Latest / Bloomberg Intelligence / ASML Chief on China Chips, HSBC Restructuring, GM Earnings

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ASML Chief on China Chips, HSBC Restructuring, GM Earnings · Bloomberg Intelligence

• 0:00
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 3: Mollie Smith sitting in for Alex Steel on Paul Sweeney.
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  Speaker 3: You're live here on our Bloomberg Interactive Broker Studio or
• 0:27
  Speaker 3: streaming live on YouTube as well. Which seems like for
• 0:30
  Speaker 3: the last five, six, seven years, there's been this growing
• 0:33
  Speaker 3: tech cold war between China and the West, and now
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  Speaker 3: we've got a story out about the chip maker. ASML
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  Speaker 3: Holdings a CEO, he expects pressure to grow from the
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  Speaker 3: US to further restrict sales of semiconductor technology to China.
• 0:49
  Speaker 3: That's the biggest market for the Dutch producer of chip
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  Speaker 3: making machines. Man Deep Sing joins us, he's the our
• 0:54
  Speaker 3: tech dude, He's ahead of all the technology stuff at
• 0:57
  Speaker 3: Bloomberg Intelligence. Man Deep talk to us about the chip
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  Speaker 3: market China as a customer, how do you think this
• 1:05
  Speaker 3: is going to play out? Because again it feels like
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  Speaker 3: there is this tech cold war that's right there.
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  Speaker 4: Yeah, I mean when you look at a company like SML,
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  Speaker 4: which almost did you know, forty five percent of their
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  Speaker 4: revenue from selling to Chinese customers over the past twelve
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  Speaker 4: months and they guide it to that percentage going to
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  Speaker 4: about twenty percent next year. So clearly the deceleration is
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  Speaker 4: huge in terms of the China exposure, and partly that
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  Speaker 4: has to do with the you know, the Cold War
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  Speaker 4: or the geopolitical element that you just alluded to. And look,
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  Speaker 4: it's not surprising given ASML the machines they make underpin
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  Speaker 4: the latest factories that are producing these chips that everyone
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  Speaker 4: wants to train their AI on. So when you look
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  Speaker 4: at the semiconductor chain, I mean ASML sits at pretty
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  Speaker 4: much at the bottom end of what it takes to
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  Speaker 4: set up a semiconductor factory. They are deemed as one
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  Speaker 4: of the biggest beneficiaries of the Chips Act. When you
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  Speaker 4: think about you know, the US government wanting to set
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  Speaker 4: up semiconductor fabs in the US, they are one of
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  Speaker 4: the prime beneficiaries. But then the offset is the China
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  Speaker 4: business that is going down, and that's why you're seeing
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  Speaker 4: you know, valuation compressed recently.
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  Speaker 5: Can you just help catch us all up here, Mandy,
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  Speaker 5: because this has been a crazy week with ASML, going
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  Speaker 5: back to the earnings announcement last week when they cut
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  Speaker 5: their outlook for next year. You know, the orders were
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  Speaker 5: very disappointing. This triggered this whole route in the semiconductor industry.
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  Speaker 5: Can you just catch us all up here on like
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  Speaker 5: what the past week has been like?
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  Speaker 4: Yeah, in fact, it's been a roller coaster because you
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  Speaker 4: had the ASML disappointment and then TSMC comes out the
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  Speaker 4: next day and they say AI revenue will be almost
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  Speaker 4: mid teens, which was negligible over the past you know,
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  Speaker 4: three quarters. So clearly there's been a big kind of
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  Speaker 4: sentiment when it comes to TSMC being very bullish on
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  Speaker 4: AI versus ASML downplaying you know, the next twelve months.
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  Speaker 4: And that's partly to do with where TSMC sits, which
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  Speaker 4: is they are getting all these orders from Nvidia as
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  Speaker 4: well as other hyperscalers who want to get their chips
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  Speaker 4: manufactured at TSMC, whereas ASML has got two companies that
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  Speaker 4: are pulling back on their orders, Intel and Samsung, and
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  Speaker 4: TSMC is the only one that's buying from ASML right now.
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  Speaker 4: So TSMC has a lot of bargaining power because they
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  Speaker 4: are the only ones who can raise their capex. Intel
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  Speaker 4: is really struggling. Samsung, we have heard, is also struggling now.
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  Speaker 4: So both those companies, the next two big buyers of ASML,
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  Speaker 4: are looking to pair back their spend and that's why
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  Speaker 4: I think TSMC is in a great spot both from
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  Speaker 4: the customer side as well as having the supplier bargaining power.
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  Speaker 3: All Right, ASML is a Dutch company. If the US
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  Speaker 3: tells me to do something, why don't I just tell
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  Speaker 3: them to go take a hike?
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  Speaker 4: Well, I mean it goes back to how these kind
• 4:08
  Speaker 4: of countries work as a block. Look, I think when
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  Speaker 4: the US government kind of asks a country to enforce
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  Speaker 4: their restrictions, then most of the times they end up
• 4:20
  Speaker 4: doing that because of you know, the trading aspect of
• 4:24
  Speaker 4: how these companies just operate as a block. And in
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  Speaker 4: this case, I think the restrictions are very targeted towards
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  Speaker 4: the advanced machines that are used for latest leading node manufacturing.
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  Speaker 4: So I think again it comes down to how the
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  Speaker 4: politics of it is really focused on, and it's hard
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  Speaker 4: for the companies to control that, right, So if the
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  Speaker 4: governments agree on something they have to comply with the restrictions.
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  Speaker 6: So we have the ASML CEO.
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  Speaker 5: He's been speaking at the Bloomberg Tech Summit recently, and
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  Speaker 5: he said last week that he sees the chip market's
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  Speaker 5: long way to recovery extending well into next year. I
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  Speaker 5: think that's a fair timeline given all of what's going
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  Speaker 5: on in the industry right now.
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  Speaker 4: I mean there are two pockets here. One is the
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  Speaker 4: AI pocket, which is really firing on all cylinders. I mean,
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  Speaker 4: companies have insatiable demand and we've seen that with TSMC
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  Speaker 4: and Nvidia really kind of talking about it endlessly. On
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  Speaker 4: the other side, the traditional markets like smartphones, PCs, autos,
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  Speaker 4: they're still slow. I mean, there has been a rebound,
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  Speaker 4: but it's been very kind of flatish for a few quarters.
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  Speaker 4: And even the prognosis is not like you're going to
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  Speaker 4: see massive acceleration in top round growth. So that's where
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  Speaker 4: I think companies that are exposed to AI are growing
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  Speaker 4: much faster than the companies that are exposed to these
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  Speaker 4: traditional land markets.
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  Speaker 5: And is that just because the market for smartphones is
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  Speaker 5: pretty saturated at this point? Like don't we all pretty
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  Speaker 5: much a lot? I mean, it seems pretty ubiquitous now,
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  Speaker 5: I mean, how much more are there really like these
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  Speaker 5: big markets that are waiting to be tapped into.
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  Speaker 4: I mean that's where AI will play a role in
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  Speaker 4: terms of driving upgrade for your smartphone. It's just right now,
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  Speaker 4: AI is being consumed and deployed almost solely on cloud.
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  Speaker 4: That's where the cloud vendors are seeing it in their results.
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  Speaker 4: But for every edge device, whether it's PC, smartphone, nobody
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  Speaker 4: has talked about using AI on the device. I mean,
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  Speaker 4: you can do it through your app that is running
• 6:34
  Speaker 4: on the cloud, but you don't need to upgrade your
• 6:37
  Speaker 4: smartphone for that, And that's the big driver.
