11:27
Speaker 5: hotel of a flexibility. So you still get the services,
11:29
Speaker 5: the cleaning, it's ed rad that you would expect from
11:32
Speaker 5: a hotel, but you have a full size kitchen in
11:34
Speaker 5: your room, you have some of those larger spaces and
11:36
Speaker 5: suites versus a small traditional hotel room.
11:40
Speaker 1: So are you primarily a franchise company? Okay? So how
11:45
Speaker 1: do you grow your business in terms? Is it simply
11:48
Speaker 1: going after and recruiting franchises? How does that work? How
11:50
Speaker 1: does that growth? Yeah?
11:51
Speaker 5: Absolutely, But I think developers at this point I'm are
11:53
Speaker 5: looking at extends as one of the hottest segments within
11:56
Speaker 5: the lodging industry. And really it's a hedge. It's a
11:58
Speaker 5: really different type of asset class than additional hotel. So
12:01
Speaker 5: over the last couple of years, even even during twenty twenty,
12:04
Speaker 5: Woodspring Suits a our largest brand. They ran gopu margins
12:07
Speaker 5: of fifty percent and they've gone up from there. So
12:09
Speaker 5: last year we were on average at sixty percent, So
12:11
Speaker 5: smart money is really kind of chasing us at this
12:13
Speaker 5: point in time and wanting to get into the segment.
12:16
Speaker 5: We've been able to capitalize on that. We've had over
12:18
Speaker 5: fifty percent more openings in the first half of this
12:20
Speaker 5: year than we did last year. We've grown our pipeline
12:22
Speaker 5: seventeen percent just in the first half of this year.
12:25
Speaker 5: So while we are, yes, of course going after some
12:27
Speaker 5: of the larger developers, they are certainly seeking us out
12:30
Speaker 5: as well.
12:32
Speaker 2: So does the does the change in work from home
12:35
Speaker 2: or the evolution of the way we work have a
12:37
Speaker 2: big effect on your business?
12:38
Speaker 5: Yeah, we've seen a lot of stays now where I mean,
12:41
Speaker 5: I hate the word leisure, but where you get the
12:42
Speaker 5: business traveler right and they're staying for five days and
12:44
Speaker 5: then they tack on.
12:45
Speaker 2: Wait, is that a word if people use, I mean, we.
12:47
Speaker 5: Do in the industry, Yeah, leisure, leisure, businessiness.
12:50
Speaker 2: Sure, leisure. I cannot believe that you're allowed to use
12:55
Speaker 2: that word.
12:56
Speaker 5: Somebody standard industry jargon. For sure, it was, yeah, but
13:00
Speaker 5: that certainly has changed. And then honestly, they're reshoring of
13:03
Speaker 5: a American manufacturing has also been a great tail wind
13:06
Speaker 5: for us at this point in time. So any of
13:07
Speaker 5: those large semiconductor plants that you're starting to see you
13:10
Speaker 5: move in, battery plants, et cetera, are also creating a
13:12
Speaker 5: lot of demand for the extended day segment.
13:15
Speaker 1: How about I mean, can I build a hotel these days?
13:17
Speaker 1: I mean the banks are just pulling back on lending
13:19
Speaker 1: across this across the board. How does that impact I
13:22
Speaker 1: guess you're franchisees.
13:24
Speaker 5: Yeah, so we're the only company that has two entry
13:26
Speaker 5: points into extended day for both the economy segment and
13:29
Speaker 5: the mid scale segment. So what we've done knowing that
13:32
Speaker 5: new constructional lending is a challenge, right, and some of
13:34
Speaker 5: our franchisees can can get that they have community banks,
13:37
Speaker 5: that they've got local relationships, proven track records, and so
13:40
Speaker 5: they're still getting that lending. But a lot of folks
13:43
Speaker 5: where we have markets that have no extended stay to supply,
13:46
Speaker 5: there's a ton of traditional hotels. We came up with
13:49
Speaker 5: a really innovative solution that we call kitchen in a Box.
13:51
Speaker 5: So we worked with engineers, architects, the trades, mechanical, electrical, plumbing,
13:56
Speaker 5: et cetera, and came up with this concept where you
13:58
Speaker 5: can take a traditional hotel room and into an extended
14:01
Speaker 5: stay room, and we have twenty of those transformations going
14:03
Speaker 5: on across the country.
14:04
Speaker 1: What's an extended stay room entail?
14:07
Speaker 5: So you must have a full sized kitchen, full size kitchen,
14:09
Speaker 5: full sized kitchen, okay. And the way that we like
14:11
Speaker 5: to think about it is guests use these rooms for
14:14
Speaker 5: both workplay, me space. Right. They need to be flexible
14:17
Speaker 5: spaces so that it's more kind of like your home,
14:19
Speaker 5: even thoughtful things like you know, you want a larger
14:22
Speaker 5: vanity in the bathroom because you're going to be there
14:23
Speaker 5: for many weeks. You want to be able to put
14:24
Speaker 5: all yourself out right. So that's how we think about
14:27
Speaker 5: designing that with the consumer first and how they're going
14:29
Speaker 5: to use that space.
14:30
Speaker 2: How have labor costs been because I know, you know,
14:35
Speaker 2: in the pandemic, or even at the end of the pandemic,
14:38
Speaker 2: Paul and I would interview hoteliers. How do you say
14:42
Speaker 2: that hoteliers, that's pretty good. Yeah, And they told us,
14:46
Speaker 2: you know, it's very difficult to get people to come
14:48
Speaker 2: to work.
14:49
Speaker 1: Yeah.
14:49
Speaker 5: So the beauty of extended day is in the economy
14:52
Speaker 5: segment in particular, there's only six or seven full time employees.
14:55
Speaker 5: And the reason that is is because we only do
14:56
Speaker 5: housekeeping bi weekly, so the labor model is super light
15:00
Speaker 5: in these hotels, which also enables those high margins that
15:03
Speaker 5: I spoke about earlier. So yes, we are not immune
15:05
Speaker 5: to that, but it certainly lends itself a little bit
15:07
Speaker 5: easier than what you're seeing in traditionally.
15:09
Speaker 2: I see though, so extended stay facilities are not housed
15:14
Speaker 2: within your traditional hotel facilities. They're actually completely separate.
15:19
Speaker 5: Yeah so yeah, So so take a Woodspring Speets for instance. Prototype.
15:24
Speaker 5: Prototype is one hundred and twenty two rooms and they
15:27
Speaker 5: come standard with the kitchens, et cetera. There's also guest laundry,
15:31
Speaker 5: fitness facilities, et cetera, so that you can really maintain
15:34
Speaker 5: your lifestyle there, so you would not see them withinside
15:36
Speaker 5: a traditional hotel.
15:38
Speaker 1: But no, like restaurants or any that type of this
15:40
Speaker 1: is just stays. Okay, Yeah, who do you compete against?
15:43
Speaker 2: Really?
15:43
Speaker 1: Matt mentioned Airbnb, but on the in terms of the
15:45
Speaker 1: traditional extended stay, who's the company?
15:47
Speaker 5: Yeah? Well, I mean we're starting to see a lot
15:49
Speaker 5: of new competitors come into the space. So Marriotte, Hill
15:51
Speaker 5: and High have all really brand launches at this point
15:53
Speaker 5: in time. I think for us though we've been in
15:55
Speaker 5: the space for a really long time. We acquired Woodspring
15:57
Speaker 5: Suites back in twenty eighteen have kind of re invigorated
16:00
Speaker 5: the segment. We have over four hundred open and operating
16:03
Speaker 5: extended stay hotels right now, with another three hundred in
16:06
Speaker 5: the pipeline.
