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Bank Stock Weakness Is Signalling Upcoming Downturn: Peabody · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Bank earnings,
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  Speaker 1: JP Morgan, Chase City Group, they top estimates, Wells Fargo
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  Speaker 1: misses here to tell us everything about them, as Charles Peabody,
• 0:41
  Speaker 1: he is the president of Portalis Partners. Charles, a pleasure
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  Speaker 1: to hear your voice, tell us your impression about the
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  Speaker 1: results of three of these three banks, and then maybe
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  Speaker 1: extrapolate into some of the other earnings that we're going
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  Speaker 1: to receive. Sure, I mean there's a wide dispersion in
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  Speaker 1: the results. I mean JP Morgan had a very at
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  Speaker 1: very robust quarter, UM City was sort of weak, and
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  Speaker 1: Wells Fargo was disappointing. UM but on average, what you're
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  Speaker 1: getting out of this quarter is maybe two revenue growth
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  Speaker 1: year over year, which is I think pretty anemic given
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  Speaker 1: you know, higher interest rates, deregulation, tax cuts, four GDP etcetera.
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  Speaker 1: And I think that's the disappointment here. Okay, so what
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  Speaker 1: could they have done to show and what does this mean?
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  Speaker 1: I'm sorry to say that again. What does this mean
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  Speaker 1: for it to be for for for grows to be
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  Speaker 1: more nic given all of the positive headwear, positive tail wins.
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  Speaker 1: I mean, what does that mean to you? I think
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  Speaker 1: that's why we've had multiple compression over the last six months.
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  Speaker 1: In other ways, we had this multiple expansion last year
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  Speaker 1: when earings really weren't that robust. We're getting, you know,
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  Speaker 1: a better bottom line earrings, but not a better revenue picture.
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  Speaker 1: So the formula that the bank industry is using is
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  Speaker 1: taking low single digit revenue growth, turning it into mid
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  Speaker 1: single digit pretext income growth through positive operating leverage and
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  Speaker 1: benign credit costs, and then taking that mid single digit
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  Speaker 1: pretext income growth and turning into double digit net income
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  Speaker 1: from tax cuts and share buy backs. But the latter
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  Speaker 1: two items are financial engineering techniques, and no one's going
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  Speaker 1: to pay a premium for that. You need better revenue growth.
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  Speaker 1: How are they expected to do that? Charles? Is the
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  Speaker 1: business of banking changed and are these bankings for banks
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  Speaker 1: responding to it? Well? I think revenue growth is going
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  Speaker 1: to continue to disappoint and and so we're in what
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  Speaker 1: I call end of cycle economic dynamics, and that means
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  Speaker 1: you started to look at the second derivative, and the
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  Speaker 1: second river means what's happening to the rate of growth
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  Speaker 1: of the key line items. So revenues probably are going
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  Speaker 1: to slow, credit costs are going to pick up, and
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  Speaker 1: expenses can't be cut anymore. They're being well, you know, maintained,
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  Speaker 1: but it can't be cut. So I think you're at
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  Speaker 1: peak profitability. Well, Charles, just follow up on this then
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  Speaker 1: you know you've I'm sure you have seen and read
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  Speaker 1: about all of the different financial technology companies that have
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  Speaker 1: either raised money or have really created a whole another
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  Speaker 1: financial system in parallel to the traditional banking system. Is
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  Speaker 1: all of that market value value that the banks could
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  Speaker 1: have taken for themselves if they had been more entrepreneurial. Well,
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  Speaker 1: they are making a push. If you're talking about digital banking,
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  Speaker 1: they are making and that's where a lot of the
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  Speaker 1: expense growth is related to UM is their technological investments UM.
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  Speaker 1: So banks are trying to UM keep up with the
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  Speaker 1: non banks. I think over a full business cycle, you're
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  Speaker 1: going to see a greater fallout in the non banks
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  Speaker 1: than you will in the banking industry, and that's maybe
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  Speaker 1: where they start to regain some of the market where
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  Speaker 1: they've lost in the non banks. That's fascinating, by the way,
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  Speaker 1: because a lot of people have said that the risk
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  Speaker 1: has moved to the shadow banking systems. So perhaps when
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  Speaker 1: that risks manifests itself and the shadow banking system ends
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  Speaker 1: up getting a little bit more afraid than the big
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  Speaker 1: banks can come back in and take market share. I'm
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  Speaker 1: just worrying. I want to dig a little bit more
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  Speaker 1: into the nitty gritty, particularly with Wells Fargo, because it's
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  Speaker 1: shares are getting penalized more than others. Down actually up
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  Speaker 1: from the earlier losses, about down nearly two percent. Now, Um,
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  Speaker 1: do you think that we're seeing a bottom for this
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  Speaker 1: bank or is this sort of a signal of more
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  Speaker 1: pain ahead. Well, from a fundamental point of view, I don't.