• 6:39
  Speaker 3: I just upgraded to the iPhone sixteen pro. Somebody told
• 6:42
  Speaker 3: me that you're partner what's his name, anurag upgrade. Look
• 6:47
  Speaker 3: you show me a bill of goods here trying to
• 6:48
  Speaker 3: pad the Apple numbers it is.
• 6:51
  Speaker 4: And look it's it still has a great camera, So
• 6:54
  Speaker 4: I think that upgrade.
• 6:55
  Speaker 3: I was in Ireland. I was in Ireland for like
• 6:57
  Speaker 3: eight days. I took three pictures, two of like sheep
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  Speaker 3: and one of the pig.
• 7:01
  Speaker 4: You're under your lif outset fall.
• 7:05
  Speaker 2: What's the fascination.
• 7:06
  Speaker 7: With the sheep ball?
• 7:07
  Speaker 3: There's more sheep than people there, and they're everywhere.
• 7:10
  Speaker 7: I mean, it's unbelievable. No wonder my.
• 7:12
  Speaker 3: People left when the first potato a bit All right,
• 7:15
  Speaker 3: men Deep saying thank you so much.
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  Speaker 7: We appreciated.
• 7:17
  Speaker 3: Men Deep sing senior tech industry analysts for Bloomberg Intelligence,
• 7:20
  Speaker 3: trying to figure out what's going on in the chip
• 7:22
  Speaker 3: business again ASML, they're cautious.
• 7:25
  Speaker 7: Taiwan Simmy says, no, no, no, no, no.
• 7:26
  Speaker 3: Business is still good.
• 7:28
  Speaker 5: So honestly, I'm trying to more figure out what's going
• 7:30
  Speaker 5: on with your picture taking.
• 7:32
  Speaker 6: Yeah, personally, I'm like what you have to show for
• 7:34
  Speaker 6: from that?
• 7:36
  Speaker 3: You know, you got to live the moment, be in
• 7:39
  Speaker 3: the moment, stop recording it and taking photos of it,
• 7:42
  Speaker 3: just live in it.
• 7:42
  Speaker 5: I think this is really just like right here, this
• 7:45
  Speaker 5: is like the difference between what a man and a
• 7:46
  Speaker 5: woman would take pictures of.
• 7:48
  Speaker 7: I think it's more generational. Actually yeah, okay, we could
• 7:51
  Speaker 7: do generational too.
• 7:52
  Speaker 3: I mean, you know, you see a picture from thirty
• 7:54
  Speaker 3: forty years ago, if Tiger Woods hitting a shout a
• 7:56
  Speaker 3: Jack Nicholas, nobody has a phone out.
• 7:58
  Speaker 7: But now go figure.
• 8:01
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• 8:19
  Speaker 3: Let's talk about European banks. We had the big US
• 8:22
  Speaker 3: banks report over the last week or so, really strong
• 8:25
  Speaker 3: numbers coming out of the big global US banks and
• 8:28
  Speaker 3: investment banks. We're going to get some of the European
• 8:31
  Speaker 3: folks coming up, and we also got some news coming
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  Speaker 3: out of HSBC, one of the big European and Asian banks.
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  Speaker 7: Kind of a little restructuring there.
• 8:38
  Speaker 3: So let's check in with our euro banks official, Tamash Netzel.
• 8:42
  Speaker 3: He's a senior European banks analyst for Bloomberg Intelligence. Tomash,
• 8:46
  Speaker 3: thanks so much for joining us here.
• 8:47
  Speaker 7: Talk to us about HSBC.
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  Speaker 3: First here they got a pretty big restructuring going on
• 8:52
  Speaker 3: at this bank. Tell us what's going on there at HSBC.
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  Speaker 8: Yes, thank you very much for having me. Yes, definitely. Today,
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  Speaker 8: all over the U you can hear the biggest restructuring
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  Speaker 8: in almost a decade. And I would say that I
• 9:04
  Speaker 8: think it is the continuation of overhaul over restructuring of
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  Speaker 8: the business which started at the beginning of twenty twenty
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  Speaker 8: more or less by previous COEO. We have got new
• 9:13
  Speaker 8: CEO starting his job at first of September, and I
• 9:16
  Speaker 8: think one of his one of his priority was how
• 9:19
  Speaker 8: to how to make sure that we can sustain meetings
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  Speaker 8: rot for beyond two the twenty four to twenty five
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  Speaker 8: how do we deal with the business in the clinic
• 9:28
  Speaker 8: interest rate environment? And what do we do with the costs?
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  Speaker 8: And the restructuring of the of his business he proposed
• 9:35
  Speaker 8: and introduced from first January twenty twenty five is just
• 9:38
  Speaker 8: to address others the issues that the HSBC is facing,
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  Speaker 8: and the biggest one is of course controlling the cost
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  Speaker 8: Can you talk.
• 9:45
  Speaker 6: To us about what some of those costs are?
• 9:47
  Speaker 5: And I mean when I hear firms are trying to
• 9:50
  Speaker 5: cut costs, I immediately think they're trying to cut jobs.
• 9:53
  Speaker 5: And if that's also going to be part of this restructuring, yeah, that's.
• 9:57
  Speaker 8: You know, that's very interesting because you know they talk
• 9:59
  Speaker 8: about the restatturing, they talk about new divisions, new heads
• 10:03
  Speaker 8: of the divisions, et cetera. And maybe there's a maybe
• 10:06
  Speaker 8: six cuts on the executive committee. But we don't get
• 10:09
  Speaker 8: any numbers. We don't know how much the restructuring is
• 10:11
  Speaker 8: gonna cost. We don't know what is the black figure
• 10:13
  Speaker 8: in terms of cost savings they would have to expect
• 10:16
  Speaker 8: and more more important, we don't know how much this
• 10:18
  Speaker 8: restructuring will cost. So yes, definitely there's lots of details.
• 10:22
  Speaker 8: There's lots of promises with restructuring, but you know, we
• 10:25
  Speaker 8: are yet still short on details. So we would like
• 10:27
  Speaker 8: definitely know where the cost CUDEG may come. Where they're
• 10:30
  Speaker 8: gonna cut jobs, potentially some jobs if they emerge two divisions.
• 10:35
  Speaker 8: There are definitely some overlaps in operations, so there's definitely
• 10:38
  Speaker 8: some podcasts jobs, potential cuts. So of course we don't
• 10:43
  Speaker 8: know anything of this yet right. I think there was
• 10:45
  Speaker 8: a rumors that two fo weeks ago that reported by
• 10:48
  Speaker 8: Field of Times that there's a around three hundred millions
• 10:51
  Speaker 8: of savings planned by new new management. We don't know
• 10:53
  Speaker 8: whether that's true. It has not been confirmed, but I
• 10:56
  Speaker 8: think three hundred millions would not be enough for HSBC
• 10:59
  Speaker 8: to move that on the investment sentiment. If you look
• 11:03
  Speaker 8: at the forecast for for for HSBC at the moment,
• 11:05
  Speaker 8: you know the revenue is going to grow by not
• 11:08
  Speaker 8: around five million dollars in the next two years, threw
• 11:11
  Speaker 8: twenty twenty six. Costs are going to grow by more
• 11:14
  Speaker 8: than two billions, So they have quite negative gap which
• 11:17
  Speaker 8: they which the CEO I think will have to address
• 11:19
  Speaker 8: with more details and more and more more about to
• 11:23
  Speaker 8: the point of the plan.