16:07
Speaker 1: And where those are the regional areas that you guys
16:10
Speaker 1: are focusing on, or I mean coast to coast.
16:12
Speaker 5: We certainly see a lot of demand right now in
16:13
Speaker 5: Texas and Florida. The relocation has been big for us
16:16
Speaker 5: as well. So think places like Boise, Idaho that are
16:19
Speaker 5: just growing kind of urban areas at this point in time.
16:22
Speaker 1: Talk to us about rowing.
16:24
Speaker 2: Yeah, she's in the Athletic Hall of Fame. I mean,
16:30
Speaker 2: no joke.
16:30
Speaker 1: What's a Coxswaine? Is that the one that says stroke,
16:32
Speaker 1: stroke or go.
16:34
Speaker 5: It's a little more sophisticated. So you actually have a
16:37
Speaker 5: microphone and there are speakers underneath the seat, right, and
16:40
Speaker 5: so I can whisper and the crew would be able
16:42
Speaker 5: to hear you. But yes, I steered the boat and
16:45
Speaker 5: then you made sure that we were making race moves.
16:47
Speaker 2: What are you should in the front though right in
16:49
Speaker 2: the back so you can see. I see. So you
16:52
Speaker 2: actually do steer literally literally and then you're the motivator
16:55
Speaker 2: of the crew. Correct, absolutely, So what's the athletic Hall
16:58
Speaker 2: of Fame? Like, do you have like your jersey there or.
17:01
Speaker 5: I have met my plaque and it's you know, on
17:03
Speaker 5: the riverfront. So we have our boat house out there.
17:05
Speaker 5: So that's what river is washing it Chester River. So
17:08
Speaker 5: in Maryland.
17:09
Speaker 1: Yeah, I don't know anybody who rose.
17:13
Speaker 2: Uh yeah, I know some.
17:14
Speaker 1: I know some.
17:15
Speaker 2: I actually only know women who row.
17:17
Speaker 5: But it's a big D three so it's huge.
17:20
Speaker 1: Yeah, it's huge.
17:20
Speaker 2: I mean I know a lot of Boston women who
17:23
Speaker 2: row in the Charles.
17:24
Speaker 5: That's amazing. We we we came in third, I want
17:27
Speaker 5: to say one of the years on the Charles. And
17:29
Speaker 5: of course it's a big tradition to throw the Coxon
17:30
Speaker 5: in if you win.
17:32
Speaker 1: All right, good stuff and Skazafava, general manager and Senior
17:36
Speaker 1: VP of Extended Stay Brands at Choice Hotels.
17:39
Speaker 4: You're listening to the tape Cat's are Live program Bloomberg
17:42
Speaker 4: Markets weekdays at ten am Eastern on Bloomberg Radio, the
17:46
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17:49
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17:52
Speaker 4: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
17:58
Speaker 1: You know, Matt, I don't know about this whole you know,
18:01
Speaker 1: yield curve thing. It's you know, I'm an equities guy,
18:04
Speaker 1: so this is kind of something new for me. But
18:05
Speaker 1: Lisa Bromowitz has been schooling me for years on this
18:08
Speaker 1: and the latest thing she says I have to focus
18:09
Speaker 1: on is real yield for the tenure hit two percent?
18:13
Speaker 1: The highest in a very long time. I think it's
18:14
Speaker 1: two two thousand and nine. What does that mean? I
18:17
Speaker 1: don't know. Somebody ask somebody who's smart about this kind
18:19
Speaker 1: of stuff.
18:20
Speaker 2: And this is what the Fed wanted, right They said
18:21
Speaker 2: they wanted to get real yields positive. At the time
18:24
Speaker 2: that Powell was complaining about it, they were negative, yep.
18:27
Speaker 2: And now they're way up there. So the question is
18:30
Speaker 2: are they then able to achieve their goal of reducing
18:33
Speaker 2: inflation to two percent?
18:34
Speaker 1: And let's ask somebody about that. Jay Haffield, he's the
18:36
Speaker 1: CEO and founder and portfolio manager of Infrastructure Capital Management.
18:40
Speaker 1: It has been kind enough to join us here in
18:41
Speaker 1: our Bloomberg Interactive Broker Studio. So, Jay, talk to us
18:44
Speaker 1: about your call on inflation. I got this real yield
18:47
Speaker 1: thing at two percent. That's the highest since July of
18:50
Speaker 1: two thousand and nine, So that gets my attention. What's
18:53
Speaker 1: going on out there?
18:54
Speaker 7: Thanks Paul Matt for having me on. Well, we actually
19:00
Speaker 7: I think that the Fed is a little bit of
19:03
Speaker 7: out of play right now. So in other words, they
19:07
Speaker 7: may or may not raise one more time. We don't
19:09
Speaker 7: think they will. There was a story in the Journal today,
19:13
Speaker 7: but we did some data in preparation for this. The
19:16
Speaker 7: labor markets really weakening. That sixty percent of jobs added
19:20
Speaker 7: are in the medical sector, and we all know that
19:23
Speaker 7: that's more of a secular increase than cyclical. And also
19:28
Speaker 7: wages are tenuating, So I think that data. We don't
19:31
Speaker 7: think the Fed's going to raise. They don't know that yet,
19:34
Speaker 7: but they're going to get some more data, particularly on
19:36
Speaker 7: the on the labor side, even though that doesn't really matter,
19:39
Speaker 7: but that's what they focus on. And also inflation is
19:43
Speaker 7: going to gradually cool. The measurement of inflation already has cool,
19:46
Speaker 7: but the measurement of inflation will continue to cool. So
19:49
Speaker 7: we're optimistic that the FED will not raise again, but
19:53
Speaker 7: we're very concerned about the ECB in case you want
19:57
Speaker 7: to talk about that, because we think that's critical.
19:59
Speaker 2: To Well, let's get to But I do want to
20:01
Speaker 2: talk about your view on inflation, because you have your
20:03
Speaker 2: own index CPI R and I'm looking at it on
20:07
Speaker 2: the infrastructure, on infracap funds dot com on your website.
20:13
Speaker 2: How do you see this working out in terms of inflation?
20:18
Speaker 2: Is it really going to come back down to two percent?
20:20
Speaker 2: And is that going to be anytime soon? Maybe the
20:24
Speaker 2: heke one more time, but do we hold at that
20:26
Speaker 2: level or are you worried it bounces back?
20:29
Speaker 7: Well, the two things to focus on in terms of
20:32
Speaker 7: potential bounce back are energy prices and housing prices. So
20:37
Speaker 7: energy we do a lot of work on that. We
20:40
Speaker 7: think that we're kind of stuck in this seventy five
20:43
Speaker 7: ninety five range and also in the fallitude weaken up,
20:45
Speaker 7: so we're not worried about energy. And also it's important
20:47
Speaker 7: in the US we have natural gas. The trades at
20:50
Speaker 7: the equivalent about eighteen dollars a barrel, so it's highly
20:53
Speaker 7: deflationary here, not sure the West of the world. Rest
20:56
Speaker 7: of the world, natural gas trades roughly be to you,
20:59
Speaker 7: why is it same as well? So we're not concerned
21:02
Speaker 7: about that. And I think the chances of housing prices
21:04
Speaker 7: taking off like a rocket when mortgage rates are seven
21:07
Speaker 7: and a half percent is close to zero. So we're
21:10
Speaker 7: not concerned about a reacceleration. And then we know that
21:14
Speaker 7: the current measurements for CPI and PCE or flawed because
21:20
Speaker 7: of their shelter component. And also we don't like pc
21:23
Speaker 7: because it has twenty percent medical. But I would say,
21:26
Speaker 7: we don't stick this on our website, but we calculate
21:29
Speaker 7: pceh R, so that corrects for shelter and that's only
21:33
Speaker 7: a two point six percent right now.