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  Speaker 1: I've been on the side of the equation that the
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  Speaker 1: revenues are going to be the big disappointment, and revenues
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  Speaker 1: this quarter, you back out some non recurring items were
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  Speaker 1: down four and a half percent. Every year. Um, you
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  Speaker 1: know they'll execute on their expenses. Credit costs will creep up,
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  Speaker 1: but the revenue is where they're going to disappoint. Um.
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  Speaker 1: Now that said, one thing, I want to differentiate between
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  Speaker 1: the fundamentals of these banks and the stocks. The stocks
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  Speaker 1: have undergone tremendous multiple compression over the last six months.
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  Speaker 1: I think there's going to be a summer bounce, but
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  Speaker 1: that bounce is probably within a developing bear market, where
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  Speaker 1: the January highs were the highs. When you say developing
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  Speaker 1: bear market, developing bear market in all stocks are financial stocks, well,
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  Speaker 1: financials specifically, they tend to underperform in the last twelve
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  Speaker 1: months of a bowl market, and I think that's kind
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  Speaker 1: of where we are in the economic cycle. Last twelve
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  Speaker 1: months of a bowl market. Bank stocks have always underperformed
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  Speaker 1: in that period of time, Right, Are there any specific
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  Speaker 1: bank stocks that you believe will perform better than others
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  Speaker 1: in this perhaps relief rally that you describe. Yeah, I
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  Speaker 1: think JP Morgan had a very solid result, and you know,
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  Speaker 1: the fund a line fundamentals can be bought. I think
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  Speaker 1: the poor tends well and I've been wrecked coming on
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  Speaker 1: a trading basis buying Goldman sachs um So. I think
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  Speaker 1: you're going to get some kind of rebound in the
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  Speaker 1: capital markets part of the business over the summer. I mean,
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  Speaker 1: if you look at the pipeline for um M and
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  Speaker 1: A activity and for underwriting, it's very strong and and
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  Speaker 1: that's where you saw the big beat this quarter UM
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  Speaker 1: was on investment banking. Are you saying that you think
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  Speaker 1: that there's going to be an economic downturn downturn within
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  Speaker 1: the next twelve months. I think that's what the stocks
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  Speaker 1: are telling you. Um I mean, if you look at
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  Speaker 1: the bank stocks, they've underperformed. I'm talking about the large
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  Speaker 1: cap money center and even the g said regional banks
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  Speaker 1: like P and C and U, S, Bann Corporatewell Spargo
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  Speaker 1: that they've underperformed the last six and twelve and eighteen months. Now.
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  Speaker 1: If you if you were to do on Bloomberg, you
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  Speaker 1: know that comp function equity, you City Group Equity Camp,
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  Speaker 1: and look at how it's performed. It's been an eighteen
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  Speaker 1: months underperformance now. So I'm wondering just whether this is
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  Speaker 1: using financials is another proxy for the yield curve, Whether
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  Speaker 1: people are looking at the fact that the yield curve
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  Speaker 1: is compressing and that's what's driving bank stocks down. And
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  Speaker 1: both of those things are taken as the same sign.
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  Speaker 1: I mean, is that is that kind of what you're
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  Speaker 1: seeing right now? Yeah, But you know, everyone seems to
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  Speaker 1: be fascinated with the two tens part of the yield curve.
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  Speaker 1: I think the short end is the more important. Fundamentally.
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  Speaker 1: I can understand twos tends being a psychological and importance
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  Speaker 1: because of the implication of a recession, but fundamentally the
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  Speaker 1: short end is more important. And and towards that end,
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  Speaker 1: you know, Bank of Ozarks had a very interesting UM
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  Speaker 1: conference called yesterday and which they talked about how the
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  Speaker 1: deposit beta was now rising faster than the loan beta.