• 11:24
  Speaker 6: It sounds like you could all use a lot more
• 11:26
  Speaker 6: detail here.
• 11:27
  Speaker 5: What I heard you just say is that we don't
• 11:28
  Speaker 5: know a lot of what all of these details are
• 11:30
  Speaker 5: going to be. I mean, it looks like the stocks
• 11:32
  Speaker 5: mildly up a little bit today, houses generally being received
• 11:36
  Speaker 5: you know, by you, by the broader analyst community.
• 11:39
  Speaker 9: Yeah.
• 11:40
  Speaker 8: Well our initial directional Yeah, well, well done. This is
• 11:42
  Speaker 8: this is the right step in the right directional shoulding
• 11:47
  Speaker 8: separating Hong Kong and China business, creating new new divisions,
• 11:52
  Speaker 8: hoping creating some synergies post PRODUCTIBA. It's all good, it's
• 11:56
  Speaker 8: all good on paper, but you know, we don't know details.
• 11:58
  Speaker 8: We don't know. That's why the h shares price today
• 12:01
  Speaker 8: shroud off this news kind of right with flatish. I
• 12:03
  Speaker 8: think market is expecting more from from more bold moves
• 12:07
  Speaker 8: by new CEO. There's definitely more deeply cost savings measure
• 12:12
  Speaker 8: needed for a bout the banks. So I think we're
• 12:14
  Speaker 8: going to expect day reporting three KY results next week.
• 12:18
  Speaker 8: We don't know how much they're going to disclose over there.
• 12:20
  Speaker 8: Maybe more will be disclosed during the four KY results,
• 12:22
  Speaker 8: but as soon as as as long as we don't
• 12:25
  Speaker 8: have much details nothing to work on, it's very difficult
• 12:28
  Speaker 8: to gauge what is the direction of travels for ROT
• 12:31
  Speaker 8: and HBC and where they want to go to. We
• 12:33
  Speaker 8: do have our focus at the on HSBC. We we
• 12:36
  Speaker 8: talk about where they can cut costs, how they can
• 12:38
  Speaker 8: boost productivity with a better age of those but you know,
• 12:42
  Speaker 8: we expect as well as management to come with a
• 12:45
  Speaker 8: solid plan to do deliver on those metrics.
• 12:47
  Speaker 3: To mush let's zoom out a little bit on your
• 12:49
  Speaker 3: European bank coverage. We've had the US some of the
• 12:51
  Speaker 3: big US banks report and some pretty solid numbers, mostly
• 12:54
  Speaker 3: on the capital market side. What are you expecting from
• 12:56
  Speaker 3: the European banks this earnings season?
• 12:59
  Speaker 8: Yeah, so definitely know the focus will be on on
• 13:02
  Speaker 8: the clinic interest rates and the impact on NII because
• 13:05
  Speaker 8: European banks being running on this on this high interest
• 13:08
  Speaker 8: rates for quite a long time and with now the
• 13:10
  Speaker 8: expectations the interest will gone down, so there's some revenue
• 13:12
  Speaker 8: pressure coming. But if you look at the geographical you know,
• 13:15
  Speaker 8: it's very interesting to look at Europe from perspective or
• 13:19
  Speaker 8: UK banks and europe banks or UK banks are very
• 13:21
  Speaker 8: well positioned to the clinic interest rates because of the hedges.
• 13:24
  Speaker 8: The for revenue forecast is for four to six persons
• 13:27
  Speaker 8: through twenty twenty six, which is much higher than other
• 13:30
  Speaker 8: European banks. So there are some banks which are exposed
• 13:33
  Speaker 8: positively let's put to the clinic interest rates, which can
• 13:36
  Speaker 8: be against common sense, but yes they are UK bank
• 13:38
  Speaker 8: to go the headges. European banks know they struggle more
• 13:41
  Speaker 8: with an II revenue generation. Then when when you look
• 13:44
  Speaker 8: at you know, low base of investment bank revenues for
• 13:47
  Speaker 8: backers and the others know that can be a positively
• 13:49
  Speaker 8: maybe a positive surprise over there as well. So in
• 13:52
  Speaker 8: general I think, you know, we're going to expect more
• 13:55
  Speaker 8: comments on out of twenty five and how revenue will
• 13:59
  Speaker 8: will travel next year. Course rights are going to cut
• 14:04
  Speaker 8: more aggrecively and that would be determined the performance of
• 14:07
  Speaker 8: the short crisis.
• 14:08
  Speaker 3: Tomash Great Stuff has always appreciated Tomas set so he's
• 14:11
  Speaker 3: a senior European banks analyst for Bloomberg Intelligency is based
• 14:14
  Speaker 3: in London. HSBC is in the news today kicking off
• 14:19
  Speaker 3: for restructuring and trying to get that cost structure more
• 14:21
  Speaker 3: in line with what they expect to be at a
• 14:23
  Speaker 3: tighter revenue environment with interest rates coming down. New CFO,
• 14:27
  Speaker 3: the first female CFO, and the bank's history.
• 14:30
  Speaker 7: How cool is that.
• 14:32
  Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 2: you get your podcasts, or watch us live on YouTube.
• 14:47
  Speaker 3: Let's talk about real banking, regional banking.
• 14:48
  Speaker 7: Joe Castillia joins us.
• 14:50
  Speaker 3: Castilia joins us President and CEO of Citizens Bank of Edmond.
• 14:54
  Speaker 7: That would be Edmen, Oklahoma.
• 14:56
  Speaker 3: Right now, which is basically by Google maps, oklahom.
• 15:00
  Speaker 7: Because I have no idea where that is.
• 15:01
  Speaker 3: It's basically Oklahoma City, so you're right there in Oka City.
• 15:04
  Speaker 3: So there's a lot of stuff going on in the
• 15:06
  Speaker 3: National Cowboy and Western Heritage Museum.
• 15:09
  Speaker 7: That would be my first stop.
• 15:10
  Speaker 6: I mean, I would think going on Oklahoma football game now.
• 15:13
  Speaker 3: That yeah, Oklahoma that would be a little bit, Yes,
• 15:16
  Speaker 3: a little bit. Jill, thanks so much for joining us here.
• 15:18
  Speaker 3: Talk to us about your bank. Who is your customer
• 15:22
  Speaker 3: for your bank?
• 15:23
  Speaker 1: Yeah, So I get the privilege of being a CEO
• 15:26
  Speaker 1: of a one location, one hundred and twenty four year
• 15:28
  Speaker 1: old community bank located in suburban Oklahoma City and we're
• 15:31
  Speaker 1: located on the same intersection and.
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  Speaker 10: We've been since nineteen oh one.
• 15:35
  Speaker 1: So that's history, very very trying to a very traditional
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  Speaker 1: community bank. The name of citizens been citizens since nineteen
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  Speaker 1: oh one. Literally citizens pulling their money together kind of
• 15:45
  Speaker 1: the first like crowdsourcing and then loaning and money out
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  Speaker 1: to the rest of the community. But on our board
• 15:52
  Speaker 1: about in two thousand and eight, thousand and nine, the
• 15:54
  Speaker 1: bank went through a turnaround and after that point decided
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  Speaker 1: we want to be here.
• 15:57
  Speaker 10: For another one hundred years. And so it's a very
• 15:59
  Speaker 10: technologic forward bank.
• 16:01
  Speaker 1: So we just launched a digital military bank, so we
• 16:04
  Speaker 1: have a large military group that's part of our customer base.