21:35
Speaker 2: And well CPI R is only one percent year over year,
21:38
Speaker 2: right correct.
21:39
Speaker 7: Yeah, So we think inflation is already behind that problem
21:42
Speaker 7: behind us, and no signs again looking at the forward indicators,
21:46
Speaker 7: because we were massively concerned about inflation early twenty one.
21:51
Speaker 7: So we think that's behind us. Whether the FED raises
21:54
Speaker 7: one more time or not, we don't think it's that critical.
21:56
Speaker 7: But we do think the global type monetary power is
22:00
Speaker 7: an issue, and I think that's what is driving long
22:03
Speaker 7: term rates up right now.
22:04
Speaker 2: So all right, let's get then to Europe, what's the
22:08
Speaker 2: inflation picture look like to you over there? If it's
22:10
Speaker 2: subdued here, but you mentioned we have deflationary natural gas prices,
22:16
Speaker 2: and of course they don't. How does inflation look to
22:20
Speaker 2: you on the continent?
22:21
Speaker 7: Well, I think that that's that is a real problem
22:23
Speaker 7: because they've had an enormous increase over the last two years,
22:26
Speaker 7: and that's they're less competitive. But our biggest concern is
22:30
Speaker 7: that global monetary base. And we will publish this on
22:33
Speaker 7: our website as well. Although you can get the data
22:36
Speaker 7: you can just if you can add you can get
22:37
Speaker 7: it on the terminal as well, but it's still good
22:40
Speaker 7: to publish it because even I haven't focused on enough
22:42
Speaker 7: dropped by seven hundred billion in the last two months,
22:46
Speaker 7: which is an enormous drop. That's now what what dropped
22:49
Speaker 7: the global monetary base? Okay, so the global central Bank
22:54
Speaker 7: sucked out seven hundred billion dollars of capital.
22:57
Speaker 2: And we've seen them two fall here as well.
22:59
Speaker 7: Right, yeah, so those are bit more lag But if
23:00
Speaker 7: you look at the I would suggest look at the
23:02
Speaker 7: monitary base because that's the leading indicator, because it's the
23:06
Speaker 7: major component. And I would also say don't ignore this
23:09
Speaker 7: so I've made a good call to least our clients.
23:12
Speaker 7: When the FED interviewed, I said, okay, that's the sign
23:15
Speaker 7: back in pandemic. They're adding, you know, one point two
23:19
Speaker 7: trillion of capital to the capital market every year. That's
23:24
Speaker 7: just enormous. That's like Warren Buffett, you know, putting is
23:27
Speaker 7: one hundred billion to work ten times. So I wouldn't
23:31
Speaker 7: ignore the monetary base and those radical changes in particular,
23:35
Speaker 7: if they're small, you can ignore them. So we think
23:37
Speaker 7: that's the key driver behind this big rise in rates,
23:41
Speaker 7: and we did that work because really, frankly, our call
23:43
Speaker 7: was that we're going to drop and it was dead wrong.
23:46
Speaker 7: So said, well, how can this be? And that's when
23:48
Speaker 7: we discovered, because we should have been tracking it as
23:51
Speaker 7: well more closely, that the ECB has just done this
23:54
Speaker 7: massive QT and that affects all rates in the in
23:58
Speaker 7: the world. That it's our bond is eighty five percent
24:02
Speaker 7: correlated with all the benchmark bonds. So coming up with
24:05
Speaker 7: an explanation just focused on the US is not going
24:09
Speaker 7: to be correct when you're talking about the world bond market.
24:11
Speaker 1: So what happens to interest rates? When can I refinance
24:16
Speaker 1: my mortgage at.
24:17
Speaker 2: A lower rate. Well is single minded and focused on
24:22
Speaker 2: the high mortgage rate that he got. It's adjustable though,
24:25
Speaker 2: because he was figuring at the time, well, next year,
24:28
Speaker 2: I'll be able to refinance at the lower rate.
24:30
Speaker 7: Yes, so I have adjustable rate mortgages as well. So
24:33
Speaker 7: I'm very focused on this. But I don't think that
24:36
Speaker 7: we're going to get any relief till probably mid next
24:39
Speaker 7: year because of the Fed's about a year behind what
24:41
Speaker 7: they should be doing. So you should have cut when
24:43
Speaker 7: the banking crisis started. And that is another reason why
24:48
Speaker 7: they should pause, and I think that maybe even they'll
24:50
Speaker 7: figure this out, is that the banking system is under
24:53
Speaker 7: pressure being downgraded. They were downgraded this morning. They should
24:57
Speaker 7: be focused on that. So I think we'll get relief
25:00
Speaker 7: next year. But the thing to watch, and the reason
25:03
Speaker 7: that we're sticking with our bullish call on interest rates,
25:07
Speaker 7: is that we do think that the European economy is
25:10
Speaker 7: going to crack. They have mostly floating rate mortgages, way
25:15
Speaker 7: more than they do in the United States. They have
25:17
Speaker 7: this natural gas problem. Germany is levered to China, and
25:22
Speaker 7: their ECB is a single mandate central bank, so they're
25:27
Speaker 7: going to continue to tighten really probably tell their economies crack,
25:30
Speaker 7: So I think that's when rates will come down. Long
25:33
Speaker 7: rates will come down when it becomes more obvious that
25:37
Speaker 7: Europe has headed into a recession, which is our call
25:39
Speaker 7: that they're almost certainly going to probably even substantial.
25:42
Speaker 1: Despite all the Americans over their traveling.
25:45
Speaker 7: At the margin, that does help. Yeah, the US definitely
25:48
Speaker 7: does prop up the rest of the world. But still,
25:51
Speaker 7: when you think about all those factors are negative, then
25:54
Speaker 7: what is the bowl case for you?
25:55
Speaker 1: So how about China? Just because we've been talking a
25:58
Speaker 1: lot over the last several weeks report on the weaker
26:01
Speaker 1: than expected economic data out of China, how do you
26:04
Speaker 1: kind of view all.
26:05
Speaker 7: That well when with regard to oil, which is what
26:09
Speaker 7: we mostly focus on China about, is that the thing
26:12
Speaker 7: to keep in mind is that, of course reporters have
26:16
Speaker 7: to write stories. So why is oil down? We talked
26:19
Speaker 7: them about this, Well, it's because of China. Well it's
26:21
Speaker 7: usually not the case. They have very slow growth in
26:25
Speaker 7: oil demand, that's very sticky, so we don't think that
26:28
Speaker 7: that demand's going to drop, But we also think that
26:32
Speaker 7: that could be positive for long term rates because the
26:35
Speaker 7: I'm sorry that the Chinese Central Bank is definitely going
26:37
Speaker 7: to cut rates. There's a disappointment when they cut last time,
26:41
Speaker 7: but they're going to continue to cut rates. They've really
26:43
Speaker 7: hammered their economy through regulation. It's a good example why
26:47
Speaker 7: maybe capitalism is superior to communism, and so when you
26:50
Speaker 7: do that, it hurts economic growth, and so they're going
26:53
Speaker 7: to offset it with monetary policy, and that should also
26:56
Speaker 7: be bullish for long term rates.
26:59
Speaker 1: And I'm just reading a notes here, real quick, thirty
27:01
Speaker 1: seconds fourth quarter for the stock market SMP range of
27:05
Speaker 1: forty five hundred to five thousand.
27:07
Speaker 7: Correct, although I would say that that's dependent on rates
27:10
Speaker 7: at least stop rising, you know, as fast as they
27:14
Speaker 7: have been over the last month or so.
