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Morgan Stanley, Harvard, and Disney · Bloomberg Intelligence

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  Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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  Speaker 2: my co host Matt Miller.
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  Speaker 1: Every business day we bring you interviews from CEOs, market pros,
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  Speaker 3: An exclusive with James Gorman, the executive chairman of More
• 1:00
  Speaker 3: and Stanley, recently stepped down from his post as CEO,
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  Speaker 3: and this is the first interview in your new role
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  Speaker 3: as executive chairman what's your most urgent priority.
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  Speaker 4: Well, it was obviously to come and do this interview
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  Speaker 4: with you. As my first priority. You know, it's just
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  Speaker 4: support Teed and he's a terrific guy, will be a
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  Speaker 4: great CEO, and my job really is to help him
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  Speaker 4: as best as I can, but stay out of the road.
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  Speaker 5: So that's really my priority.
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  Speaker 3: It's interesting I've heard you used to write a handwrite
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  Speaker 3: a checklist of priorities at the start of every year.
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  Speaker 3: If you think about how you change gears into executive chairman,
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  Speaker 3: what does that checklist this year look like.
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  Speaker 5: I didn't write it this year.
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  Speaker 4: I did that when I was CEO for fourteen years,
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  Speaker 4: and it gave me a framework for focusing on a
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  Speaker 4: few big things that matter, because in these jobs, there
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  Speaker 4: are thousands, literally thousands of issues that come at you
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  Speaker 4: and you can easily lose sight of the stuff that
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  Speaker 4: actually matters, which is a few big things. So every
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  Speaker 4: year I would tea up on the first day I
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  Speaker 4: came into the office, which was yesterday, I came in
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  Speaker 4: and write down the list of ten things, and you know,
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  Speaker 4: one of them was always no new mistakes, which I
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  Speaker 4: defined as things that cost us more than half a
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  Speaker 4: billion of capital. Sometimes they were personal like stay fit
• 2:17
  Speaker 4: or get fit, or sometimes they are at development and
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  Speaker 4: leadership with our top team. But no different jobs, so
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  Speaker 4: different you've got you've got to switch. So that's what
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  Speaker 4: I've done.
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  Speaker 3: You know, I'm glad you brought up mistakes because to
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  Speaker 3: the extent that we learned from life's challenges. I'm curious
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  Speaker 3: about your single moment. What is the biggest mistake you
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  Speaker 3: ever thought you've made at Morgan Stanley. You know, this
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  Speaker 3: is an exit interview. It's the chance to look back
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  Speaker 3: at the last decade or so.
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  Speaker 4: You know it might sound im modest. I don't think
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  Speaker 4: we made a lot of big mistakes. I mean the
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  Speaker 4: if you look at the major things that we did,
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  Speaker 4: whether they were the deals Smith Barney, each trade eat
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  Speaker 4: advance succession, which is critical navigating through COVID. You know,
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  Speaker 4: we got frankly most of the big I wish we
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  Speaker 4: hadn't sold Van Camp and when we sold it to
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  Speaker 4: Marty Flanagan and Invesco, So that was something I think.
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  Speaker 4: It took a little too long to get the full
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  Speaker 4: team that I wanted in place in the right jobs.
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  Speaker 4: But you know, you can't do these jobs and not
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  Speaker 4: make missas When I see a mistake, I embrace it.
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  Speaker 4: You know, it's like Kipling, those travelers of success and fail.
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  Speaker 4: You got to embrace them both because if you're not
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  Speaker 4: making mistakes, the chances are you're not doing enough. So
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  Speaker 4: I never see a mistake as a negative. I just
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  Speaker 4: see it as something you learned from move forward.
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  Speaker 3: You know, it's interesting, you're standing on top of a
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  Speaker 3: mountain now. You've had a tremendous amount of success at
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  Speaker 3: Morgan Stanley, but those first couple of years were rocky.
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  Speaker 6: Were you ever worried.
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  Speaker 3: In those first few years you'd be ousted before you
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  Speaker 3: can act to turnaround.
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  Speaker 4: No, you know, I just thought, listen what I felt
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  Speaker 4: back then. We had to act, and we had to
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  Speaker 4: act aggressively. And I knew that whatever we chose to
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  Speaker 4: do there would be critics. That didn't bother me one
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  Speaker 4: little bit because we're in trouble as it was, so
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  Speaker 4: my job was to do something about it, not listen
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  Speaker 4: to the critics of what we can't do, but figure
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  Speaker 4: out what we can do. So I was highly confident
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  Speaker 4: that we'd make choices and I thought they'd pay off.
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  Speaker 4: I thought the rebalancing the business model was the right choice,
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  Speaker 4: So I didn't. I just didn't listen to the critics.
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  Speaker 3: It's funny you kind of got Morgan Stanley at rock bottom,
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  Speaker 3: if you will. But a lot of investors think Ted
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  Speaker 3: Pick's job is even harder because he is.
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  Speaker 7: On a high note.
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  Speaker 3: What do you think Ted's biggest challenge is going to be?
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  Speaker 4: Oh, I don't think. I don't think it's hard or easier.
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  Speaker 4: They're just different. You go through different cycles. I mean,
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  Speaker 4: the Morgan Center I've had for the last five years
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  Speaker 4: is very different from the first five or the middle four.
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  Speaker 4: You know, for Ted, he's got one of the biggest
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  Speaker 4: and most successful companies in the world, phenomenal brand, He's
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  Speaker 4: a great culture carrier, so I'm sure the cultur will
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  Speaker 4: stay in track. The real choices will be strategic. So
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  Speaker 4: when opportunities come to move left or move right, how
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  Speaker 4: do you do that?
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  Speaker 5: How aggressively do you do it? And when do you
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  Speaker 5: do it? So that's they're really the choices.
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  Speaker 4: And in the first year while I'm here, I'll obviously
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  Speaker 4: share with him whatever views I have on stuff if
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  Speaker 4: he wants that, But in the lady years, he'll have
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  Speaker 4: his team working with him on that.
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  Speaker 5: So I'm confident about that.