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  Speaker 1: But it's primarily just a traditional community bank where the
• 16:10
  Speaker 1: geographic center.
• 16:12
  Speaker 3: Militaries all through your family, right.
• 16:15
  Speaker 1: Yeah, So I was enlisted, my husband retired Army's sons
• 16:19
  Speaker 1: Army daughters.
• 16:20
  Speaker 10: Navy, well not just West Point Enaval Academy. That's right, Wow,
• 16:24
  Speaker 10: you did your research.
• 16:25
  Speaker 3: Yeah, So I mean so I mean so for a
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  Speaker 3: bank like yours, I mean it's I need a checking account,
• 16:31
  Speaker 3: I need a savings account.
• 16:32
  Speaker 7: Do I do?
• 16:33
  Speaker 3: Do you guys also do like a mortgage and we
• 16:35
  Speaker 3: do business loans and all that type of thing.
• 16:36
  Speaker 1: It is the whenever people say like you should have
• 16:39
  Speaker 1: a niche market and that's the way to be successful,
• 16:41
  Speaker 1: we're the antithesis to that.
• 16:42
  Speaker 10: So we do everything. So one stop shop for every
• 16:44
  Speaker 10: it is everything.
• 16:45
  Speaker 1: So I literally will work with a small business perspective
• 16:49
  Speaker 1: owner for three years to help them get bankable so
• 16:51
  Speaker 1: they can achieve their dream, help with families, buy their
• 16:54
  Speaker 1: first home, get that first checking account, stavements account for
• 16:58
  Speaker 1: a youngster. So I mean it's being part of someone's life.
• 17:01
  Speaker 1: And even like when in this environment where the interst
• 17:03
  Speaker 1: rate's changing, if there's any kind of difficulty with the business,
• 17:06
  Speaker 1: we're just walking along the entire way. As someone gets alone.
• 17:10
  Speaker 1: It's not just ending in with that transaction. It's really
• 17:13
  Speaker 1: a relationship over time.
• 17:15
  Speaker 5: And what are your clients coming to you for? Like
• 17:17
  Speaker 5: when whether it's an individual or a business like what.
• 17:21
  Speaker 5: I'm sure they most hear, Oh, rates are going down,
• 17:23
  Speaker 5: but you know, inflation and whatever, and they're probably all like,
• 17:26
  Speaker 5: they have a lot of questions for you, I'm sure,
• 17:27
  Speaker 5: So what are they coming to you for most these days?
• 17:30
  Speaker 1: Yeah, so we talk really more holistically about the whole business.
• 17:33
  Speaker 1: So it may be that their costs are going up,
• 17:34
  Speaker 1: and how do I know achieve some a scale or
• 17:37
  Speaker 1: how do I partner to be able to get input
• 17:39
  Speaker 1: costs lower?
• 17:39
  Speaker 10: What are some different labor options.
• 17:41
  Speaker 1: Some of them have left their businesses where they've hired
• 17:43
  Speaker 1: employees now to run and start off the family owned business.
• 17:46
  Speaker 1: Well now they're having to move back in the business
• 17:48
  Speaker 1: because they can't afford the labor costs associated with it.
• 17:51
  Speaker 1: So it's really talking about it all holistically and how
• 17:53
  Speaker 1: do we help them be a competitive advantage for them
• 17:56
  Speaker 1: to be able to manage their business the best way possible.
• 17:58
  Speaker 1: And if that means that it's a lowe own that
• 18:00
  Speaker 1: we can provide, or if it's investing in some type
• 18:02
  Speaker 1: of money market or other asset, and then we're helping
• 18:06
  Speaker 1: them make those decisions.
• 18:08
  Speaker 3: You know, when Molly and I hear from the you know,
• 18:10
  Speaker 3: the big banks when they report their earning is one
• 18:12
  Speaker 3: of the things they say they're spending money is in
• 18:14
  Speaker 3: tech technology. But for a bank of your size, how
• 18:16
  Speaker 3: does technology do you? Guys have to play in that
• 18:19
  Speaker 3: game too and have all the apps and do all
• 18:21
  Speaker 3: that kind of stuff.
• 18:21
  Speaker 1: There is no customers not going to say I'm not
• 18:25
  Speaker 1: going to have the same quality of banking services at
• 18:27
  Speaker 1: your bank that I can have somewhere.
• 18:29
  Speaker 10: Else at Chase.
• 18:30
  Speaker 1: So we have to provide the same level of technology,
• 18:32
  Speaker 1: and even better we invent technology. We have a patent
• 18:35
  Speaker 1: on a small business remote small business kind ATM and
• 18:40
  Speaker 1: they're a little bank invented.
• 18:41
  Speaker 10: And I would.
• 18:43
  Speaker 1: Challenge you if you open your account as a doesn's
• 18:45
  Speaker 1: bank evment, I bet that you would have a better
• 18:47
  Speaker 1: experience doing that then you would at a large institution
• 18:50
  Speaker 1: for no cost. You can sit there and have your
• 18:52
  Speaker 1: checking account, wunch your credit score, not have a lot
• 18:55
  Speaker 1: of fees, and then be able to call me or
• 18:57
  Speaker 1: tech spee twenty four to seven the bank CEO to
• 18:59
  Speaker 1: say hey, I have a question about this.
• 19:01
  Speaker 10: Wow that yeah, imagine, I'm not sure.
• 19:05
  Speaker 5: I think you're probably much more accessible than he is,
• 19:07
  Speaker 5: probably to your customers.
• 19:08
  Speaker 1: And I said in the lobby, so you're able to
• 19:10
  Speaker 1: see if there's any anxiety or if there's any concerns,
• 19:13
  Speaker 1: and so you're really accountable and transparent with your customers
• 19:16
  Speaker 1: so that you can really help your community grow.
• 19:18
  Speaker 5: It was so interesting when you were just saying, I
• 19:21
  Speaker 5: assume this is about small businesses talking about still grappling
• 19:23
  Speaker 5: with labor costs, because I feel like that's something that
• 19:26
  Speaker 5: anecdotally and in the data, we see a lot of
• 19:28
  Speaker 5: that has subsided from really the peak times of you know,
• 19:32
  Speaker 5: maybe two three years ago. But you're saying this is
• 19:34
  Speaker 5: still really a prevalent issue in your community.
• 19:37
  Speaker 1: For sure, labor availability I think, O, let me say
• 19:40
  Speaker 1: we have thirty seven months that consistently get below four
• 19:43
  Speaker 1: percent unemployment, and if we hit one more month.
• 19:45
  Speaker 10: It's a record hot a record long.
• 19:47
  Speaker 1: Period of time of low unemployment. So labor availability is
• 19:50
  Speaker 1: really scarce. And so then you see again like people
• 19:53
  Speaker 1: recruiting their sons and daughters to be working in their
• 19:56
  Speaker 1: food truck where they could previously be able to hire
• 19:59
  Speaker 1: someone to do that.
• 20:00
  Speaker 3: So talks about the economy in Great Oklahoma City. Is
• 20:02
  Speaker 3: it what is the basis? Is it still energy or
• 20:05
  Speaker 3: is it have you diversity from what is the e commune.
• 20:08
  Speaker 1: It's quite diverse, and so you have to come and
• 20:10
  Speaker 1: visit Oka City and let me give you the grand tour.
• 20:12
  Speaker 1: But I mean a large amount that we have military
• 20:15
  Speaker 1: basis there, large federal government presence, still energy.
• 20:20
  Speaker 10: Some agriculture.