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  Speaker 1: That means deposit rates aretin rising faster than loan yields
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  Speaker 1: are rising, and that's squeezing the NIM. And that's what
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  Speaker 1: usually happens at end of cycle periods. The NIM the
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  Speaker 1: net interest margin correc So when I talk about rate
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  Speaker 1: of growth this quarter, as I said, you're gonna get
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  Speaker 1: maybe two revenue growth on average, but that's going to
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  Speaker 1: be composed of mid single digit net interest income growth
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  Speaker 1: but flat the income. And so it's that net interest
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  Speaker 1: income that's driving total revenues. But the signs are there
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  Speaker 1: that that net interest income growth is going to slow
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  Speaker 1: in future quarters as the deposit data picks up. Charles Peabody,
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  Speaker 1: thank you so much for being with us. Charles Peabody,
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  Speaker 1: president of Portala's Partners in New York. President Trump is
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  Speaker 1: gearing up to head over to Helsinki, where he is
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  Speaker 1: going to be meeting with Russian President Vladimir Putin. What's
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  Speaker 1: he got to talk about? Let's ask that's somebody who
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  Speaker 1: might have some ideas. Ariel Cohen, Senior Fellow at the
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  Speaker 1: Atlantic Council in Washington, d C. Joining us. Now, so, Aria,
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  Speaker 1: what do you think he's going to talk about? Well,
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  Speaker 1: there are three or four key subjects to discuss. Uh.
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  Speaker 1: The United States and Russia came to blows in Syria. Actually,
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  Speaker 1: the United States troops killed up to two hundred Russian
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  Speaker 1: mercenaries in Syria that crossed the red lines. This is
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  Speaker 1: unprecedented since the worst days of the Cold War. Uh. Secondly,
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  Speaker 1: we need to understand other Russians going to play ball
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  Speaker 1: on getting the Iranians out of Syria. This is what
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  Speaker 1: both the United States and our allies Saudi Arabia and
• 9:41
  Speaker 1: Israel really want to accomplish. Furthermore, going into the former
• 9:47
  Speaker 1: Soviet Union. UM, we have deep disagreements with Russia about
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  Speaker 1: Ukraine and the annexation of the part of Ukraine which
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  Speaker 1: is called the Crimea, the Crimean Peninsula in the Black Sea. U.
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  Speaker 1: Mr Trump said that Crimea is Russian because they speak Russian. Well,
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  Speaker 1: in fact, they speak Russian because the Russian Empire and
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  Speaker 1: the Soviet Union ethnically cleansed the Crimea from its indigenous population,
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  Speaker 1: the Crimean Tatars, and now are pouring in resources to
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  Speaker 1: an exit. Uh. Finally, there's plenty of issues to talk
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  Speaker 1: about energy and arms control. So if both leaders have
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  Speaker 1: the bandwidth and come to serious agreements, I will be
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  Speaker 1: the first one to applaud. Unfortunately, judging by previous interactions
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  Speaker 1: of Mr Trump with other world leaders, I'm not so optimistic. Ariel.
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  Speaker 1: I wonder if you could speak a little bit about
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  Speaker 1: the politics of energy inasmuch as Ukraine is the big
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  Speaker 1: transit point for European imports of Russian gas and oil,
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  Speaker 1: and also maybe speak about the relationship between Turkey and
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  Speaker 1: its energy needs. Well, you're hitting all the all the
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  Speaker 1: nails on their heads in two short questions. Uh, let's
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  Speaker 1: go north to south the Russians are constructing a pipeline
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  Speaker 1: called North Stream too, which will boost its exports of
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  Speaker 1: natural gas to Germany and other countries in Europe, like
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  Speaker 1: Polland by fifty five billion cubic meters a year. That's
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  Speaker 1: a huge amount. Currently Europe is importing hundred and sixty
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  Speaker 1: billion cubic meters, so this is an increase by over
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  Speaker 1: putting Germany at of its natural gas coming Trump Russia
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  Speaker 1: if and when this pipeline is UH finished. So Mr
• 11:42
  Speaker 1: Trump told the Germans that they'll be better off um
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  Speaker 1: importing liquid liquid fied initial guests from the United States.
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  Speaker 1: Theoretically he is right. L n G is more expensive,
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  Speaker 1: and the German business is pushing to expand their dependence
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  Speaker 1: on Russia and uh frour Merkel is rolling with the
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  Speaker 1: blows and she is dependent on the German business. Uh. Furthermore, Ukraine,
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  Speaker 1: the Russians are trying to bypass it all together and
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  Speaker 1: stop pumping gas through the Ukrainian system. This is a
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  Speaker 1: system that was built during the Soviet days and for
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  Speaker 1: that purpose, they're also building a massive pipeline into Turkey.