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  Speaker 3: We'll talk more about strategy in a second. But another thing,
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  Speaker 3: as you transition to executive chairman, you have roles now
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  Speaker 3: outside of the bank, and succession is arguably one of
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  Speaker 3: the most important things you could do as a manager,
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  Speaker 3: and a big new responsibility for you is serving on
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  Speaker 3: the board of Disney, ironically, where succession has been one
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  Speaker 3: of the biggest issues. How does Disney live past Bob Iger?
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  Speaker 4: Well, firstly, I mean Bob Iger is a phenomenal executive.
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  Speaker 4: I mean he is iconic for a reason. He's led
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  Speaker 4: that company through so many cycles and really is a
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  Speaker 4: gifted leader. So it's a great pleasure to work with him.
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  Speaker 4: But it's not for me to judge Disney's future. I've
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  Speaker 4: joined the board yet. I'm starting I think February fourth
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  Speaker 4: or February second, I'm sure early February. I'm looking forward
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  Speaker 4: to it. I like dealing with complexity situations. The changes
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  Speaker 4: going on in that industry are profound and there are
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  Speaker 4: choices to be made, so that to me is very
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  Speaker 4: interesting and obviously given the experience I've had leading succession
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  Speaker 4: with our board here with Dennisonlly, the head of our
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  Speaker 4: comp committee, and Tom Glossa, they had lead director. You know,
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  Speaker 4: hopefully I can add something to the succession committee that
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  Speaker 4: I'll be joining.
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  Speaker 3: What about pressing challenges outside of succession at Disney? Do
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  Speaker 3: you think that there's anything that could be immediately addressed
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  Speaker 3: as they contend with activists?
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  Speaker 4: Well, you know, and they're always we had We've had
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  Speaker 4: How many activists do we have here? We had at
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  Speaker 4: least two, and I think they each had two bites
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  Speaker 4: at the Apple. So no, that is not what the
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  Speaker 4: focus should be on. The focus should be on strategic
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  Speaker 4: choices companies make. But again, I haven't joined the board,
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  Speaker 4: so I can't talk about a company on, not even
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  Speaker 4: an insider on. That wouldn't be fair to the team.
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  Speaker 3: More strategic decisions at Morgan Stanley, one massive question. You've
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  Speaker 3: built this massive wealth management business mostly in the United States.
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  Speaker 3: You have talked previously about the idea of Morgan Stanley
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  Speaker 3: internationally expanding more. Do you think Morgan Stanley though, can
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  Speaker 3: be a giant international wealth manager?
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  Speaker 5: Oh?
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  Speaker 4: Sure, there are a lot of wealthy people in this world.
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  Speaker 4: I think population just tipped eight b and and you know,
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  Speaker 4: I've just come back from a long trip through Asia,
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  Speaker 4: through Thailand, Singapore, Hong Kong, and I was in Europe
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  Speaker 4: last week. I've been all over there. There are plenty
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  Speaker 4: of pockets of opportunities, so it's a question of where
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  Speaker 4: where you pick your shots. I mean the whay you
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  Speaker 4: pick your spots. There are endless opportunities, and I think
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  Speaker 4: our Asia business, we have a wealth business in Asia.
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  Speaker 4: It's small ish but growing very fast. Obviously that's a
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  Speaker 4: focus Japan. I think with that partner Amuog is a
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  Speaker 4: tremendous focus that I suspect Ted and the team will
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  Speaker 4: do even more with which he's already started doing on
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  Speaker 4: the trading side.
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  Speaker 5: So there are endless opportunities. I'm not worried about.
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  Speaker 3: What are the biggest challenges with China in particular are
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  Speaker 3: given the rising geopolitical tensions and the state of the
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  Speaker 3: economy there.
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  Speaker 4: Well, China has you know, China has some fundamental challenges.
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  Speaker 4: First and foremost is demographics. The one child policy guaranteed
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  Speaker 4: the population is going to shrink, and right when you
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  Speaker 4: need more productive working people coming through to support the
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  Speaker 4: older generation, they've got few of them, and they don't
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  Speaker 4: have good immigration. So I think China has some profound
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  Speaker 4: challenges on demographics. It has profound challenges in terms of
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  Speaker 4: building a consumption economy. You know that there's still an
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  Speaker 4: export savings driven economy. So but on the other hand,
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  Speaker 4: China's one point four bm people, second largest economy in
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  Speaker 4: the world, and gross domestic product.
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  Speaker 5: It's it's a key factor in global economic health.
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  Speaker 3: So beyond Asia expansion, if you think about the wealth
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  Speaker 3: management space, even in the US, there's another thing that's
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  Speaker 3: happening that a lot of financial advisors are thinking about
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  Speaker 3: in particular, and that is the approval actually or the
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  Speaker 3: lack thereof, of a Bitcoin spot ETF in the United States.
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  Speaker 3: When you think about what wealthy clients invest in, when
• 9:05
  Speaker 3: you think about the future of wealth management, do you
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  Speaker 3: think bitcoin is a suitable investment.
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  Speaker 5: I've never been.
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  Speaker 4: You know, I've never really understood the value of bitcoin
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  Speaker 4: as a form of stored value. Others have, and others
• 9:21
  Speaker 4: have made a lot of money on it. I joked once,
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  Speaker 4: I wish I bought it at sixty dollars, and I'm
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  Speaker 4: glad I didn't buy it at sixty thousand. It's clearly speculative.
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  Speaker 4: I think it should play for wealthy people a very
• 9:31
  Speaker 4: small role in their financial fabric because it's so speculative,
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  Speaker 4: it's so volatile, and again it's going through enormous regulatory
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  Speaker 4: change and industry disruption. We're seen with some classic failures
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  Speaker 4: of late, So some bitcoin's not going away. It's not
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  Speaker 4: a fad. I just don't think it's a core investment.
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  Speaker 5: I think it's a.
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  Speaker 4: Speculative asset of which there are plenty of choices.
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  Speaker 3: Speaking of regulation, you've been very vocal about the new
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  Speaker 3: regulations being made in the United States about bank capital,
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  Speaker 3: about operational risk. Do you believe the rules are likely
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  Speaker 3: to change before implementation based on your recent discussions with
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  Speaker 3: regulators and what do you think they will look.