• 20:21
  Speaker 1: But it's a much more diverse community than it was
• 20:23
  Speaker 1: back in the eighties whenere we were so dependent upon
• 20:25
  Speaker 1: oil and gas. But it still permeates everything in our economy.
• 20:29
  Speaker 5: And how about like what are some of like the
• 20:31
  Speaker 5: you know, the bigger small businesses in the area, Like
• 20:33
  Speaker 5: what kind of what kind of work are they engaged in?
• 20:36
  Speaker 1: Yes, so we have a large presence in the aerospace industry.
• 20:38
  Speaker 1: So Boeing has a large manufacturing plant.
• 20:41
  Speaker 10: There, exactly a small business, not a small business.
• 20:45
  Speaker 1: Really great restaurant scene if you're a foodie, would love
• 20:48
  Speaker 1: a city. So lots of manufacturing, so parts for especially
• 20:53
  Speaker 1: the oil and gas industry. You find there lots of
• 20:56
  Speaker 1: great small businesses. Loves travel stops not a small business now,
• 20:59
  Speaker 1: but started in Oklahoma City. So really great stories of
• 21:03
  Speaker 1: growth and resiliency.
• 21:05
  Speaker 5: You know, the only time I actually have been to
• 21:07
  Speaker 5: Oklahoma was back after one of the tornadoes.
• 21:10
  Speaker 6: I think it was about ten years ago near More.
• 21:12
  Speaker 5: Oklahoma, And I'm thinking now, you know, as we've just
• 21:15
  Speaker 5: had these pair of devastating hurricanes in the southeast, I mean,
• 21:19
  Speaker 5: how has it been with I mean, you guys have
• 21:21
  Speaker 5: obviously had your fair share of tornadoes over the years.
• 21:23
  Speaker 5: Like what is it like for you in the banking
• 21:26
  Speaker 5: seat when you have these kind of events and the
• 21:27
  Speaker 5: rebuilding efforts and how much are you involved?
• 21:31
  Speaker 1: I mean, what a great question. So as a community bank,
• 21:33
  Speaker 1: you're just always ready. And so whether those are really
• 21:35
  Speaker 1: small disasters that really only you see in your community
• 21:38
  Speaker 1: that don't make the national news, you're running to the
• 21:39
  Speaker 1: aid of your community there, and it certainly at a
• 21:42
  Speaker 1: broader scale, And we're so grateful to be part of
• 21:44
  Speaker 1: a greater community banking network that when are even in
• 21:47
  Speaker 1: this situation where the hurricanes were able to rally around
• 21:50
  Speaker 1: our community makers that are directly impacted to help them
• 21:52
  Speaker 1: in their customers. So I'm having those networks of communities
• 21:56
  Speaker 1: both internally in this little small community kind sector as
• 21:59
  Speaker 1: well as kind of broad in the nation has really
• 22:01
  Speaker 1: allowed a community bank to be much more impactful than
• 22:04
  Speaker 1: just the bank itself.
• 22:05
  Speaker 3: What's a typical consumer customer for your bank.
• 22:09
  Speaker 10: Oh wow, there's just no typical.
• 22:11
  Speaker 1: So it could be I just had a conversation this
• 22:14
  Speaker 1: weekend with an elderly woman who was wanting to buy
• 22:17
  Speaker 1: a trailer, and so we were talking about options for
• 22:20
  Speaker 1: her to be able to have an independent living.
• 22:23
  Speaker 10: Where she wanted to be. So it could be at
• 22:24
  Speaker 10: that level.
• 22:25
  Speaker 1: Or it could be that you're buying their second home
• 22:28
  Speaker 1: on a really nice lake, or a new car, or
• 22:31
  Speaker 1: that they're trying to finance their kids' education.
• 22:33
  Speaker 10: So it really runs the gamut. So, but it's typically
• 22:36
  Speaker 10: someone I know.
• 22:37
  Speaker 1: I mean, usually I'm working with them face to face,
• 22:39
  Speaker 1: but it could be just a connection. Actually, last time
• 22:42
  Speaker 1: I was in New York City, there was a small
• 22:43
  Speaker 1: business customer I was connected with. I was trying to
• 22:46
  Speaker 1: sustain their small business. So it just happens, all three
• 22:48
  Speaker 1: connections and relationships.
• 22:50
  Speaker 5: How much are you seeing both between individuals and businesses
• 22:53
  Speaker 5: looking for any kind of loans right now? I imagine that
• 22:56
  Speaker 5: they're still probably pretty spooked by the interest rates that
• 22:59
  Speaker 5: are out there, maybe thinking oh rates are coming down,
• 23:01
  Speaker 5: can hold out a little bit longer.
• 23:03
  Speaker 6: Is that kind of the narrative right now?
• 23:05
  Speaker 7: Yeah?
• 23:05
  Speaker 1: I mean, but a lot of them are like, if
• 23:06
  Speaker 1: there are truck stops working, they need the truck now,
• 23:09
  Speaker 1: they can't wait, and so they're trying to figure out
• 23:11
  Speaker 1: how to I work away around this interest rate environment
• 23:14
  Speaker 1: to ensure that can still be profitable. So they're not
• 23:16
  Speaker 1: really playing like the markets like you may do at
• 23:19
  Speaker 1: a larger scale. They really are having to buy something
• 23:21
  Speaker 1: when they need it, but they are considering it as
• 23:23
  Speaker 1: I think about growing or expanding locations or scaling their businesses.
• 23:28
  Speaker 10: But many have adjusted to.
• 23:29
  Speaker 1: This rate environment and there's still a lot of demand
• 23:31
  Speaker 1: out there, and there's a lot of other cash sources
• 23:34
  Speaker 1: beyond loans still with private equity investors and other government
• 23:39
  Speaker 1: type of programs still available for small business to scale
• 23:41
  Speaker 1: without having necessarily get loans. So the raid environment then
• 23:44
  Speaker 1: it becomes a little bit less consequential.
• 23:46
  Speaker 6: Is there a lot of going on in the housing
• 23:47
  Speaker 6: market right there?
• 23:48
  Speaker 8: Wow?
• 23:49
  Speaker 1: The housing market I think is just tough everywhere. Supply
• 23:51
  Speaker 1: is just so limited, and you have those low rates
• 23:54
  Speaker 1: that people have in their mortgages keeping them from moving,
• 23:57
  Speaker 1: and then the cost of constructions. We didn't have transformers
• 23:59
  Speaker 1: of itailable forever, so they've may be able to bring
• 24:01
  Speaker 1: online developments and you didn't have a lot of availability
• 24:04
  Speaker 1: to be able to build. And so there's still some
• 24:06
  Speaker 1: supply hiccups, especially when you think about municipalities and a
• 24:09
  Speaker 1: lot of the infrastructure that's occurring that's taken away some
• 24:12
  Speaker 1: of the pavers and earth movers that would normally be
• 24:15
  Speaker 1: used to be able to provide greater development opportunities.
• 24:18
  Speaker 10: For one to four family loans.
• 24:20
  Speaker 3: Was during the pandemic, was Oklahoma City a city that
• 24:23
  Speaker 3: maybe gained population or lost population, goes to New York
• 24:25
  Speaker 3: City here everybody left, you know, and all went down
• 24:28
  Speaker 3: to Florida and so on.
• 24:29
  Speaker 10: Yeah, everybody's becoming in Oklahoma.