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  Speaker 1: This is for Turkish internal consumption as well as for
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  Speaker 1: re export to Europe. They're also maybe building one pipeline
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  Speaker 1: under the Black Sea, on the bottom of the Black
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  Speaker 1: Sea to Bulgaria, and that's also for exporting to Europe.
• 12:43
  Speaker 1: So there's a lot of commerce issues here. I think
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  Speaker 1: probably the most salicious point is will President Trump speak
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  Speaker 1: with Vladimir Putin about meddling in US elections, especially heading
• 12:55
  Speaker 1: into the mid terms here? Do you think that's going
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  Speaker 1: to come up and pass? Believe more importantly, who's going
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  Speaker 1: to be in there with him? That's question? Uh. Mr
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  Speaker 1: Trump already made it known that he wants a he
• 13:14
  Speaker 1: wants uh, four eyes only in the room, maybe with
• 13:18
  Speaker 1: a translator. And then the question, of course is it
• 13:21
  Speaker 1: going to be our translator or a Russian translator? If
• 13:24
  Speaker 1: it's going to be only uh, putting Trump and the
• 13:27
  Speaker 1: Russian translator, I would be very nervous, and we would
• 13:31
  Speaker 1: need a record. Where did a tape of that? Trump?
• 13:35
  Speaker 1: Isn't the tape? Isn't it? But this all right? I'm
• 13:38
  Speaker 1: gonna leave that that comment there, But but I do
• 13:41
  Speaker 1: if this sort of raises a bigger issue, which is, um,
• 13:44
  Speaker 1: what sort of precedent is there for a US president
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  Speaker 1: to meet with the Russian leader who is heading a
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  Speaker 1: country that has had been our adversary for a while
• 13:55
  Speaker 1: without sort of some kind of concrete security plan that
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  Speaker 1: we know of. I mean, how much how much of
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  Speaker 1: a national security concern could this pay? UM? I am
• 14:06
  Speaker 1: actually reluctant to get into that um for different reasons.
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  Speaker 1: But I would say that the good governance is transparent
• 14:15
  Speaker 1: and transparent can be transparent and classified, but it has
• 14:19
  Speaker 1: to be transparent on the highest level of our government.
• 14:23
  Speaker 1: So the National Security Advisor should be there, uh, probably
• 14:26
  Speaker 1: his chief of staff, maybe their Secretary of Defense, maybe
• 14:30
  Speaker 1: they're the Secretary of State at least just for the starters. Uh.
• 14:34
  Speaker 1: And probably the Special Assistant of the National Security Council,
• 14:37
  Speaker 1: Dr Fiona Hill should be there as well. But if
• 14:41
  Speaker 1: he wants UM a one on one meeting, that it's possible.
• 14:45
  Speaker 1: There are presidents of such meetings with other heads of
• 14:48
  Speaker 1: state UM. But again we need to keep a record
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  Speaker 1: of that. It goes into the archives. Uh, and it
• 14:57
  Speaker 1: has to be also analyzed. And I must say Mr
• 15:00
  Speaker 1: Putchin is always very very mediculous in preparation to this summits.
• 15:05
  Speaker 1: For example, I was told while visiting Russia that the
• 15:08
  Speaker 1: dossier on Mr Bush President Push ran hundreds of pages,
• 15:13
  Speaker 1: and Mr Putchin of course read all that, and then
• 15:18
  Speaker 1: he told the Bush the story of his secret baptism.
• 15:22
  Speaker 1: And then Bush came famously with this line about looking
• 15:25
  Speaker 1: into Putchin's size and seeing his soul. Well turns out
• 15:29
  Speaker 1: that that may or may not be true about the baptism.