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  Speaker 5: Like at the end? Oh, that definitely change.
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  Speaker 4: I mean they put out an extended comment period which
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  Speaker 4: got extended further. There have been thousands of comments put
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  Speaker 4: into the various regulatory bodies, led by the FED. It
• 10:24
  Speaker 4: was a proposal that I would say was extremely aggressive
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  Speaker 4: and set a marker. It will not go through in
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  Speaker 4: that form. If it did, I think it would have very,
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  Speaker 4: very negative consequences for corporate lending across this country, which
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  Speaker 4: is not what you want.
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  Speaker 5: It's not going to help the economy growth. Well.
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  Speaker 3: You've also spoken about the treasury market potential impacts from
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  Speaker 3: these regulations. We've already seen stresses of late in the
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  Speaker 3: treasury market. Do you have fears that those stresses will
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  Speaker 3: be exacerbated?
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  Speaker 4: I can't tell until I see the actual rules. But
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  Speaker 4: all I know is what was put out is highly highly,
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  Speaker 4: highly unlikely to be what's ultimately regulated.
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  Speaker 5: Now.
• 11:02
  Speaker 4: Investors don't necessarily see that or agree with it. But
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  Speaker 4: in my experience, I've been in this a long time.
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  Speaker 4: I was on the FED board for six years in
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  Speaker 4: New York. I chared the fac in Washington. I think
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  Speaker 4: this is a highly aggressive proposal that will be materially
• 11:17
  Speaker 4: wound back when it finally becomes law.
• 11:20
  Speaker 3: Regulation now, there has been tighter capital rules proposed under
• 11:24
  Speaker 3: the Biden administration. There's also been a lot of regulatory
• 11:27
  Speaker 3: actions taken against banks. If the Republicans take the White
• 11:31
  Speaker 3: House in twenty twenty four, whether it's Donald Trump or
• 11:34
  Speaker 3: another contender, do you expect that this tighter regulatory environment
• 11:38
  Speaker 3: will just fully unwind too.
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  Speaker 5: It's too hard to predict.
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  Speaker 4: You know, I think we're in you know, you see
• 11:45
  Speaker 4: pendulum swing, and we swung to lighter regulation to I
• 11:49
  Speaker 4: think an excessive proposal. I think it'll swing back. So
• 11:52
  Speaker 4: it's heading back to more balance regulation, and that's where
• 11:55
  Speaker 4: it should be. I'm all about balance. The banking system
• 11:58
  Speaker 4: should not be deregulated. That would be a nightmare. On
• 12:01
  Speaker 4: the other hand, if you overregulate and you require capital
• 12:04
  Speaker 4: standards that are so high that the banks run investable,
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  Speaker 4: they can't grow. That doesn't serve communities.
• 12:09
  Speaker 5: Well.
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  Speaker 4: You need prosperous, thriving banks to provide lending products for
• 12:14
  Speaker 4: small businesses and consumers.
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  Speaker 3: You know, to the extent we're less than a year
• 12:18
  Speaker 3: away from a spate of bank failures, to the extent
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  Speaker 3: that there are still fragilities in the financial system, what
• 12:24
  Speaker 3: are they.
• 12:25
  Speaker 4: I don't think they are a speed of failures. Honestly,
• 12:27
  Speaker 4: I think there were three banks that got it wrong.
• 12:30
  Speaker 4: I've said that publicly. They made choices that were the
• 12:33
  Speaker 4: wrong choices. Wasn't complicated. They got washed up and cleaned
• 12:37
  Speaker 4: up and folded into other banks, and you move on.
• 12:39
  Speaker 4: This wasn't People kept telling me, we're having a banking crisis.
• 12:42
  Speaker 5: No, we're not. We had a crisis among three banks.
• 12:45
  Speaker 5: It was a crisis for their shareholders and their employees.
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  Speaker 5: It's not a crisis for the market.
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  Speaker 4: The core banking system is in rude good health to
• 12:52
  Speaker 4: use a British expression.
• 12:54
  Speaker 3: Well, you know, it's not just the banking system. If
• 12:56
  Speaker 3: you think about the hedge fund industry, regulators are also
• 12:58
  Speaker 3: very concerned about some fragil there. It wasn't too long
• 13:01
  Speaker 3: ago that Morgan Stanley lost almost a billion dollars in
• 13:04
  Speaker 3: the week of the collapse of Archagoes. Do you think
• 13:06
  Speaker 3: that there needs to be more safeguards on the non
• 13:08
  Speaker 3: bank system.
• 13:09
  Speaker 4: I mean, it's honestly, there's too many participants in the
• 13:14
  Speaker 4: non bank system to say yes.
• 13:15
  Speaker 5: So no, you'd have to go subset by subset.
• 13:18
  Speaker 4: We talked about payments, we talk about private creditor go
• 13:23
  Speaker 4: through each of the pieces of it. But there are
• 13:26
  Speaker 4: always risks when you're dealing with leverage in a financial system.
• 13:29
  Speaker 4: But if you don't have leverage, you don't have lending,
• 13:31
  Speaker 4: So it's a balance again. I'm always back to there
• 13:35
  Speaker 4: is a balanced solution to most of these debates, and
• 13:37
  Speaker 4: you can find it with full discussion with regulators.
• 13:40
  Speaker 3: Speaking of leverage, the cost of leverage is higher today
• 13:43
  Speaker 3: than it was a couple of years ago. Where do
• 13:45
  Speaker 3: you think interest rates go headed into the end of
• 13:47
  Speaker 3: the year, and what do you think the market starts
• 13:49
  Speaker 3: to look like through twenty twenty four? They go down,
• 13:52
  Speaker 3: as simple as that, Yeah, how far down?
• 13:55
  Speaker 5: I've got no idea.
• 13:55
  Speaker 4: I mean I thought that unlikely the FAD would cut
• 13:59
  Speaker 4: rates this year, but inflation has moved down pretty materially
• 14:04
  Speaker 4: quickly that it's now become more likely. So first half
• 14:07
  Speaker 4: of the year, I suspect nothing.