• 24:30
  Speaker 1: So it's like a reverse great Sir Wrath, you know
• 24:33
  Speaker 1: where how so many Californians coming in and so that
• 24:35
  Speaker 1: is putting prices, you know, some price pressure on one
• 24:39
  Speaker 1: to four family homes. But yeah, we have we are
• 24:41
  Speaker 1: a net gain and when it came to migration, both
• 24:44
  Speaker 1: during COVID and afterwards.
• 24:46
  Speaker 3: We're Norman, Oklahoma, home of the university. Oklahoma's right there. Yeah,
• 24:49
  Speaker 3: So is that where you guys get a lot like
• 24:51
  Speaker 3: your employees, if you need some employees to should hire
• 24:52
  Speaker 3: some graduates.
• 24:53
  Speaker 1: Community we're smacked between University of Oklahoma and Oklahoma State University,
• 24:56
  Speaker 1: and then the state's oldest institution, University of centralklahom It
• 25:00
  Speaker 1: is about two blocks away from the bank. Wow, our
• 25:02
  Speaker 1: bank helps secure the land prior to statehood for that
• 25:05
  Speaker 1: university to be built.
• 25:06
  Speaker 5: I would think that's got to be pretty good for
• 25:08
  Speaker 5: labor costs if you've got a whole lot of college
• 25:10
  Speaker 5: kids right around there.
• 25:11
  Speaker 1: Now, it helps with having that, but we also have
• 25:13
  Speaker 1: to compete against Texas, which is a growing market and recreuse.
• 25:17
  Speaker 1: More than half the students that are at the University
• 25:19
  Speaker 1: of Oklahoma from Texas. Yes, so we have to keep
• 25:22
  Speaker 1: them in Oklahoma so that.
• 25:23
  Speaker 6: We can better growing.
• 25:25
  Speaker 9: Yes.
• 25:25
  Speaker 5: I mean I went to Syracuse University. Obviously very different
• 25:29
  Speaker 5: climate than in Oklahoma.
• 25:31
  Speaker 6: But similar in the sense that they like.
• 25:34
  Speaker 5: A lot of the employers in the area would say, like,
• 25:36
  Speaker 5: the biggest struggle is that the graduates don't want to stay.
• 25:38
  Speaker 6: They want to go back to wherever they came from.
• 25:40
  Speaker 6: I imagine maybe that sounds like a little bit of
• 25:42
  Speaker 6: what you're talking about.
• 25:43
  Speaker 1: Yeah, we're much more successful now, and there's a lot
• 25:45
  Speaker 1: of regional institutions that in the rural communities that are
• 25:47
  Speaker 1: producing a lot great talent.
• 25:49
  Speaker 7: Jill, thank you so much for joining us. Jill Stee.
• 25:52
  Speaker 3: She's a president and CEO of Citizens Bank of Edmund, Oklahoma.
• 25:55
  Speaker 3: So for Ever and Edmund, I Google mapped that it's
• 25:58
  Speaker 3: basically part of the Oklahoma City metropley a little bit north,
• 26:01
  Speaker 3: but I mean everything's right there.
• 26:02
  Speaker 5: Yeah. So anyway, I mean, my brother and his friends
• 26:04
  Speaker 5: actually for a bachelor party just went to a football
• 26:08
  Speaker 5: game at Oklahoma, which was, like, I think, got'd be
• 26:10
  Speaker 5: one of the more fun ideas, you know, not doing
• 26:12
  Speaker 5: like the Vegas booze cruise scene, but going to a
• 26:14
  Speaker 5: college football game.
• 26:15
  Speaker 7: Yes, awesome, big big player, love that Oklahoma.
• 26:20
  Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 26:24
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• 26:27
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• 26:30
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• 26:34
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• 26:38
  Speaker 3: Let's break it down to the GM stuff with David
• 26:40
  Speaker 3: Welche's the Detroit Burea, chief of Bloomberg News. Hey, David
• 26:43
  Speaker 3: stocks up. Big market likes what they see. I guess
• 26:45
  Speaker 3: the world wants big trucks.
• 26:48
  Speaker 9: Big trucks, big SUVs. Yes they do, and and they're
• 26:51
  Speaker 9: selling them a huge prices. GM's average vehicle in the
• 26:54
  Speaker 9: quarter soldess sold for more than forty nine thousand dollars.
• 26:58
  Speaker 10: WOWW what happened to the the incentive thirty market vehicles?
• 27:02
  Speaker 7: Not even I mean wow, which is amazing.
• 27:04
  Speaker 3: I mean I got the Ford F one fifty electric
• 27:08
  Speaker 3: one Matt Miller got for me to test drive.
• 27:10
  Speaker 7: That was ninety four thousand dollars to the price.
• 27:12
  Speaker 3: So give it with What's what's GM saying these days
• 27:16
  Speaker 3: about how they're managing this transition to evs.
• 27:21
  Speaker 9: Look, there are sales in the quarter for evs. They
• 27:24
  Speaker 9: sold over thirty thousand of them, which by Tesla standards
• 27:28
  Speaker 9: not a big number, but it was enough to put
• 27:30
  Speaker 9: GM in second place in the US market EV sales.
• 27:33
  Speaker 9: The real story there is they're getting sales volume up,
• 27:36
  Speaker 9: which is a good thing, and that means they're getting
• 27:39
  Speaker 9: scale in their battery plants. The battery is the most
• 27:42
  Speaker 9: expensive part of the vehicle, and so they can start
• 27:45
  Speaker 9: to bring costs down. And they're saying that fourth quarter
• 27:47
  Speaker 9: and into next year they will be at be making
• 27:50
  Speaker 9: a variable profit on the vehicles, which means that if
• 27:53
  Speaker 9: you forget about all the fixed costs, the billions they've
• 27:56
  Speaker 9: invested in battery plans, forget about those vehicle plants and
• 27:58
  Speaker 9: all the engineering, they're making money. But look that it's
• 28:01
  Speaker 9: a step toward making money on vehicles that are pretty
• 28:04
  Speaker 9: expensive to produce. And you know, GM's gaining market share.
• 28:09
  Speaker 9: And the EV situation is very interesting because Tesla has
• 28:17
  Speaker 9: five models if you count the cyber truck for sale GM.
• 28:22
  Speaker 9: By the end and next year, by the end of
• 28:23
  Speaker 9: this year, they're going to have I think ten, and
• 28:25
  Speaker 9: by the end and next year they'll have about a
• 28:26
  Speaker 9: dozen different models. That's a lot of variety. It's also
• 28:30
  Speaker 9: a lot of production. So if the market for evs
• 28:32
  Speaker 9: continues to grow pretty nicely, GM will have the best
• 28:35
  Speaker 9: variety and a lot of production to be able to
• 28:37
  Speaker 9: get it, which is exactly what that the domestic producers
• 28:41
  Speaker 9: in China did to steal their home market away from GM,
• 28:45
  Speaker 9: Volksweg and Toyota, Ford, et cetera. It's a market doesn't
• 28:49
  Speaker 9: materialize and you know GM is going to probably have
• 28:52
  Speaker 9: to lay off a few workers in some of these
• 28:54
  Speaker 9: EV plans.
• 28:54
  Speaker 6: Yeah, maybe just a few.
• 28:56
  Speaker 5: I mean you're talking though about how GM was able
• 28:58
  Speaker 5: to sell a but like all these cars at these
• 29:01
  Speaker 5: above average prices. Is that true for the evy market
• 29:04
  Speaker 5: as well, or are we talking more gas powered there.