27:17
Speaker 1: Okay, and anything added Jackson Hole.
27:20
Speaker 7: We think it's going to be a non event because
27:21
Speaker 7: the Feds already signaled what they want to do. They
27:23
Speaker 7: have the dot plot, and we know there's a dubvish camp,
27:28
Speaker 7: so that we won't get a repeat of last year
27:30
Speaker 7: where Pallet comes out and kind of talks the market
27:34
Speaker 7: down right.
27:34
Speaker 2: Interesting, all right, Jake, So you don't think there'll be
27:36
Speaker 2: a hawkish bent.
27:37
Speaker 7: Little bit, but not anything significant like it was.
27:40
Speaker 2: Lasting right home about right.
27:41
Speaker 1: But let's send the team out there anyway.
27:43
Speaker 2: Yeah, two teams, Yeah sure yeah.
27:45
Speaker 1: Jay Hatfield, CEO, founder and portfolio manager does it all.
27:49
Speaker 1: Infrastructure capital management one of the smarter discussions Matt and
27:52
Speaker 1: I have as we try to think about these markets
27:55
Speaker 1: and navigate through that.
27:56
Speaker 2: And I like his website infracap infracap infracap Funds dot com.
28:01
Speaker 1: Boom there you go, go check it out.
28:03
Speaker 4: You're listening to the team Ken's are live program Bloomberg
28:07
Speaker 4: Markets weekdays at ten am Eastern on Bloomberg dot Com,
28:10
Speaker 4: the iHeartRadio app and the Bloomberg Business app, or listen
28:13
Speaker 4: on demand wherever you get your podcasts.
28:17
Speaker 1: All right, let's get this banking thing. We got S
28:19
Speaker 1: and P coming in better relate than never, I guess,
28:21
Speaker 1: kind of saying, hey, there's challenges for the regional banking
28:25
Speaker 1: sector and they take down some names. Here, let's break
28:27
Speaker 1: it down with our experts. That would be Herman Chant,
28:31
Speaker 1: and that would be Arnold. Herman joins us live here
28:33
Speaker 1: in our Bloomberg Interactive Broker studio. Arnoldlekuda making use of
28:38
Speaker 1: the zoom functionality out there. He joins us as well. Arnold.
28:42
Speaker 1: Let's start with you on the credit side. Where do
28:45
Speaker 1: you see kind of the pressure that we're seeing across
28:49
Speaker 1: the regional bank space in the credit side.
28:54
Speaker 8: Yes, I think some of these actions by Moody's and
28:57
Speaker 8: SMP I think just gives us a reminder that this
29:01
Speaker 8: you know, now, I guess I wouldn't call it a
29:02
Speaker 8: crisis anymore, but you know, these issues still exist where
29:06
Speaker 8: there is pressure on these banks and their balance sheets. Right,
29:10
Speaker 8: funding costs are rising, deposits have fled. Yes, So I
29:15
Speaker 8: think a lot of these things that the rating agencies
29:18
Speaker 8: are coming out with now are Yeah, it is backward looking,
29:22
Speaker 8: but it is a reflection that, you know, all things
29:25
Speaker 8: aren't all fine and dandy in regional bank land.
29:27
Speaker 1: So if if I wanted to go out I'm a
29:29
Speaker 1: regional bank of reasonable credit quality, can I go out
29:32
Speaker 1: there and raise capital in your credit markets? And if so, like,
29:36
Speaker 1: am I going to really have to pay through the nose?
29:38
Speaker 8: Oh? I mean, you know, the the before March regional
29:42
Speaker 8: bank debt it was, you know, we're in a totally
29:46
Speaker 8: different world. It used to be they trade really tight
29:48
Speaker 8: and you couldn't get enough of it right, and it
29:50
Speaker 8: trade tight for the credit rating. Now we're in this
29:53
Speaker 8: opposite world. Of you know it trades wider. I mean
29:57
Speaker 8: things have you gotten better obviously since the heydays of
30:00
Speaker 8: March and May, but you know, compared to before, spreads
30:04
Speaker 8: are wider, and a lot of these will be hit
30:07
Speaker 8: with new debt requirements. So we expect debt issuans to
30:11
Speaker 8: pick up for a lot of these. And we have
30:13
Speaker 8: seen a couple of regional banks to tap the market.
30:15
Speaker 8: We have Charles Schwap today and then we had what
30:18
Speaker 8: is it, Huntington and P and C come you know,
30:21
Speaker 8: in the in the past week or so. So it
30:23
Speaker 8: is available. If the debt does come uh, you know,
30:26
Speaker 8: with with some a little bit meat on the bone.
30:29
Speaker 8: Let's let's put it that, then there will be demand.
30:32
Speaker 2: Herman, what do you think about the uh, you know,
30:35
Speaker 2: the banks that were specifically downgraded by S and P.
30:38
Speaker 2: You've got Key Corp, Comerica, Valley National, umb and Associated
30:44
Speaker 2: Bank Corp R So.
30:47
Speaker 9: I would say that the the issues that that the
30:51
Speaker 9: rating agencies have highlighted a couple of them, Key Corp
30:53
Speaker 9: co America, they're facing some weaker needitors margins than some
30:57
Speaker 9: others that in the in our our peer group. That's
31:01
Speaker 9: really driven by some higher deposit costs. They actually these
31:05
Speaker 9: two banks in particular miss have mishedged their balance sheet
31:09
Speaker 9: a bit where they were expecting interest rates to decline
31:13
Speaker 9: potentially next year, and it seems like we're in a
31:16
Speaker 9: higher for longer environment, so that's actually crimping their margins
31:19
Speaker 9: a bit more than some others.
31:21
Speaker 2: The is the deposit flight the kind of thing that's
31:25
Speaker 2: still ongoing. You know. I was actually at a cocktail party,
31:30
Speaker 2: shocking I think like three or four weeks ago, with
31:35
Speaker 2: a group of ladies talking about how they got you know,
31:39
Speaker 2: high interest rates in this one bank account. And I
31:42
Speaker 2: saw one woman, you know, just over the course of
31:46
Speaker 2: a conversation at like six pm on a Saturday, say,
31:49
Speaker 2: you know what, I'm just gonna move like one hundred
31:52
Speaker 2: thousand dollars from my savings account and my bank that
31:54
Speaker 2: I've always used into this I can't remember if it
31:58
Speaker 2: was the Sacks account or some other, but you know,
32:02
Speaker 2: four and a half percent yielding savings account and just
32:04
Speaker 2: boom done.
32:05
Speaker 7: Right.
32:06
Speaker 9: So what we've seen since the fallout in margin April
32:09
Speaker 9: is that the deposit actually the deposit bounces have actually
32:14
Speaker 9: stabilized across the industry. And how that's happened is they're
32:19
Speaker 9: just paying up for those deposits. So you're you're seeing
32:23
Speaker 9: high interest savings accounts, high savings accounts approaching five even
32:27
Speaker 9: above five percent CDs above five percent for one year term,
32:32
Speaker 9: fifteen month term. So that's really the gist of it.
32:37
Speaker 9: The banks are paying up and that's really crimping that
32:39
Speaker 9: dig's margins and pressuring profitability going forward.
32:45
Speaker 1: Arnold, are you seeing any investors come in in your
32:48
Speaker 1: market and saying, boy, I see some real value here
32:51
Speaker 1: in some of these bonds.