• 14:08
  Speaker 5: Back half of the year.
• 14:09
  Speaker 4: They could easily move a couple They could move a
• 14:10
  Speaker 4: couple of times. But the key point is we started
• 14:14
  Speaker 4: this journey with inflation at ten percent, rates at zero,
• 14:18
  Speaker 4: unemployment at three and a half percent, and my objective
• 14:22
  Speaker 4: was to get us to four four and four four
• 14:25
  Speaker 4: percent inflation, four percent rates, four percent unemployment. We're about
• 14:28
  Speaker 4: three percent inflation, we're five percent five and a half
• 14:31
  Speaker 4: in rates, and we're about three and a half in unemployment.
• 14:33
  Speaker 5: So rates will come down.
• 14:34
  Speaker 3: Do you think the economy is in at all clear
• 14:36
  Speaker 3: when it looks like a soft landing versus a hard landing,
• 14:39
  Speaker 3: do you think that the economy will survive this year
• 14:42
  Speaker 3: in good shape?
• 14:43
  Speaker 4: Economy is fine. I mean, there's this obsession with the
• 14:47
  Speaker 4: our word recession. I mean, you have recessions. They come
• 14:50
  Speaker 4: and go when you get imbalances between unemployment rates and
• 14:53
  Speaker 4: economic growth. So no, the economy is doing fine. I
• 14:57
  Speaker 4: personally think it is unlikely we'll have a recession, very
• 15:01
  Speaker 4: unlikely we'll have a hard landing.
• 15:02
  Speaker 5: But we'll see.
• 15:03
  Speaker 4: But the odds are clearly in favor of soft landing.
• 15:05
  Speaker 4: I think the Fed's done a great job.
• 15:07
  Speaker 3: Now for you, You've told me before that you would
• 15:11
  Speaker 3: look to teach in your post life at Morgan Stanley,
• 15:14
  Speaker 3: in your life after Morgan Stanley, I want to ask
• 15:16
  Speaker 3: you about that for a moment, because there is a
• 15:18
  Speaker 3: lot of turmoil on college campuses these days. Do you
• 15:21
  Speaker 3: think you'd ever take a bigger role at a university
• 15:24
  Speaker 3: given all the political pressures and donor activism that you're seeing.
• 15:27
  Speaker 5: Well, I'm joining.
• 15:29
  Speaker 4: I have been the chair of Columbia Business School for
• 15:32
  Speaker 4: many years, several with Henry Cravis's my co chair and
• 15:35
  Speaker 4: now chair of the school. I'm looking to get more
• 15:38
  Speaker 4: involved at Columbia University in the coming months, and I
• 15:42
  Speaker 4: think that'd be great to do. I think, you know
• 15:44
  Speaker 4: the importance of high quality education for a well functioning
• 15:49
  Speaker 4: society is profound, It's obvious. So yeah, I want to
• 15:52
  Speaker 4: be part of that, and obviously universities this is not
• 15:55
  Speaker 4: the first time universities have been hotbeds of dissent and
• 15:59
  Speaker 4: turmoil my whole life. They've been that from when I
• 16:01
  Speaker 4: went to university in Australia in the nineteen seventies.
• 16:03
  Speaker 5: So that doesn't that doesn't bother me.
• 16:07
  Speaker 4: But it's important that people are able to have dialogue
• 16:10
  Speaker 4: and discussion on campus without intimidation and expressing their rights
• 16:15
  Speaker 4: for free speech.
• 16:17
  Speaker 3: What is the next big ambition for James Gorman you.
• 16:22
  Speaker 5: Mean today or I.
• 16:26
  Speaker 4: Internally Morgan soon is to help ted and to help
• 16:29
  Speaker 4: with our clients around the world. I have a very
• 16:32
  Speaker 4: large client network that I built up over a long career,
• 16:34
  Speaker 4: and I think I can help our bankers and others
• 16:37
  Speaker 4: in that regard. For me personally, it's to live in
• 16:40
  Speaker 4: a little bit of a world of unknown for my
• 16:42
  Speaker 4: whole life. I've kind of known what the next steps
• 16:44
  Speaker 4: are as you mentioned, I've I've joined one public company.
• 16:47
  Speaker 4: We'll be joining one public company board Disney. I'll be
• 16:50
  Speaker 4: getting more involved at Columba University months ahead, and then
• 16:54
  Speaker 4: I'll take.
• 16:54
  Speaker 5: It from there.
• 16:55
  Speaker 4: So I don't you know, I want I want balance
• 16:57
  Speaker 4: in my life I've loved being CEO. It's a phenomenal company.
• 17:03
  Speaker 4: I'm so proud of my colleagues here the job that
• 17:06
  Speaker 4: they've done. This isn't a one person show. It's thousands
• 17:10
  Speaker 4: of people who are really talented doing the right thing,
• 17:13
  Speaker 4: and ultimately it's the values of the organization which is
• 17:16
  Speaker 4: what drives it. So that's what I'm most proud of
• 17:18
  Speaker 4: and for me personally, we'll find out.
• 17:22
  Speaker 3: James, thank you for your time, your first interview in
• 17:24
  Speaker 3: your new role. That's James Gorman, executive chairman now of
• 17:28
  Speaker 3: Morgan Stanley for Bloomberg Television and Radio.
• 17:32
  Speaker 8: You're listening to the team. Can's a live program Bloomberg
• 17:35
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg dot com,
• 17:39
  Speaker 8: the iHeartRadio app and the Bloomberg Business App, or listen
• 17:42
  Speaker 8: on demand wherever you get your podcasts.
• 17:46
  Speaker 2: One job I would not want is to be the
• 17:48
  Speaker 2: head of a college or university these days, or any
• 17:51
  Speaker 2: leadership position in an academic institution. It is I've seen
• 17:54
  Speaker 2: it firsthand serving on the board of Duke's Business School.