• 29:07
  Speaker 9: It's both because evs are pretty expensive. The difference though,
• 29:10
  Speaker 9: and this is where GM is starting to get a
• 29:12
  Speaker 9: lot of its electric vehicle growth, is they have an
• 29:14
  Speaker 9: electric version of the Chevy Equinox that starts at thirty
• 29:17
  Speaker 9: five thousand after government credit, it's about twenty seven and
• 29:21
  Speaker 9: a half. There are many vehicles for sale period of
• 29:24
  Speaker 9: any kind that run on anything, you know, alcohol, electricity,
• 29:30
  Speaker 9: a fusel earlier, you name it. But that self for
• 29:33
  Speaker 9: blow of thirty thousand dollars, so you know, and probably
• 29:37
  Speaker 9: most of them are selling for closer to forty before
• 29:39
  Speaker 9: the federal tax credit. So but that's a pretty cheap vehicle,
• 29:42
  Speaker 9: and they're getting a lot of growth there. But generally speaking, yeah,
• 29:45
  Speaker 9: Cadillac lyric expensive vehicle, even the Chevy Blazer, a lot
• 29:50
  Speaker 9: of those can go from more than fifty thousand. Then
• 29:52
  Speaker 9: you know that's an electric as well. They're pick up
• 29:54
  Speaker 9: certainly very expensive Silverado pickup in the GMCCRA pickup, and
• 29:59
  Speaker 9: the Hummers are well one hundred, so you know, these
• 30:02
  Speaker 9: are expensive vehicles for the most part.
• 30:05
  Speaker 7: All right, very good, David Welch.
• 30:06
  Speaker 10: We appreciate that.
• 30:07
  Speaker 3: David Welch, Detroit, Burachief for Bloomberg News, joining us from Detroit.
• 30:11
  Speaker 3: And again I was looking at the stock of you know,
• 30:15
  Speaker 3: GM at fifty two week high today, just a really
• 30:18
  Speaker 3: nice move. Stocks up about eight percent and change. It's
• 30:21
  Speaker 3: up about close to forty eight percent.
• 30:23
  Speaker 7: Year to date.
• 30:24
  Speaker 3: Whereas you look at General Motors, I'm sorry you look
• 30:27
  Speaker 3: at Ford year to data sucks down ten ten percent.
• 30:30
  Speaker 5: I think the more amazing thing here is that David
• 30:33
  Speaker 5: was talking about is how they've been able to sell
• 30:35
  Speaker 5: at all these above average prices. I mean, the story
• 30:38
  Speaker 5: of the car market lately has been incentives and markdowns,
• 30:42
  Speaker 5: you know, and especially with like auto loans being as
• 30:44
  Speaker 5: expensive as they are, how they're able to do this
• 30:46
  Speaker 5: is remarkable to me.
• 30:48
  Speaker 3: Yeah, and I remember talking to Kevin Tynan, who was
• 30:50
  Speaker 3: the auto analyst of Bloomberg Intelligence for many years, and
• 30:52
  Speaker 3: he just said, listen, they make so much money with
• 30:55
  Speaker 3: these crossovers, SUVs, trucks, whatever you want to call them. Literally,
• 30:58
  Speaker 3: on a perdutive basis there so profitable that the incentive
• 31:02
  Speaker 3: to switch over to EV's is just isn't there, and
• 31:05
  Speaker 3: they're not going to do it until the economics makes sense.
• 31:09
  Speaker 6: So you're saying, as GM or as a customer, to
• 31:11
  Speaker 6: sweat no.
• 31:12
  Speaker 3: As GM said, automakers they're so incentive to make these
• 31:15
  Speaker 3: big trucks because they sell them and they're very profitable
• 31:18
  Speaker 3: to the highest profit margin products they have. So the
• 31:21
  Speaker 3: US auto companies have very little financial incentive, economic incentive
• 31:25
  Speaker 3: they switched to evs. Now it's the government's gonna, you know,
• 31:28
  Speaker 3: incentivize you to do so or force you to do so.
• 31:30
  Speaker 7: Well, that's another whole thing.
• 31:32
  Speaker 3: But I think as most auto investors, they were just concerned,
• 31:34
  Speaker 3: do I want to own a company where you know,
• 31:37
  Speaker 3: their incentives are not really aligned with maximizing profits.
• 31:40
  Speaker 7: So often see.
• 31:42
  Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 31:46
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• 31:50
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• 31:53
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• 31:56
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• 32:00
  Speaker 7: Let's switch gears.
• 32:01
  Speaker 3: Let's talk about real estate, commercial real estate. We love
• 32:03
  Speaker 3: to talk about commercial real estate because I have no
• 32:05
  Speaker 3: idea what's going on. I know I've made the mistake
• 32:07
  Speaker 3: in the past thinking commercial real estate's office, but that's
• 32:09
  Speaker 3: only like three and a half percent of readesks to talk.
• 32:11
  Speaker 11: About the malls.
• 32:12
  Speaker 7: I know.
• 32:12
  Speaker 3: I know Rich Hill, he joins us. He's had of
• 32:15
  Speaker 3: real estate strategy and research at Cohen and Steers. Before that,
• 32:18
  Speaker 3: he was at Morgan Stanley with all those other Morgan
• 32:20
  Speaker 3: Stanley real estate crazy people, which they just have owned
• 32:23
  Speaker 3: real estate across Wall Street my entire career at Ward Stanley.
• 32:26
  Speaker 3: So those are the folks that get it done. Rich
• 32:28
  Speaker 3: thanks so much for joining us here in our studio.
• 32:30
  Speaker 3: I mean, where do you go in commercial real estate today?
• 32:33
  Speaker 7: I know there are different silos.
• 32:34
  Speaker 3: Where do you guys think the best opportunities are these days?
• 32:37
  Speaker 7: Yeah, maybe we.
• 32:37
  Speaker 11: Can just take a step back. It has been a
• 32:41
  Speaker 11: really tough two years for commercial real estate, but we
• 32:45
  Speaker 11: think the market is finally in the process of bottoming.
• 32:49
  Speaker 11: There's been three price in disease that we follow pretty closely,
• 32:53
  Speaker 11: all of which showed increases for the first time in
• 32:56
  Speaker 11: more than two years in recent months. So valuations down
• 33:00
  Speaker 11: more than twenty percent, and that doesn't happen very often.
• 33:04
  Speaker 11: You go back to the early nineteen nineties in the GFC,
• 33:07
  Speaker 11: those are the only two times evaluations have fallen. So
• 33:10
  Speaker 11: it's getting people pretty excited again. I will note, though,
• 33:14
  Speaker 11: before I talk about the opportunities, we think the cycles
• 33:17
  Speaker 11: playing out sort of in textbook fashion. What do I
• 33:19
  Speaker 11: mean by that? Well, list it reached trough first, they
• 33:22
  Speaker 11: troughed about a year ago. Then private valuations trough twelve
• 33:26
  Speaker 11: months later. But there's a really important point here. See
• 33:29
  Speaker 11: our debt distress. So distress in the debt markets doesn't
• 33:32
  Speaker 11: peak out for twelve to twenty four months after property
• 33:35
  Speaker 11: valuations trough out, So the headlines are actually going to
• 33:38
  Speaker 11: get worse before they get better. You're going to be
• 33:40
  Speaker 11: talking about office valuations being down, borrowers given the keys
• 33:44
  Speaker 11: back to lender. That's what happens at this point in
• 33:48
  Speaker 11: the cycle.
• 33:49
  Speaker 5: So what if you're looking at valuations bottoming but you
• 33:51
  Speaker 5: know that this distress is still going to be coming.