32:54
Speaker 8: Well, I mean I think, you know, definitely for you know,
32:59
Speaker 8: in a market let's say into until from May to August, right,
33:03
Speaker 8: it was a classic risk on uh treasure yields, higher
33:07
Speaker 8: spreads tightening and and and the world where everything seemed
33:10
Speaker 8: to be pricing to perfection. One of the things that
33:13
Speaker 8: are we're still cheap is is kind of the regional banks,
33:16
Speaker 8: right and given what they went through. So so yeah,
33:20
Speaker 8: I think there is a lot of demand for regionals,
33:23
Speaker 8: but I think at the right price, right, And and
33:26
Speaker 8: if you look at credit spreads now where they are,
33:28
Speaker 8: you know, tighter if you would have woken up today
33:30
Speaker 8: versus you know, not knowing what happened from from you know,
33:33
Speaker 8: all of this year. You wouldn't even know that there
33:35
Speaker 8: was a banking crisis this year, right, given given how
33:38
Speaker 8: things have recovered, So you know, I think at the
33:41
Speaker 8: right price, they'll be demand. But you know, things have
33:46
Speaker 8: you know, we've had a bit of a kind of
33:48
Speaker 8: you know, everything sell off in August, right that that's
33:50
Speaker 8: coincided with these rating downgrades, rate negative outlook cuts. But
33:55
Speaker 8: I think things had been pricing a little bit for perfection.
33:58
Speaker 8: But I think if if these new issues Who's come
34:00
Speaker 8: to market with a bit of a little bit of
34:02
Speaker 8: meat on the bone, then I think you'll see investors
34:05
Speaker 8: step up and go through.
34:07
Speaker 2: The stocks haven't really recovered, herman. If you look at
34:09
Speaker 2: if I look at KRE for example, which is the
34:16
Speaker 2: regional s and P spider s and P Regional Banking ETF,
34:20
Speaker 2: it's still at the same levels that it hit after
34:24
Speaker 2: you know, the big problems that we had, the drop
34:27
Speaker 2: that we saw in March.
34:30
Speaker 9: The stocks have rebounded a bit from the lows back
34:32
Speaker 9: in April and May, but still well below.
34:37
Speaker 2: Pre SVB.
34:40
Speaker 9: Fallout.
34:41
Speaker 2: So I mean the KRE dropped to forty four and
34:44
Speaker 2: a half on March thirteenth and right now it's trading
34:48
Speaker 2: at forty three sixty.
34:50
Speaker 1: Right.
34:50
Speaker 9: Valuations are really reflecting the tough environment that Moody's and
34:54
Speaker 9: SMP have articulated, So tougher profitability, weaker land. Regulatory requirements
35:03
Speaker 9: are going to increase, and we still haven't really seen
35:06
Speaker 9: the shoe to drop on the asset quality side, in
35:09
Speaker 9: particular office commercial real estate quite yet. So there's going
35:13
Speaker 9: to be a lot of headwinds and the banks will
35:15
Speaker 9: just need to navigate that and any upside really is
35:20
Speaker 9: going to be dependent on where interest rates go and
35:24
Speaker 9: potentially cuts down the road.
35:26
Speaker 1: So Herman, what do we know about the regulatory changes
35:29
Speaker 1: coming along?
35:31
Speaker 9: So the regulators in the FED have have put out
35:35
Speaker 9: a thousand page documents that outlines some changes to the
35:44
Speaker 9: regulatory requirements for particularly the largest banks and the largest
35:48
Speaker 9: regional banks of one hundred billion dollars and above. That's
35:51
Speaker 9: really focused on tightening how the capital ratios are calculated,
35:55
Speaker 9: including unrealized losses in the securities portfolio in the af
35:59
Speaker 9: secure portfolio into capital calculations, increasing the debt stack, as
36:06
Speaker 9: Arnold mentioned a bit earlier, but there's still going to
36:09
Speaker 9: be some other areas that the regulators are focused on.
36:13
Speaker 9: I recall during the SBB crisis that uninjured deposits was
36:16
Speaker 9: a big thing, So the FDIC is looking at that,
36:20
Speaker 9: and then the Fed is also going to come out
36:22
Speaker 9: with some regulatory issues on.
36:25
Speaker 1: Liquidity as well.
36:26
Speaker 9: So there's still more down the road and so the
36:28
Speaker 9: banks will just need to have to manage.
36:30
Speaker 1: Through it all right, guys, I really appreciate getting the
36:33
Speaker 1: update there again, S and P. Following Moody's and doungrading
36:37
Speaker 1: some of those regional banks. Really nothing new in kind
36:41
Speaker 1: of what they're doing, but simply kind of reflecting kind
36:44
Speaker 1: of what I believe the market's known for some time.
36:46
Speaker 1: Hermit Chin, Arnold, Cokuda. They cover the regional banks, all
36:50
Speaker 1: the banks on the regional side for Bloomberg Intelligence, Arnold
36:54
Speaker 1: on the credit side, Herman on the equity side. So
36:57
Speaker 1: we got you all covered there on the regional bank space.
37:00
Speaker 4: You're listening to the tape Cat's are live program Bloomberg
37:04
Speaker 4: Markets weekdays at ten am Eastern on Bloomberg Radio, the
37:07
Speaker 4: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
37:11
Speaker 4: You can also listen live on Amazon Alexa from our
37:13
Speaker 4: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
37:20
Speaker 1: Wet's talk Microsoft. It would like to buy Activision, in fact,
37:23
Speaker 1: so much so that it's got a sixty nine billion
37:25
Speaker 1: dollar transaction on the table, needs regulatory approval, and the
37:30
Speaker 1: UK was really a sticking point. But maybe they're rethinking
37:33
Speaker 1: their strategy here. Maybe this steal gets done. So let's
37:36
Speaker 1: go to Jen Ree. She's a senior litigation analyst. She's
37:38
Speaker 1: covering all the anti trust stuff for Bloomberg Intelligency. Joins
37:41
Speaker 1: us here in our Bloomberg Interactive Brokers studio. So, Jen,
37:44
Speaker 1: it looks like the UK has taken a little bit
37:46
Speaker 1: of an about face and may take a fresh look
37:49
Speaker 1: at this deal.
37:50
Speaker 6: Yeah, and that looks like what's happening. As a matter
37:52
Speaker 6: of fact, they've been looking at it again for about
37:54
Speaker 6: a month, and I think Microsoft actually tried to push
37:57
Speaker 6: this through on a second look without doing what it's
38:00
Speaker 6: done now, which has made some concessions to transfer some
38:03
Speaker 6: games to Ubisoft, and that didn't really work. We thought
38:06
Speaker 6: maybe there'd be a final report by August twenty ninth
38:09
Speaker 6: by the UK. Now it's been pushed to October because
38:11
Speaker 6: the deal's been restructured and they have to take a
38:13
Speaker 6: look at that the new concession. But it's looking pretty
38:16
Speaker 6: good from Microsoft. You know, they've been talking to the UK,
38:19
Speaker 6: they know where they are. There's been open communication and
38:22
Speaker 6: I really doubt they'd be moving forward with this unless
38:24
Speaker 6: they thought that they were going to get clearance at
38:26
Speaker 6: the end of this road.
38:28
Speaker 1: Look just looking at the stocking Ubisoft, which trades on
38:30
Speaker 1: French Exchange up eight and a half percent today.
38:33
Speaker 2: So are those concessions going to be what the UK
38:38
Speaker 2: wanted to see? Isn't it all about Call of Duty?
38:41
Speaker 2: I mean does anything else matter?
38:44
Speaker 6: I mean, really this was about Call of Duty, but
38:46
Speaker 6: the UK has made it beyond. You know, they don't
38:48
Speaker 6: know what's coming out from Activision. These are content creators, right,
38:51
Speaker 6: and maybe it'll be the Activision that creates the next
38:54
Speaker 6: Call of Duty or you know, the next really popular game.