• 17:56
  Speaker 2: It is a tough job. And that's even before what's
• 17:58
  Speaker 2: happened over the last several weeks at Harvard and Penn
• 18:01
  Speaker 2: and some other places of higher education. So let's get
• 18:04
  Speaker 2: the latest there. Janet Lauren joined US higher education finance
• 18:07
  Speaker 2: reporter for Bloomberg New She's been on top of this
• 18:10
  Speaker 2: with some of the top reporting out there. So, Janet,
• 18:14
  Speaker 2: you know, we had the president of Penn step down.
• 18:16
  Speaker 2: Now Claudine Gay of Harvard has stepped down. The pressure
• 18:19
  Speaker 2: is just brutal here. The issues are visceral for a
• 18:22
  Speaker 2: lot of people. How is this going to play out?
• 18:25
  Speaker 7: Do you think, well, don't forget a couple of months
• 18:27
  Speaker 7: ago we had the president of Stanford Stone.
• 18:29
  Speaker 2: Oh that's right, yep.
• 18:30
  Speaker 7: So I guess the next focus is on the board
• 18:33
  Speaker 7: the Harvard Corporation.
• 18:35
  Speaker 6: It had been twelve members.
• 18:36
  Speaker 7: Now with Claudie Gay's resignation, it's eleven members.
• 18:40
  Speaker 6: There have been calls.
• 18:42
  Speaker 7: For them to step down, that they ran a very
• 18:44
  Speaker 7: flawed search, and why didn't they figure out what was
• 18:48
  Speaker 7: going on with her scholarship supposedly had been out there
• 18:50
  Speaker 7: for a while. And the question is will they continue
• 18:54
  Speaker 7: to serve Penny Pritzker, the former Commerce secretary, is the
• 18:58
  Speaker 7: chair of that board, and who's.
• 19:00
  Speaker 6: Going to want the job as president?
• 19:01
  Speaker 7: I mean, of course, it's the most prestigious in the
• 19:04
  Speaker 7: world academically, but as we were just talking about, it
• 19:07
  Speaker 7: comes with so many challenges, so many constituencies. And in
• 19:10
  Speaker 7: my story today, one of Vario esteemed professor Auvi Lobe,
• 19:14
  Speaker 7: talked about two extremely important things are raising money, which
• 19:18
  Speaker 7: we saw constrained, and dealing with Washington. You can't forget
• 19:23
  Speaker 7: that the federal government is one of Harvard and many
• 19:25
  Speaker 7: university's largest donors. Eleven percent of Harvard's revenue last year
• 19:30
  Speaker 7: came from the federal government. Yes, and that doesn't even
• 19:33
  Speaker 7: include federal student loans. Harvard is extremely generous with its
• 19:36
  Speaker 7: undergraduates for financial aid, but its graduate students, they borrowed
• 19:40
  Speaker 7: one hundred million dollars from the government last year. You know,
• 19:43
  Speaker 7: look at the price tag of Harvard Law School, Harvard
• 19:45
  Speaker 7: Business School, and you know, Harvard has to keep its
• 19:48
  Speaker 7: pristine reputation. If those students want jobs that are going
• 19:51
  Speaker 7: to pay to service that debt. It had never been
• 19:54
  Speaker 7: a consideration. No one would ever think of that before.
• 19:56
  Speaker 2: So is the underlying issue. I don't know how to
• 19:59
  Speaker 2: approach is the underlying issue for some observers of higher
• 20:03
  Speaker 2: education just the I guess the liberal bent of higher
• 20:07
  Speaker 2: education and administrations and leadership in higher education, which has
• 20:11
  Speaker 2: always been I guess an issue.
• 20:13
  Speaker 6: But is it just coming to the.
• 20:14
  Speaker 2: Ford now because of what we've seen at Penn and
• 20:18
  Speaker 2: Harvard and other places.
• 20:19
  Speaker 7: Well, I think in the last couple of years the
• 20:21
  Speaker 7: objective of DEI has been to be more inclusive, of course,
• 20:27
  Speaker 7: and critics of saying it's just gone way too far
• 20:30
  Speaker 7: looking at ideology, is.
• 20:32
  Speaker 6: That how decisions are made?
• 20:33
  Speaker 7: Are you?
• 20:34
  Speaker 6: Are you truly picking the best candidates?
• 20:36
  Speaker 7: And this really came to the forefront, especially after the
• 20:39
  Speaker 7: Hamas War on Israel, and you know Bill Lackman had
• 20:43
  Speaker 7: an extremely thoughtful post today. I'm looking at that. But
• 20:47
  Speaker 7: the question is where do you go from here? Especially
• 20:49
  Speaker 7: with these searches. As we were just talking about, there
• 20:52
  Speaker 7: the universities who are looking for new presidents. Harvard, Stanford, Penn, Yale,
• 20:58
  Speaker 7: They're longtime president has resigned, but don't forget Berkeley also
• 21:03
  Speaker 7: and u c l A. U CLA's president has been
• 21:05
  Speaker 7: the chancellor has been there for quite a long time,
• 21:07
  Speaker 7: so it's a it's a refresh and a lot of
• 21:10
  Speaker 7: these presidents are new in their job or had been.
• 21:14
  Speaker 7: Harvard and Penn because a whole host of presidents.
• 21:17
  Speaker 6: Retired after COVID.
• 21:19
  Speaker 7: You know, they just had this extremely difficult time and
• 21:22
  Speaker 7: and you know they had new leaders in and unfortunately
• 21:25
  Speaker 7: at not such a great time.
• 21:27
  Speaker 2: Bill Lackman today report Bloomberg's reporting. Bill Lackman says Harvard
• 21:31
  Speaker 2: board should go for protecting Claudeine Gay. I mean that
• 21:36
  Speaker 2: seems I don't know if it seems extreme, but it's
• 21:38
  Speaker 2: certainly a bold call for mister Ackman, which he was
• 21:42
  Speaker 2: very voice, very outspoken about that Claudeine Gay should step down.
• 21:46
  Speaker 7: Well, we saw right after Penn's president Liz McGill stepped
• 21:50
  Speaker 7: down the board chair, Scott Bach within within a few hours,
• 21:54
  Speaker 7: had stepped down himself.