• 33:53
  Speaker 5: That's still got to be a really tricky position. If
• 33:56
  Speaker 5: the equity valuation is maybe looking more appealing, but you're
• 34:00
  Speaker 5: worried about the death side coming back to bite you.
• 34:02
  Speaker 11: Yeah, so commercial real estates inherently elever a class. What
• 34:06
  Speaker 11: do I mean by that, Well, there's very few people
• 34:08
  Speaker 11: that buy a property and don't put some level of
• 34:11
  Speaker 11: debt on it. So the availability of debt and the
• 34:13
  Speaker 11: cost of debt is super super important. We are beginning
• 34:18
  Speaker 11: to see signs of thawing in the debt markets. I'm
• 34:21
  Speaker 11: gonna get really wonky here for a second, but we
• 34:23
  Speaker 11: follow something called the Senior Loan Officer Opinion Survey quarterly.
• 34:26
  Speaker 6: Sur We love that survey. We don't have to call
• 34:32
  Speaker 6: this loose.
• 34:32
  Speaker 11: I do too loose.
• 34:33
  Speaker 6: On the loose, I'm sorry, this is the place to
• 34:37
  Speaker 6: go wonky go.
• 34:38
  Speaker 2: Yeah.
• 34:38
  Speaker 11: So, look, what we've seen is that that metric is
• 34:43
  Speaker 11: turning less bad, and it has been for several quarters
• 34:45
  Speaker 11: right now. The last observation, it's set around twenty five
• 34:48
  Speaker 11: percent of lenders or tightening lending standards. That still sounds
• 34:51
  Speaker 11: like a lot, but at the tightness of the market
• 34:54
  Speaker 11: it was almost seventy.
• 34:55
  Speaker 6: Percent, So it's entering SVB.
• 34:59
  Speaker 11: Shortly on the heels of SPHEEDBA. Lenders get more conservative
• 35:03
  Speaker 11: on the heels of things like that, So we are
• 35:05
  Speaker 11: seeing things turn less bad.
• 35:08
  Speaker 7: Believe it or not.
• 35:08
  Speaker 11: One of the largest CMBs deals that has been done
• 35:11
  Speaker 11: in quite some time. A three billion dollar deal by
• 35:14
  Speaker 11: the way back by a New York City office building
• 35:17
  Speaker 11: was just done last week. So things are beginning to
• 35:19
  Speaker 11: thaw here a little bit, which I think is a
• 35:23
  Speaker 11: sign of why the market's beginning to bottom.
• 35:25
  Speaker 3: Warehouses and stuff like that. That's the one that's been
• 35:28
  Speaker 3: ripping over the last several years. Has that played out?
• 35:31
  Speaker 3: I mean, do you see where do you find.
• 35:32
  Speaker 7: Value these days?
• 35:33
  Speaker 11: So here's here's a remarkable statistic that no one believes me.
• 35:37
  Speaker 11: Industrial rates or warehouse rates are the worst performing sector
• 35:40
  Speaker 11: of listed roats this year. They're down around four percent
• 35:44
  Speaker 11: or so, almost five percent probably as of today, while
• 35:48
  Speaker 11: the market is up more than ten percent, the listed
• 35:50
  Speaker 11: remark is up ten percent. Why is that happening? Well,
• 35:54
  Speaker 11: what the market's telling you, well the public markets are
• 35:56
  Speaker 11: telling you, is that long term growth is going to
• 35:59
  Speaker 11: mean reverted. So this is an asset class that has really,
• 36:03
  Speaker 11: really strong fundamentals. We think it's a great asset class.
• 36:06
  Speaker 11: But guess what commercial real estate developers do in a
• 36:09
  Speaker 11: market like that, They build new supply. So we think
• 36:11
  Speaker 11: supply for such demand is going to equiliberate over time,
• 36:14
  Speaker 11: and that will bring long term growth down. And that's
• 36:17
  Speaker 11: exactly what the list of remarket's telling you about. So
• 36:21
  Speaker 11: that's a long way of saying, we don't think the
• 36:22
  Speaker 11: past cycle winners are going to be the next cycle winners.
• 36:26
  Speaker 6: How about the office space right now? How would you
• 36:28
  Speaker 6: describe that?
• 36:30
  Speaker 11: Still challenged, but it's starting to get maybe a little
• 36:35
  Speaker 11: bit interesting. I was in the Pacific Northwest last week
• 36:39
  Speaker 11: and client asked me, what do you think you're what
• 36:41
  Speaker 11: do you think the best performing asset types are going
• 36:43
  Speaker 11: to be over the next ten years? And I told
• 36:46
  Speaker 11: them I was like, I sort of want to put
• 36:47
  Speaker 11: office at the top of that list. The problem is
• 36:51
  Speaker 11: it might go lower before it goes higher. I don't
• 36:53
  Speaker 11: know if it's a good entry point today, tomorrow, next week,
• 36:55
  Speaker 11: or next year. But valuations are starting to get really, really,
• 36:58
  Speaker 11: really interesting. I'll give you three green shoots that we
• 37:03
  Speaker 11: look at. First family offices, ultra high worth family offices
• 37:08
  Speaker 11: that can take more than a ten year view, like
• 37:10
  Speaker 11: one hundred year of view are beginning to step in
• 37:13
  Speaker 11: and buy office properties because the basis is so attractive.
• 37:17
  Speaker 11: They haven't seen the basis like that in decades and decades.
• 37:20
  Speaker 11: So that's point number one point number two. I just
• 37:22
  Speaker 11: talked about how industrial reads or the second or the
• 37:25
  Speaker 11: worst beforming sector of listed reads this year. Guess what
• 37:28
  Speaker 11: office is the second best? So the market has sort
• 37:32
  Speaker 11: of brought them back from the dead. And then I
• 37:33
  Speaker 11: talked about the green shoots that we're starting to see
• 37:36
  Speaker 11: very selectively in the lending markets for office. So we're
• 37:39
  Speaker 11: still cautious, but I think there's going to come a
• 37:42
  Speaker 11: time pretty soon, and I say pretty soon call it
• 37:46
  Speaker 11: next twelve to twenty four months where you're going to
• 37:49
  Speaker 11: look back and you're gonna say, hey, I wish I
• 37:51
  Speaker 11: would have stepped in because it was a really good
• 37:53
  Speaker 11: buying opportunity. It's a long way of saying someone's going
• 37:55
  Speaker 11: to make a ton of money.
• 37:56
  Speaker 2: Yeah.
• 37:56
  Speaker 7: Absolutely.
• 37:57
  Speaker 3: I mean my personal barometers, just like anything on Third Avenue.
• 38:01
  Speaker 3: When I see like the Lipstick building or something like
• 38:03
  Speaker 3: that trade at forty cents on the dollar or something,
• 38:05
  Speaker 3: I was saying, that's the boss.
• 38:06
  Speaker 6: What with the wolfgangs? Are you kidding?
• 38:08
  Speaker 7: I don't know, think about this, think about this.
• 38:10
  Speaker 11: Are you adding to bet against New York City?
• 38:12
  Speaker 7: Yeah?
• 38:13
  Speaker 3: I don't know what hard press to do that way
• 38:14
  Speaker 3: we've seen that we've seen that movie before. Richell, thank
• 38:16
  Speaker 3: you so much for joining us here in our studio. Richell,
• 38:19
  Speaker 3: he's head of real estate strategy and Research at Cohen
• 38:22
  Speaker 3: and Steers.
• 38:23
  Speaker 7: Joining us here on our Bloomberg Interrupt approp for Studio.
• 38:25
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• 38:32
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• 38:40
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