38:57
Speaker 6: So they were really just concerned more about the future
38:59
Speaker 6: because they think the future will be more of what
39:01
Speaker 6: they call these Triple A games. And also the future
39:04
Speaker 6: will be streaming games through the cloud rather than downloading
39:07
Speaker 6: them to hardware. So that's what they're trying to protect,
39:10
Speaker 6: and that's what they've done by requiring or Microsoft agreeing
39:14
Speaker 6: that they will transfer all of the Activision games, including
39:17
Speaker 6: Call of Duty for the next fifteen years to Ubisoft,
39:20
Speaker 6: so Ubisoft can then license those games to be streamed
39:23
Speaker 6: through the cloud.
39:24
Speaker 2: Where are we staying in the US?
39:26
Speaker 6: Yeah, well, the US, you know, it's been really quiet
39:28
Speaker 6: and you don't see much in the news. There's still
39:30
Speaker 6: an appeal. The FDC is still fighting this deal in
39:33
Speaker 6: the US. They lost in court and then they lost
39:35
Speaker 6: their attempt to get an emergency stay. After they lost
39:38
Speaker 6: their attempt to lock the deal, they do have an
39:40
Speaker 6: appeal pending. The briefing is going to be done in September.
39:44
Speaker 6: You could probably have oral argument maybe by the end
39:46
Speaker 6: of this year. I mean, if this deal gets uk
39:50
Speaker 6: a clearance in October and the deal closes, it means
39:53
Speaker 6: the FTC's appeal will be gone going after the deal's
39:56
Speaker 6: already consummated and integrated.
39:58
Speaker 1: So is that typically happen. There's still going to be
40:02
Speaker 1: a review of a deal that's closed.
40:04
Speaker 6: It can happen, and the FTC has done that. I'm
40:07
Speaker 6: a little surprised by it, you know, after they lost
40:09
Speaker 6: in the district court and then lost their effort to
40:11
Speaker 6: get an emergency stay. I didn't really think they'd continue
40:14
Speaker 6: to pursue this appeal because they lost pretty soundly in court.
40:18
Speaker 6: I mean, the judge really said, you just don't really
40:20
Speaker 6: have any evidence to prove out your theories of harm
40:23
Speaker 6: in this case. And I don't see this. I see
40:26
Speaker 6: it as a losing battle and I'm a little bit
40:28
Speaker 6: surprised that they're continuing on that road. They may still
40:30
Speaker 6: withdraw it after this agreement with the UK that might
40:34
Speaker 6: give them the ammunition they need to say, Okay, things
40:37
Speaker 6: are different now.
40:38
Speaker 1: Is it political so the Biden can go on the
40:40
Speaker 1: campaign trail and say I'm tough on business.
40:43
Speaker 2: Of course, it's political. It's always political and asking nice.
40:48
Speaker 6: Road question, you know, anti trust decisions on mergers are
40:51
Speaker 6: not supposed to be political, and really, honestly, in the
40:54
Speaker 6: past they mostly were not. I would say now it
40:57
Speaker 6: has moved into the political realm for sure. I mean,
41:00
Speaker 6: you have a political viewpoint right now that we've allowed
41:03
Speaker 6: too much consolidation in the market and we need to
41:05
Speaker 6: stop it. We need to slow down M and A
41:07
Speaker 6: activity in many industries, and that's why we're seeing these
41:09
Speaker 6: aggressive actions by the FTC and DOJ.
41:12
Speaker 1: And that is political all right, So what else do
41:16
Speaker 1: we have out there? So it looks like this deal's
41:18
Speaker 1: moving forward? What else is in your hell?
41:19
Speaker 2: Let me just get quickly. So if the FTC and CON,
41:26
Speaker 2: I mean clearly they're going to appeal and appeal and appeal,
41:28
Speaker 2: but at some point that's over. And if the UK
41:32
Speaker 2: approves this, who else has to give it the blessing?
41:37
Speaker 2: Their blessing? I mean, is there an EU regulator that
41:40
Speaker 2: they need? Is there a Chinese regular that they need?
41:42
Speaker 2: Is there, you know, Asian African regulator that they need?
41:46
Speaker 2: Does Australia want to block the deal?
41:48
Speaker 6: I mean, you know they have everybody else they need.
41:50
Speaker 6: And it's really telling because almost all of these jurisdictions,
41:53
Speaker 6: and some of which are very serious when it comes
41:55
Speaker 6: to antitrust, like Brazil cleared this deal without concessions. Now
41:59
Speaker 6: the EU is saying, look, this is a new deal.
42:01
Speaker 6: It's been restructured, and we reached a settlement with Microsoft
42:04
Speaker 6: and we need to make sure this doesn't impact our settlement,
42:07
Speaker 6: so we may have to take another look. I don't
42:08
Speaker 6: think that's going to be hindrance to getting the deal
42:10
Speaker 6: closed by the deal's end in October.
42:12
Speaker 1: Though, And just refresh our memory. The UK gets a
42:16
Speaker 1: look at this deal because of Brexit, so they're no
42:19
Speaker 1: longer abide by the EU review of the deal, right
42:22
Speaker 1: A right.
42:23
Speaker 6: That's a thing about the UK used to be part
42:25
Speaker 6: of the EU, and it was part of Brussels refew.
42:28
Speaker 6: It got you know, glombed in with all the other
42:30
Speaker 6: EU countries that were part of that. You know, there
42:33
Speaker 6: were thresholds that could be triggered in just the UK previously,
42:36
Speaker 6: even before Brexit, but most big deals were assessed by
42:41
Speaker 6: the EU and not by UK.
42:42
Speaker 1: Oh well, that maybe makes Brexit all worth it to
42:45
Speaker 1: get to review deals and destroy the economy.
42:49
Speaker 2: By the way, in terms of not political, I'm looking
42:51
Speaker 2: at the FTC board here, Lena Kahan. It says she's
42:57
Speaker 2: a Democrat, went to ya Law school, by the way.
43:00
Speaker 2: Rebecca Slaughter, she's a Democrat. That's right, went to Yale
43:04
Speaker 2: Law school, by the way.
43:05
Speaker 1: I'm sensing something.
43:06
Speaker 2: Alvarro Bedoya, he's a Democrat, a Democrat went to Yale
43:10
Speaker 2: law school.
43:12
Speaker 1: What's the deal?
43:13
Speaker 2: I mean, if it's not political, why do they stack
43:15
Speaker 2: the board of Democrats who went to Yale.
43:17
Speaker 6: Well, any administration right can appoint commissioners, right, and there
43:22
Speaker 6: are five commissioners and no more than three can be
43:25
Speaker 6: from one political party. So generally, when we have a
43:27
Speaker 6: Democrats are vacant, the other two are vacant. Right now,
43:31
Speaker 6: there's some talk of nominees that an appointees coming, right,
43:36
Speaker 6: but there's really no pressure on Biden to do that
43:38
Speaker 6: and move forward with that. I think he probably will,
43:40
Speaker 6: but at the end of the day, it doesn't really
43:42
Speaker 6: matter because it requires a majority vote. So when you
43:44
Speaker 6: have three Democrats and two Republicans, which will eventually have
43:47
Speaker 6: once those two spots are filled, you're still likely going
43:50
Speaker 6: to have the majority vote be along the Democratic lines.
43:53
Speaker 6: And these three have pretty much aligned on almost everything
43:56
Speaker 6: so far.
43:56
Speaker 1: And in my world of median telecommunications, it's the Federal
43:59
Speaker 1: Communication Commission, and it's exact same same situation. You know,
44:03
Speaker 1: whoever's in power gets the gets the role there. And
44:07
Speaker 1: Yale is Yale the best law schools most rankings.