• 21:56
  Speaker 2: All right, So I guess we could see something there. So,
• 21:58
  Speaker 2: I mean, and one of the things, you know, that
• 22:00
  Speaker 2: was surprising to me is Harvard announced that their I
• 22:03
  Speaker 2: guess applications were down, Yes, seventeen. That says something.
• 22:09
  Speaker 7: Yes, And you know it's not the anti semitism all
• 22:12
  Speaker 7: these videos that you'd seen. You know, we don't know
• 22:15
  Speaker 7: the full reason they didn't really tell us any anything.
• 22:18
  Speaker 7: It could have been for a lot of reasons. Remember,
• 22:21
  Speaker 7: this was the first application cycle since the Supreme Court
• 22:24
  Speaker 7: decision that eliminated race as a factor in applications. They had,
• 22:29
  Speaker 7: you know, more essays, but you know it's hard to tell,
• 22:32
  Speaker 7: but that for Harvard, which is always encouraging people to apply,
• 22:36
  Speaker 7: you know, we wrote about this many years ago. They're
• 22:38
  Speaker 7: always mailing letters to encourage kids to apply. You know,
• 22:42
  Speaker 7: it was quite shocking for them because everybody else seemed
• 22:45
  Speaker 7: to be up.
• 22:46
  Speaker 2: I tell you this what a time to be a
• 22:48
  Speaker 2: higher education reporter because it really feels like this is
• 22:52
  Speaker 2: a seminal moment in higher education in this country. It
• 22:56
  Speaker 2: is that the feeling from your sources, or is this
• 22:59
  Speaker 2: something that's just news cycle that will kind of blow over.
• 23:02
  Speaker 7: No, I don't think anybody would have ever expected this.
• 23:04
  Speaker 7: You know, you talk about Harvard's president, you know, the
• 23:08
  Speaker 7: shortest tenure in its four hundred plus year history, and
• 23:12
  Speaker 7: you know, you've got to think that there's been a
• 23:13
  Speaker 7: lot of tumultuous situations at that place for so many years.
• 23:19
  Speaker 6: But yeah, it is.
• 23:20
  Speaker 7: You know, we're not even talking about student loans too.
• 23:23
  Speaker 7: You know, we have an issue there. You know we've
• 23:26
  Speaker 7: talked about before. Graduate school loans are about to overtake
• 23:30
  Speaker 7: you know, the annual distributions more than more than undergraduate loans,
• 23:34
  Speaker 7: and people are having trouble paying those off. So there's
• 23:37
  Speaker 7: just a tremendous amount of distrust of higher education these days.
• 23:40
  Speaker 2: And it's expensive, yeah, and it really is. And you
• 23:44
  Speaker 2: think about the stories that come out from higher education,
• 23:49
  Speaker 2: it's either a story about the high cost and you know,
• 23:54
  Speaker 2: just it's too expensive, the affordability or lack of affordability
• 23:57
  Speaker 2: of higher education, or it's a story about how well,
• 24:00
  Speaker 2: how big their endowments are, are huge gifts being made
• 24:02
  Speaker 2: to these schools. It's really an odd economic model that
• 24:06
  Speaker 2: just doesn't if you just want to look at it,
• 24:08
  Speaker 2: it doesn't make sense.
• 24:09
  Speaker 6: It doesn't.
• 24:09
  Speaker 7: And you know, we saw the movie Boys in the
• 24:11
  Speaker 7: Boat the other day, and you look at the University
• 24:14
  Speaker 7: of Washington and during the depression and what higher education
• 24:18
  Speaker 7: did for people, and it didn't cost a huge amount,
• 24:22
  Speaker 7: and it hadn't cost a huge amount until much recently.
• 24:25
  Speaker 7: You know, your state schools should be affordable for people
• 24:29
  Speaker 7: to go to to better themselves, and you know, there's
• 24:32
  Speaker 7: some really tough questions that need to be asked, and
• 24:35
  Speaker 7: the price keeps continuing to rise. And of course, if
• 24:38
  Speaker 7: you're at Harvard Yale Princeton, and your family is below
• 24:43
  Speaker 7: a certain income, it's going to be free for you.
• 24:45
  Speaker 7: But there's the middle that you know, we'll have to
• 24:48
  Speaker 7: pay for it or take out loans.
• 24:49
  Speaker 2: I mean, what is the thinking. Is there a consensus
• 24:52
  Speaker 2: thinking as to what the problem is about the affordability
• 24:56
  Speaker 2: or lack thereof of higher education because it's just the price.
• 25:00
  Speaker 2: It is a well exceeded inflation for so long that
• 25:03
  Speaker 2: it just to a financial person looking at it says
• 25:06
  Speaker 2: this economic model is wrong or it's it's not efficient.
• 25:10
  Speaker 7: My goodness, they've been saying this for twenty five years
• 25:13
  Speaker 7: and it just keeps going up.
• 25:14
  Speaker 6: And you have people who will pay it, they'll borrow
• 25:16
  Speaker 6: for it.
• 25:17
  Speaker 7: But I don't know at some point, you know, we've
• 25:19
  Speaker 7: seen a few small colleges that are closing.
• 25:22
  Speaker 8: Yep.
• 25:22
  Speaker 7: The pandemic money has gone. You know, there's a lot
• 25:25
  Speaker 7: of constraints, and you know we'll see the government. You know,
• 25:29
  Speaker 7: student loans are in entitlement yep.
• 25:32
  Speaker 2: So I mean, so as it relates going back to
• 25:34
  Speaker 2: you know, Harvard and pen and all these other jobs,
• 25:38
  Speaker 2: is there a thought as to who might go for
• 25:41
  Speaker 2: these jobs. It seems to me I can't imagine if
• 25:45
  Speaker 2: you're not somebody, if you're someone outside of academia, you
• 25:47
  Speaker 2: would not aspire to this and go through that kind
• 25:49
  Speaker 2: of rigor it. I would guess it would be the
• 25:53
  Speaker 2: dean of your you know, arts and sciences school would
• 25:56
  Speaker 2: just kind of slide up into the next level because
• 25:58
  Speaker 2: presumably they've been vetted to some degree.