• 15:33
  Speaker 1: And uh, Mr Putchin, of course, by his background is
• 15:37
  Speaker 1: an intelligence office. We got to leave it there. Ariel Cohen,
• 15:40
  Speaker 1: thanks very much, senior fellow at the Atlantic Council. Speaking
• 15:44
  Speaker 1: about NATO, Russia and Vladimir Putin, the President of Russia, well,
• 16:02
  Speaker 1: President Donald Trump and British Prime Minister Theresa May hold
• 16:06
  Speaker 1: a press conference that the tackles a variety of issues,
• 16:09
  Speaker 1: including shared security concerns and upcoming meetings with the President
• 16:14
  Speaker 1: of Vladimir Putin of Russia in Helsinki between the President,
• 16:18
  Speaker 1: between Donald Trump and the Putin. Brexit also taking up
• 16:23
  Speaker 1: quite a bit of everyone's time and thoughts. And Terres
• 16:26
  Speaker 1: Raphael is our Bloomberg opinion editor covering European politics and economics,
• 16:30
  Speaker 1: and you can follow Terres on Twitter at Terres Raphael one,
• 16:36
  Speaker 1: and she joins us now from London. Terres just to
• 16:39
  Speaker 1: put aside for a moment the news conference that we
• 16:43
  Speaker 1: were able to listen in on what is the white
• 16:46
  Speaker 1: paper that was published by the government of UH Theresa May.
• 16:53
  Speaker 1: What is the White Paper specifically mean for companies such
• 16:57
  Speaker 1: as air Bus or Rolls Royce international companies that do
• 17:02
  Speaker 1: business and our headquartered in the UK. Well, the White Paper,
• 17:08
  Speaker 1: as you know, is the first real detailed, uh sort
• 17:13
  Speaker 1: of spelling out of what Theresa May's Brexit would look like.
• 17:17
  Speaker 1: And for companies it comes as um I would say
• 17:21
  Speaker 1: a little bit of a relief because it means that
• 17:23
  Speaker 1: there will if it's if it's accepted by the EU
• 17:27
  Speaker 1: now and we have to remember this as an opening
• 17:29
  Speaker 1: position in a negotiation and that you might not accept it,
• 17:32
  Speaker 1: but it's asking for a sort of free trade agreement
• 17:36
  Speaker 1: in good so it would mean that manufactured projects and
• 17:38
  Speaker 1: the supply chains that these companies rely on so much
• 17:42
  Speaker 1: would be uninterrupted under the deal that Theresa May is seeking.
• 17:46
  Speaker 1: Now that may not be the deal that she gets.
• 17:48
  Speaker 1: It also doesn't apply to services and financial services. There's
• 17:51
  Speaker 1: a whole sort of other level of uh you know,
• 17:56
  Speaker 1: detail and complexity to this. But though a lot of
• 17:59
  Speaker 1: companies i've it gets if if they were to get
• 18:02
  Speaker 1: a Brexit on those terms. Um, I think they would
• 18:05
  Speaker 1: at least feel that, you know, that that things would
• 18:08
  Speaker 1: uh maybe be not as they were, but they would
• 18:11
  Speaker 1: not be as catastrophically, um, you know different, and you
• 18:15
  Speaker 1: would you find businesses at least happy to accept that.
• 18:19
  Speaker 1: Terry's one thing that struck a lot of people is
• 18:22
  Speaker 1: that as the UK goes through with these Brexit negotiations,
• 18:26
  Speaker 1: President Trump has inserted himself into this and clearly tried
• 18:31
  Speaker 1: to endure himself to Boris. Johnson had some harsh words
• 18:34
  Speaker 1: for UK Prime Minister Theresa May and I'm just wondering
• 18:37
  Speaker 1: you were to call him talking about why President Trump
• 18:41
  Speaker 1: has sort of a vested interest in this? Can you
• 18:44
  Speaker 1: give us a sense of that? Yeah, I mean, it's
• 18:46
  Speaker 1: just been the most amazing drama because Trump has come
• 18:49
  Speaker 1: to Britain. Even before he came here, he was sort
• 18:51
  Speaker 1: of describing Britain is in turmoil. His ambassador has been
• 18:55
  Speaker 1: giving interviews saying he's, you know, really disappointed in the
• 18:58
  Speaker 1: defeatist attitude of the Brits towards Brexit and why don't
• 19:02
  Speaker 1: they take inspiration from Trump? And you know, as an American,
• 19:05
  Speaker 1: you might say, well, why does Trump care so much
• 19:08
  Speaker 1: about Brexit. What's in it for him? Um? Is it?