44:10
Speaker 2: Certainly, I don't know.
44:11
Speaker 6: Apparently they like the anti trust regulators.
44:13
Speaker 1: On the rankings, isn't it. I guess it's I.
44:15
Speaker 6: Think it's up there. I don't know, yeah, but I
44:18
Speaker 6: think I think it's up there. I'm look, it's Yale yeah,
44:20
Speaker 6: of course it's great.
44:21
Speaker 1: Exactly all right. So what else on antitrust front are
44:25
Speaker 1: you looking at here? What are some of the big
44:27
Speaker 1: trades out there that are still need some approval?
44:29
Speaker 6: You know, we're looking at Adobe Figma now that obviously
44:32
Speaker 6: one of the one is a private company, but that's
44:34
Speaker 6: been sort of lagging. I suspect the dj is likely
44:37
Speaker 6: to challenge that deal. You know, we're waiting for Kroger
44:40
Speaker 6: and Albertson's. That's before the FTC. I wouldn't be surprised
44:43
Speaker 6: at all if the FDC went to court to try
44:45
Speaker 6: to block that deal as well, and trial will start
44:47
Speaker 6: in October. In the Jet Blue Spirit deal, who cares?
44:53
Speaker 2: Do we care?
44:54
Speaker 1: In the markets that are don't get a lot of
44:57
Speaker 1: service and you care about I want both jet Blue
45:01
Speaker 1: and Spirit to serve my right.
45:03
Speaker 6: I mean they have two very different models, right. Jet
45:05
Speaker 6: Blue is considered a low cost carrier, whereas Spirit's ultra
45:09
Speaker 6: low cost, which really means everything's all a part. Right,
45:12
Speaker 6: you can get the absolute cheapest fair without any other perks,
45:15
Speaker 6: no food, no luggage, nothing else, and you can't pick
45:17
Speaker 6: your seat. There is a set of consumers that prefers
45:21
Speaker 6: to have that option right for when they travel. And
45:23
Speaker 6: what will happen is that this deal, at least the
45:26
Speaker 6: allegation is, will take that option out of many markets,
45:29
Speaker 6: or reduce the option from two which we're Frontier and Spirit,
45:32
Speaker 6: down to just one, which would be Frontier when Jet
45:34
Speaker 6: Blue takes over.
45:35
Speaker 2: On the other hand, it's hard for Jet Blue and
45:39
Speaker 2: also for Spirit and a Frontier to compete with the
45:45
Speaker 2: duopoly that we essentially have here. Right, You've got Delta, United,
45:50
Speaker 2: American American who hog all the slots, you know.
45:55
Speaker 6: And that's what Jet Blue says, right, And that's their argument,
45:58
Speaker 6: And that's been an argument an airline merger with some
46:00
Speaker 6: of the low cost carriers and the ultra low cost
46:02
Speaker 6: carriers in the past. I will say that in twenty
46:05
Speaker 6: years that I've been watching this, the argument that we
46:08
Speaker 6: need to merge in order to better compete with the
46:10
Speaker 6: top guys never seems to work. It just doesn't really
46:14
Speaker 6: work because if you take that merger on its own,
46:16
Speaker 6: and it's anti competitive and might have a price increasing
46:19
Speaker 6: effect or an output reducing effect, it doesn't really matter
46:22
Speaker 6: that much. It can't be outweighed by that argument.
46:25
Speaker 1: I'm looking at the Spirit map. I mean they fly
46:28
Speaker 1: pretty much everywhere, I mean, including the Caribbean and Central
46:31
Speaker 1: American stuff like that. So it's a much bigger, more
46:34
Speaker 1: denser map than I thought.
46:35
Speaker 2: So, but only in this essentially, you know, only in
46:40
Speaker 2: sort of North.
46:41
Speaker 1: America, yeah, right, North and Central America. Yeah, so not
46:44
Speaker 1: any international stuff other than.
46:45
Speaker 2: And jef Leu has now branched out, so now they
46:47
Speaker 2: go to London, they go to Amsterdam, and they go
46:50
Speaker 2: to Paris.
46:51
Speaker 6: Yeah, but that was hindered a little bit because the
46:53
Speaker 6: Department of Justice challenged their northeast alliance with American right,
46:57
Speaker 6: which kind of hindered some of that.
46:58
Speaker 1: All right, Jen, thanks so much, We appreciate it. And
47:00
Speaker 1: re senior litigation analyst Bloomberg Intelligence.
47:02
Speaker 4: You're listening to the tape Cat's are live program Bloomberg
47:05
Speaker 4: Markets weekdays at ten am Eastern on Bloomberg Radio, the
47:09
Speaker 4: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
47:12
Speaker 4: You can also listen live on Amazon Alexa from our
47:15
Speaker 4: flagship New York station just Say Alexa playing Bloomberg eleven thirty.
47:21
Speaker 1: One of the areas of the market that we've been
47:24
Speaker 1: talking a lot about over the last several years, increasingly
47:26
Speaker 1: so is the private credit market. We all know about
47:29
Speaker 1: the private equity business, but the private credit business has
47:32
Speaker 1: been a been getting a lot of capital flows and
47:35
Speaker 1: has been very active. I wanted to get a little
47:37
Speaker 1: bit more details on that market. Jackie Ward joins us.
47:40
Speaker 1: She's a director of private Investments for umb Bank Family Wealth.
47:45
Speaker 1: She joins us via zoom. Jackie talk to us about
47:48
Speaker 1: how you guys at umb you know, address and deal
47:52
Speaker 1: and play in the private credit business.
47:56
Speaker 10: Absolutely, thanks for having me here at you and b
47:58
Speaker 10: There's a number of different ways we kind of play
48:00
Speaker 10: in the private credit business. In my world, we have
48:03
Speaker 10: a couple of bank owned funds that invest in private credit,
48:06
Speaker 10: so we're regularly looking at opportunities in the private credit space,
48:09
Speaker 10: mezzanine debt, junior lean debt, and working with companies that way.
48:14
Speaker 10: From umb Bank standpoint as a senior lender, we also
48:16
Speaker 10: often work with junior capital providers to fill out the
48:19
Speaker 10: rest of the capital stack, so we get to interact
48:21
Speaker 10: with private credit, whether it's from a senior position or
48:24
Speaker 10: actually doing investment in private credit ourselves.
48:27
Speaker 1: So my understanding is the private credit business really kind
48:32
Speaker 1: of took hold in terms of growing after the Great
48:35
Speaker 1: Financial crisis, when a lot of the banks, from a
48:38
Speaker 1: regulatory standpoint had to pull back a little bit from
48:40
Speaker 1: certain types of loans and in terms of what they
48:43
Speaker 1: could own on their balance sheet. Is that still the
48:46
Speaker 1: primary driver of what's driving the growth of this business.
48:50
Speaker 10: I think it's a little bit of both. I think
48:52
Speaker 10: two thousand and eight put private credit on the map
48:54
Speaker 10: because the question in two thousand and eight was when
48:56
Speaker 10: our big bank's going to come back into lending, and
48:59
Speaker 10: I think the answer was it might take some time,
49:01
Speaker 10: and so you saw the launch of private credit. But
49:03
Speaker 10: these days, I think private credit is growing a lot
49:06
Speaker 10: just around direct lending efforts. Also, as banks kind of
49:10
Speaker 10: tightened in general, you're seeing less senior stretched at you're
49:13
Speaker 10: seeing more debt fall into the private credit space, and
49:16
Speaker 10: you're also seeing unitraanch financing become a huge spot in
49:19
Speaker 10: the market. So with syndications down in general, a lot
49:22
Speaker 10: of companies are looking for a single provider that can
49:25
Speaker 10: provide a senior junior credit type blend through one instrument
49:29
Speaker 10: versus working with two different providers, and that's driving a
49:32
Speaker 10: lot of growth as well.