• 26:00
  Speaker 7: Well that's what we would have thought at Harvard. Well,
• 26:02
  Speaker 7: if you look at Rick Levin was the president of
• 26:05
  Speaker 7: Yale for twenty years, and he so many of his
• 26:08
  Speaker 7: provosts went on to lead great universities.
• 26:13
  Speaker 5: M I t.
• 26:15
  Speaker 6: Just a whole bunch, and he was sort of like
• 26:19
  Speaker 6: the great trainer.
• 26:20
  Speaker 7: For university presidents. I don't know how much that is
• 26:24
  Speaker 7: existing today. The provost at Harvard is stepping in, but
• 26:29
  Speaker 7: I don't think we've seen a provost take that job
• 26:31
  Speaker 7: in quite a long time. But you know, there's still
• 26:34
  Speaker 7: quite prestigious jobs. But Harvard has almost a six billion
• 26:38
  Speaker 7: dollar budget. That's like a company, sure, and it's very complicated,
• 26:42
  Speaker 7: very varied sources of revenue. So you know, we'll see, Yeah,
• 26:47
  Speaker 7: people are going to be clamoring for all of these jobs.
• 26:49
  Speaker 2: Yeah, but it's I guess it's just to be a
• 26:51
  Speaker 2: question as when we'll follow you your report and going
• 26:53
  Speaker 2: forward about you know what this means for higher education
• 26:56
  Speaker 2: in general. Well, this caused itself to kind of really
• 26:59
  Speaker 2: look at itself again and think about its ideologies, its
• 27:02
  Speaker 2: economic model, all those things.
• 27:04
  Speaker 7: Well, but keep in mind that very few people go
• 27:06
  Speaker 7: to schools like Harvard, Yale, Princeton. You know, the vast
• 27:09
  Speaker 7: majority of people in this country go to large state
• 27:13
  Speaker 7: public schools.
• 27:14
  Speaker 2: Yep, yep. Two of my offspring did that as well,
• 27:17
  Speaker 2: so and that's a good value, good opportunity too, but
• 27:20
  Speaker 2: they have their challenges as well. Janet Lauren, thank you
• 27:22
  Speaker 2: so much for joining us. Janet Lauren and her daughter
• 27:25
  Speaker 2: joining us today.
• 27:26
  Speaker 8: You're listening to the tape Can's our live program, Bloomberg
• 27:30
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 27:33
  Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 27:37
  Speaker 8: You can also listen live on Amazon Alexa from our
• 27:39
  Speaker 8: flagship New York station, Just say Alexa play Bloomberg eleven thirty.
• 27:45
  Speaker 2: You know, over the last twenty five thirty years of my
• 27:47
  Speaker 2: career on Wall Street, one of the explosive areas, it's
• 27:50
  Speaker 2: just been a growth of hedge funds, alternative investments, and
• 27:53
  Speaker 2: the way to play that on the sell side is
• 27:54
  Speaker 2: through the prime brokerage business. It's a good business. It's
• 27:58
  Speaker 2: a profitable business, but just a risky business. And we've
• 28:01
  Speaker 2: seen some firms kind of pull back a little bit,
• 28:04
  Speaker 2: you know, based upon their risk profile. But if you're
• 28:06
  Speaker 2: in it and you're good, it's a good profit business.
• 28:09
  Speaker 2: Our next guest is certainly in that camp, Mark Alderadi.
• 28:12
  Speaker 2: He's a global head of prime services at Jeffrey's, one
• 28:14
  Speaker 2: of those firms that's really committed to that business. Mark,
• 28:17
  Speaker 2: thanks for joining us here in studio. Talk to us
• 28:20
  Speaker 2: about the prime brokerage business. How's it been over the
• 28:22
  Speaker 2: last two to three years on the street?
• 28:24
  Speaker 9: Sure, thanks, Paul, thanks for having me. So. The prime
• 28:26
  Speaker 9: brokerage business has really been one that's been expanding. There's
• 28:31
  Speaker 9: a lot of growth. It's kind of a necessary part
• 28:34
  Speaker 9: of the hedge fund or alternative business in terms of
• 28:37
  Speaker 9: offering up leverage, helping folks cover shorts, and then all
• 28:41
  Speaker 9: these sort of operational infrastructure that goes with it. You
• 28:44
  Speaker 9: could argue that the operational infrastructures kind of table stakes
• 28:47
  Speaker 9: have been normalized, but as you've seen how firms have
• 28:51
  Speaker 9: come out of this business. Others have been scaling back
• 28:53
  Speaker 9: a little bit, but some are going into it a
• 28:55
  Speaker 9: little bit more forcefully. It is a capital intensive business.
• 28:58
  Speaker 9: As you mentioned, there is a risk to it's effectively
• 29:00
  Speaker 9: a lending risk. So it's it's been good and it's been.
• 29:03
  Speaker 2: Growing now and you know, back in my day, as
• 29:06
  Speaker 2: it were, I mean, if I had two or three
• 29:08
  Speaker 2: good years trading bonds or stocks or currencies, I could
• 29:12
  Speaker 2: literally walk out the door, knock on your door or
• 29:14
  Speaker 2: some other prime broker and say, hey, raise me five
• 29:17
  Speaker 2: hundred million or a billion or two billion dollars and
• 29:18
  Speaker 2: I'd go hang my shingle out and take all the
• 29:21
  Speaker 2: trading profits. Does that even happen anymore?
• 29:23
  Speaker 5: So?
• 29:24
  Speaker 9: I think that would be an exception to the rule.
• 29:26
  Speaker 9: If you come from a very well pedigreed manager and
• 29:31
  Speaker 9: you spin out and you get backing from that manager,
• 29:34
  Speaker 9: it's a much more plausible outcome. But I think one
• 29:37
  Speaker 9: of the differences today is that we see these multi
• 29:39
  Speaker 9: manager platforms that really have come into their own in
• 29:42
  Speaker 9: the last you know, a few years. So if you
• 29:45
  Speaker 9: were going to spin out rather than go out on
• 29:47
  Speaker 9: your own, and may want to join one of these
• 29:48
  Speaker 9: platforms instead.