• 19:11
  Speaker 1: Is it a trade deal? Well, you know, the trade
• 19:13
  Speaker 1: deal it's much more important to Britain and to the Brexitters,
• 19:18
  Speaker 1: and it is to the United States. Britain, um, you know,
• 19:21
  Speaker 1: only accounts for a small share of America's trade. But
• 19:24
  Speaker 1: Trump does have an interest in Brexit, and he's had
• 19:26
  Speaker 1: that interest from from the time of the campaign, where
• 19:29
  Speaker 1: he followed it closely. When the Brits did vote against
• 19:33
  Speaker 1: all odds, against all predictions, to lead the European Union,
• 19:36
  Speaker 1: Trump immediately, uh latched onto that as a you know,
• 19:41
  Speaker 1: vindication of his own populist policies, as a sign that,
• 19:44
  Speaker 1: you know, things were going to go well in his campaign,
• 19:46
  Speaker 1: and he was proved right. And he said in the
• 19:48
  Speaker 1: press conference very interestingly he said, I think Brexit happened
• 19:51
  Speaker 1: because of immigration, and that was one of the big
• 19:53
  Speaker 1: reasons I got elected as well. And uh so, Trump
• 19:57
  Speaker 1: I think identifies with the Brexit movement. Brexit is not
• 20:00
  Speaker 1: going well, and the question is whether that sort of
• 20:02
  Speaker 1: pre figures, um, you know, some some shakier times for
• 20:06
  Speaker 1: Trump at home. That's that's fascinating analysis, but sort of
• 20:11
  Speaker 1: counterintuitively Alex Wayne, who is a Bloomberg News reporter and editor.
• 20:17
  Speaker 1: White House team leader, also came on radio earlier today
• 20:20
  Speaker 1: and said that actually, in a sort of counterintuitive result,
• 20:24
  Speaker 1: the more that President Trump beats up on Theresa May,
• 20:27
  Speaker 1: the more she gained support because people in the UK
• 20:31
  Speaker 1: really don't like President Trump. Do you see it the
• 20:34
  Speaker 1: same way? Well, I think that's partly too. I mean
• 20:36
  Speaker 1: there is a huge he's hugely unpopular here. However, it's
• 20:41
  Speaker 1: it's interesting because the Brexitters are really hard Brexitters. You know,
• 20:44
  Speaker 1: they don't really care who's saying it, but they take
• 20:47
  Speaker 1: a lot of heart in what he said when he says,
• 20:49
  Speaker 1: you know, you've got to close the borders. This is
• 20:51
  Speaker 1: a really simple deal. You just say no to the
• 20:53
  Speaker 1: EU and you walk away and you know, you take
• 20:56
  Speaker 1: back control. That is you know, that is that's the
• 20:59
  Speaker 1: song sheet they've been singing from. So they're very happy to,
• 21:03
  Speaker 1: you know, have him come and say that. The Sun
• 21:05
  Speaker 1: had this huge which is a tabloid newspaper here with
• 21:08
  Speaker 1: a lot of a lot of readers, had a big
• 21:10
  Speaker 1: headline you know, um May has wrecked Brexit. US deal
• 21:15
  Speaker 1: is off and Trump then walked it back in the
• 21:18
  Speaker 1: news conference and said no, no, you know, Theresa May
• 21:20
  Speaker 1: is a great leader, and um so I think it
• 21:23
  Speaker 1: could cut both ways. Um, I think it could. It
• 21:26
  Speaker 1: could read down to maze benefit. But at the same time,
• 21:29
  Speaker 1: you know, Brexitters like that he's saying the same kinds
• 21:31
  Speaker 1: of things. They're saying, this is easy, we can do
• 21:34
  Speaker 1: it clean. May's messing it up, so they like that message. Terres,
• 21:39
  Speaker 1: just in about thirty seconds are assets in Britain on sale.