49:33
Speaker 1: You know, Jamie Dimond, I think probably talking his own book,
49:36
Speaker 1: but you know, He kind of says, hey, this private
49:38
Speaker 1: credit market's not regulated. Do we really know what's going
49:41
Speaker 1: on out there? How do you respond to that?
49:45
Speaker 10: You know, private credit, these are funds. They're regulated as funds,
49:48
Speaker 10: and asset managers are not regulated by bank regulators. I
49:51
Speaker 10: think there's a few different ways to look at that. One,
49:54
Speaker 10: they're not regulated by bank regulators because they have a
49:56
Speaker 10: different source of funds. So private credit funds are also
50:00
Speaker 10: or raising money directly to invest in private credit, it's
50:02
Speaker 10: opposed to using deposit or money. And because of that
50:05
Speaker 10: they have they're able to take a little bit different
50:07
Speaker 10: outlook and potentially a longer point of view. I do
50:10
Speaker 10: think with any private and investment, you know, the lack
50:12
Speaker 10: of regulation makes it really important to know who you're
50:14
Speaker 10: working with. You know, private credit funds that have long
50:17
Speaker 10: histories or attached institutions like you and b that have
50:20
Speaker 10: long histories tend to do well because of course we're
50:22
Speaker 10: we're working with a broader market. I think it just
50:25
Speaker 10: goes back to diligence and knowing who you're working with
50:27
Speaker 10: and who you're investing your dollars with.
50:30
Speaker 1: What types of deals are you guys seeing these days?
50:35
Speaker 10: You know, in our group, we're seeing a lot of
50:37
Speaker 10: deals in the manufacturing distribution space, especially in distribution where
50:41
Speaker 10: you might be dealing with an asset like company that
50:43
Speaker 10: still has a lot of working capital, needs a lot
50:45
Speaker 10: of growth. We're also seeing a lot of Bolton deals,
50:48
Speaker 10: so in our portfolio, the vast majority of our companies
50:51
Speaker 10: or platform companies, so we're actively looking for new opportunities
50:54
Speaker 10: and looking for M and A opportunities and it's a
50:56
Speaker 10: great way for us to put in more junior debt.
50:58
Speaker 10: So with the credit kind of tightening, some of that
51:01
Speaker 10: senior stretched at falling into our space is creating a
51:04
Speaker 10: lot of opportunity in both of those industries.
51:06
Speaker 1: And do most of the deals that come across your
51:09
Speaker 1: desk are they from Are they private equity sponsored deals? Primarily?
51:13
Speaker 10: Yeah, we work primarily with private equity sponsors as well
51:16
Speaker 10: as you know LBO type funds. We're often working with
51:19
Speaker 10: them or independent sponsors where they're taking down the entire
51:22
Speaker 10: opportunity and they're looking for partners in the capital stack.
51:26
Speaker 1: Interesting, So what is deal flow like these days? Because
51:29
Speaker 1: we've heard from you know, some of the larger publicly
51:31
Speaker 1: traded investment banks that not a lot getting done per se,
51:36
Speaker 1: What are you seeing in your market?
51:39
Speaker 2: You know, we were.
51:40
Speaker 10: Kind of in the lower middle market and we're actually
51:42
Speaker 10: seeing a lot of opportunity and most of the deals
51:44
Speaker 10: that we're investing in, you know, we're looking at enterprise
51:47
Speaker 10: values of one hundred million or under and activity in
51:49
Speaker 10: that space. You still have a lot of companies owned
51:52
Speaker 10: by generations that are looking to make exits. You still
51:54
Speaker 10: have a lot of companies that are seeing an opportunity
51:57
Speaker 10: for M and A. So we're still seeing a good
51:59
Speaker 10: number of deals in our space. I think as you
52:01
Speaker 10: move up market, the markets get a little bit tighter
52:04
Speaker 10: and a little bit harder to raise debt. So we're
52:06
Speaker 10: very happy to be in the space we're in.
52:08
Speaker 1: And you guys are you and b you're based in
52:10
Speaker 1: Kansas City, right, yeah? And so do you do I mean,
52:14
Speaker 1: do you try to lend your regional expertise to the
52:17
Speaker 1: private equity sponsors out there? The companies out there is
52:20
Speaker 1: that's kind of where you guys, you know, kind of
52:22
Speaker 1: do your knitting.
52:24
Speaker 10: So you know, we get to work with the private
52:25
Speaker 10: equity groups in a lot of different ways. We have
52:27
Speaker 10: ways on the commercial bank side that we work with
52:29
Speaker 10: our private equity groups. Our bank is largely located, you know,
52:32
Speaker 10: Midwest focus groups like mine, We operate coast to coast,
52:36
Speaker 10: working with different private equity sponsors on direct and investment
52:39
Speaker 10: in their deals, either using mezzanine or minority equity. But
52:43
Speaker 10: we often you know, U and B Bank is one
52:45
Speaker 10: large family, so we're often working with all the different divisions,
52:48
Speaker 10: you know, in concert to make sure that we're looking
52:50
Speaker 10: at the deal.
52:50
Speaker 4: The right way.
52:51
Speaker 1: Interesting. So here, we've got a big, big increase in
52:54
Speaker 1: the interest rates over the past twelve to eighteen months.
52:57
Speaker 1: How's that impacted your business maybe, what kind of deals
53:00
Speaker 1: you see, what kind of structures you put in place.
53:04
Speaker 10: You know, in our world, a lot of our deals,
53:07
Speaker 10: you know, slightly higher interest rate interest only. We still
53:09
Speaker 10: have a lot of room and flexibility on that spread.
53:12
Speaker 10: I know one thing that we're watching just in the
53:14
Speaker 10: market in general is private credit is doing really well
53:16
Speaker 10: right now. I think there are a lot of funds
53:19
Speaker 10: that might have put out notes twelve to eighteen months
53:22
Speaker 10: ago in a different brain environment. So we're keeping a
53:24
Speaker 10: really close eye on defaults coming into the back end
53:27
Speaker 10: of this year and early next year to make sure
53:28
Speaker 10: that doesn't have an impact on them, but kind of
53:31
Speaker 10: going back to the source of funding for a lot
53:33
Speaker 10: of private credit because we're not utilizing deposit dollars in
53:36
Speaker 10: that sense, we have a different kind of cost structure
53:39
Speaker 10: that we get to compare against, and that gives us
53:41
Speaker 10: a little bit more flexibility.
53:43
Speaker 1: And so for your funds, who's a typical investor.
53:47
Speaker 10: For our funds? So on our family wealth side, we
53:49
Speaker 10: do have a number of single asset holdings that tend
53:52
Speaker 10: to be institutional and high net worth. The primary fund
53:55
Speaker 10: we invest private credit out of is a bank owned fund,
53:58
Speaker 10: and so a number of years ago that bank seated
54:01
Speaker 10: us with cash and we've been recycling that capital since.
54:03
Speaker 5: Hi.
54:03
Speaker 1: Fascinating stuff. Always love talking about the private credit business again,
54:07
Speaker 1: a fast, fast growing business within financial services, seen to
54:10
Speaker 1: spring out of nowhere after the Great Financial Crisis and
54:12
Speaker 1: now it's a major major player. Jackie Ward, she's the
54:16
Speaker 1: director of private Investments at mb Bank Family Wealth.
54:21
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
54:24
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54:28
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Speaker 2: at Matt Miller nineteen seventy three.
54:34
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54:37
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54:39
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