• 21:43
  Speaker 1: The pound sterling has lost eight and a half percent
• 21:45
  Speaker 1: against the dollar since April. I mean the uncertainty is
• 21:51
  Speaker 1: is clearly weighing on investors minds, and I think that's
• 21:55
  Speaker 1: going to continue for time. I would say that what
• 21:59
  Speaker 1: we're waiting for now is what the EU responses to
• 22:02
  Speaker 1: that white paper, and if the response is very negative,
• 22:06
  Speaker 1: then yes, I think assets will be on sale and
• 22:08
  Speaker 1: they'll go cheaper. I want to thank you very much
• 22:11
  Speaker 1: for being with us. Terres Raphael is Bloomberg opinion editor
• 22:14
  Speaker 1: covering European politics and economics, joining us from London. You
• 22:17
  Speaker 1: can follow Terres on Twitter at Terres Raphael One. Well,
• 22:36
  Speaker 1: it was supposed to be a done deal, a T
• 22:39
  Speaker 1: and T, and it's a purchase of Time Warner for
• 22:43
  Speaker 1: more than a hundred and seven billion dollars. UH. The
• 22:47
  Speaker 1: deal was actually completed in June, but the Department of
• 22:51
  Speaker 1: Justice may have other thoughts. Here to tell us more
• 22:54
  Speaker 1: is Marianne Halford, a global media and entertainment strategist at
• 22:58
  Speaker 1: O C and C stred A G Consultants. Marianne, thank
• 23:01
  Speaker 1: you very much for being with us. Can you just
• 23:03
  Speaker 1: explain to people? I mean, you know, you try to
• 23:05
  Speaker 1: look up what Time Warner shares are doing and you
• 23:08
  Speaker 1: note that, of course they don't exist anymore because the
• 23:11
  Speaker 1: deal has already closed. Is this unprecedented? Why would they
• 23:15
  Speaker 1: do this? Good question? Um, I think this is a
• 23:20
  Speaker 1: long shot. I think this, though, bespeaks uh an attitude
• 23:26
  Speaker 1: or a new attitude towards vertical mergers coming out of
• 23:29
  Speaker 1: the Trump Justice Department. And UM, clearly they don't want
• 23:34
  Speaker 1: to give up a fight here, even though it is
• 23:36
  Speaker 1: a major long shot. I think it's highly unlikely that
• 23:40
  Speaker 1: they'll be able to prevail here. I point to the
• 23:43
  Speaker 1: General Council statement yesterday. The court's decision could hardly have
• 23:47
  Speaker 1: been more thorough, fact based and well reasoned UM, even
• 23:52
  Speaker 1: in an appeals court. Although I guess um they're hoping
• 23:55
  Speaker 1: that some of the liberal judges that may be ruling
• 23:57
  Speaker 1: on this uh might given to some UH concerns about
• 24:02
  Speaker 1: higher prices. I still think it's going to be a
• 24:05
  Speaker 1: long shot. I think this has more to do with
• 24:08
  Speaker 1: UM Comcast at the end of the day in a
• 24:11
  Speaker 1: certain way. UM. We know Mr Trump is or President
• 24:15
  Speaker 1: Trump that is, is uh UM a good uh friend
• 24:19
  Speaker 1: of Mr Murdoch's. We know Mr Murdoch would very much
• 24:23
  Speaker 1: like to be acquired by Disney, not Comcast. UM. This
• 24:27
  Speaker 1: is definitely a warning bell, if you will, to Comcast
• 24:32
  Speaker 1: um about them continuing their fight to try to pursue Fox. UM.
• 24:37
  Speaker 1: That's one of the things I'm musing this morning. Okay, well, so, Marian,
• 24:42
  Speaker 1: there there two sides to this. There's the legal case
• 24:45
  Speaker 1: and then there's sort of who is sort of calling
• 24:48
  Speaker 1: the shots with respect to the Justice Department's decisions here. UH.
• 24:51
  Speaker 1: There was some kind of conspiracy talk that perhaps the
• 24:55
  Speaker 1: appeal was done specifically to get to the Appeals Court
• 24:59
  Speaker 1: in Washington. You see where Brett Kavanaugh, the nominee for
• 25:02
  Speaker 1: the Supreme Court, sits Um, do you do you buy
• 25:06
  Speaker 1: any of these arguments or do you think that the
• 25:08
  Speaker 1: President is personally involved or do you think that this
• 25:11
  Speaker 1: is just purely a sort of issue with vertical mergers.
• 25:17
  Speaker 1: You know, in this administration, one never really knows. Um.
• 25:21
  Speaker 1: I can't imagine that the President wasn't involved in this decision. Um.
• 25:26
  Speaker 1: I just can't imagine that he wasn't. Um. And you know,
• 25:30
  Speaker 1: it is unprecedented to see uh a Justice department going
• 25:34
  Speaker 1: after vertical mergers. It's very interesting that the Disney Fox
• 25:39
  Speaker 1: UH merger failed through the Justice Department. A horizontal merger
• 25:44
  Speaker 1: which is generally UM challenged. Vertical mergers are not necessarily challenged. UM.
• 25:51
  Speaker 1: I think you know, these are players in the media
• 25:54
  Speaker 1: specter and Mr Trump likes the media world and he
• 25:58
  Speaker 1: likes to be a big voice. So I can't imagine
• 26:00
  Speaker 1: that he wasn't involved in this decision. Could you just
• 26:03
  Speaker 1: expand a little bit more on what you mean by
• 26:06
  Speaker 1: this having to do with Comcast and it's bid or
• 26:10
  Speaker 1: the assets of Century Fox. And now we learned, of
• 26:14
  Speaker 1: course that they have increased their bid for a Sky
• 26:17
  Speaker 1: broadcasting the British PAYTB operator. Right again, I don't have
• 26:24
  Speaker 1: any data to support this. This is just my hunch
• 26:27
  Speaker 1: and my speculation. Here, and I've also talked to other
• 26:30
  Speaker 1: friends in the industry who also think the same. UM.
• 26:34
  Speaker 1: We know that the Murdoch Trust or the Murdoch family
• 26:38
  Speaker 1: has definitely shown a preference to the Disney merger, which
• 26:42
  Speaker 1: is a horizontal merger. UM. A Comcast UH Fox deal
• 26:47
  Speaker 1: would be a vertical merger. UM. Clearly, one of their
• 26:51
  Speaker 1: statements back in December UM, when the initial Disney deal
• 26:56
  Speaker 1: UH was done, UH, they said that they did not
• 26:59
  Speaker 1: favor a Comcast deal because of the concerns as it
• 27:02
  Speaker 1: relates to UH regulatory risk. UM. We knew that Comcast
• 27:09
  Speaker 1: held off making a formal bid until after the A
• 27:11
  Speaker 1: T and T decision came down. Within twenty four hours,
• 27:15
  Speaker 1: Comcast did enter into the bidding war. But Comcast would
• 27:19
  Speaker 1: be a vertical buyer. So I just think the timing
• 27:22
  Speaker 1: is interesting, UM, and particularly given that I think it's
• 27:26
  Speaker 1: still going to be a tough, tough fight to get
• 27:28
  Speaker 1: this overturned. UM. It's just so I'm really looking at
• 27:33
  Speaker 1: the other timing going on in the market. I do
• 27:36
  Speaker 1: think we'll see Comcast really fight hard to get sky UM.
• 27:40
  Speaker 1: I think I think Comcast needs sky UM, and that's
• 27:44
  Speaker 1: probably going to be where they shift their focus right
• 27:46
  Speaker 1: now thirty seconds. Is it common practice for the president
• 27:49
  Speaker 1: to insert him or herself into the anti trade decisions
• 27:55
  Speaker 1: of the Justice Department? Well, his name wasn't rough Fronts Tier. Um.
• 28:01
  Speaker 1: These are all people that report to him. But again
• 28:03
  Speaker 1: I'm just speculating them, you know. Probably, I'm just wondering
• 28:06
  Speaker 1: whether that's common for administrations to have a more very
• 28:09
  Speaker 1: direct role in deciding antitrust policy. Not generally. Not generally.
• 28:15
  Speaker 1: I mean we have seen it at certain points in history.
• 28:17
  Speaker 1: Certainly back in the sixties. There are a few decisions UM,
• 28:21
  Speaker 1: particularly think believe related to some steel mergers. UM. There
• 28:25
  Speaker 1: have been some as related to security concerns UM for
• 28:29
  Speaker 1: the United States. But I think in a case like this,
• 28:32
  Speaker 1: it's very unusual. Marianne Halford, thank you so much for
• 28:35
  Speaker 1: being with us. Marianne Halford, global Media and Entertainment strategist
• 28:38
  Speaker 1: for O C and C Strategy Consultants in New York,
• 28:41
  Speaker 1: A T and T shares responding to the Department of
• 28:44
  Speaker 1: Justice's decision to appeal the the the decision that they
• 28:50
  Speaker 1: had shares down to percent. Thanks for listening to the
• 28:54
  Speaker 1: Bloomberg p m L podcast. You can subscribe and listen
• 28:58
  Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
• 29:02
  Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
• 29:06
  Speaker 1: I'm on Twitter at Lisa Abramowits one before the podcast.
• 29:09
  Speaker 1: You can always catch us worldwide on Bluebirg Radio