• 29:49
  Speaker 2: So that kind of goes to the consolidation of this industry.
• 29:52
  Speaker 2: It seems like, you know, the mom and pop the
• 29:56
  Speaker 2: standalone hedge fun person with two or three billion, those
• 29:58
  Speaker 2: were kind of a dinosaur's SEMs, like it's all Citadel Millennium.
• 30:02
  Speaker 2: You got to go into these big platforms and that's
• 30:04
  Speaker 2: not as fun though, is it.
• 30:06
  Speaker 6: Well.
• 30:06
  Speaker 9: I can't speak to the how much fun it is
• 30:09
  Speaker 9: or not, but I will say that it's an easier
• 30:11
  Speaker 9: entry if you want to not manage your own business,
• 30:14
  Speaker 9: but get closer to managing your own business. In other words,
• 30:18
  Speaker 9: it takes care of all the infrastructure needs, it takes
• 30:20
  Speaker 9: care of the capital raise, and you can focus on
• 30:22
  Speaker 9: probably what you do best, which is manage people's money.
• 30:25
  Speaker 2: You know, when I left the cell side late two
• 30:27
  Speaker 2: thousand and four, I had looked long and hard, because
• 30:29
  Speaker 2: that's what sellside analysts. You leave, you go to a
• 30:32
  Speaker 2: hedge fund long short equity. I based upon my analysis,
• 30:35
  Speaker 2: and I said, this game's played out long short equity,
• 30:38
  Speaker 2: there's no alpha left. It's plus it's a young person's game.
• 30:42
  Speaker 2: I don't know, but it's money still flocking into hedge funds.
• 30:45
  Speaker 2: Isn't it talk to us about kind of funds flows
• 30:46
  Speaker 2: over the last several years.
• 30:47
  Speaker 9: Yeah, I mean they've had ups and downs. Twenty three
• 30:51
  Speaker 9: wasn't the best year ever, but it was a good year.
• 30:53
  Speaker 9: What we've seen from our seat in our client base.
• 30:56
  Speaker 9: Half of that money went to funds that are a
• 30:58
  Speaker 9: little bit more established, meeting have been around five years plus.
• 31:02
  Speaker 9: About twenty five percent of the money went to folks
• 31:04
  Speaker 9: between three and five years, and then the other twenty
• 31:06
  Speaker 9: five percent went to the what you called merging manager space.
• 31:10
  Speaker 9: But I think there's a lot more specialists today. So
• 31:11
  Speaker 9: you're like a healthcare specialist, you're a TMT specialist, And
• 31:15
  Speaker 9: when the allocators are looking where to put their money,
• 31:17
  Speaker 9: they're making those decisions as to what market or what
• 31:20
  Speaker 9: segment of the market would make most sense for them.
• 31:22
  Speaker 2: So what are some of the where are some of
• 31:24
  Speaker 2: the money going these days?
• 31:27
  Speaker 9: Well, without getting into specific names, but strategies, Well, so
• 31:31
  Speaker 9: a lot's going in most of it, as you mentioned,
• 31:32
  Speaker 9: is going into these multi manager platforms. Okay, away from that, again,
• 31:36
  Speaker 9: our perspective may be a little bit different because we
• 31:38
  Speaker 9: do have you know, jeffres obviously has a large healthcare,
• 31:42
  Speaker 9: banking business, trading business. So we do have a fair
• 31:45
  Speaker 9: amount of healthcare funds on the platform and they've done
• 31:47
  Speaker 9: pretty well in terms of the capital raised this past year.
• 31:49
  Speaker 2: So I mean, what are the big funds now, Like,
• 31:52
  Speaker 2: what's Stevie Cohen doing? What are the you know, I
• 31:54
  Speaker 2: don't know the acribus are they raising money these days?
• 31:57
  Speaker 9: I think, well, everybody's trying to raise money everybodysry, and
• 32:01
  Speaker 9: they're successful out of it varying degrees. And I think
• 32:03
  Speaker 9: for some of the larger folks that you've mentioned, it's
• 32:07
  Speaker 9: more about product expansion. And I'm not talking about the
• 32:09
  Speaker 9: fun structure per se, but it's what markets are they
• 32:12
  Speaker 9: trading in, whether in the US, Europe, Asia, emerging markets.
• 32:16
  Speaker 9: You see a very sort of wide spectrum or diversification
• 32:21
  Speaker 9: across a lot of those, and they sort of push
• 32:23
  Speaker 9: and pull on the levers as market opportunities arise.
• 32:26
  Speaker 2: So what are the I know, some of the challenges
• 32:29
  Speaker 2: having spoken some folks in an industry, the whole regulation
• 32:33
  Speaker 2: reporting aspect for this business, it just seems to get
• 32:35
  Speaker 2: more and more complex every time. How do you guys
• 32:38
  Speaker 2: at a prime brokers, how do you try to deal
• 32:41
  Speaker 2: with that.
• 32:41
  Speaker 9: Yeah, to be honest, we try to alleviate or move
• 32:44
  Speaker 9: some of that burden from our clients and put it
• 32:46
  Speaker 9: on ourselves in terms of what we report how we report.
• 32:49
  Speaker 9: That's not going to be possible with everything going forward.
• 32:51
  Speaker 9: So I'll just give two examples. One is the look
• 32:54
  Speaker 9: to have potentially more transparency within the swap or synthetic
• 32:57
  Speaker 9: or delta one businesses, and some folks obviously don't love
• 33:01
  Speaker 9: that idea because they may be you know, doing it
• 33:04
  Speaker 9: for trading anonymity. And then two sort of this bazzle
• 33:07
  Speaker 9: endgame which terms may require folks to just post more capital,
• 33:11
  Speaker 9: mean the broken dealers to post more capital. So the
• 33:14
  Speaker 9: rules and the regulations are going to change the playing
• 33:16
  Speaker 9: field sort of going forward.
• 33:18
  Speaker 2: Where's hedge fund money come from generally into the space?
• 33:22
  Speaker 9: Yeah, I mean it's coming from family offices, it's coming
• 33:25
  Speaker 9: from fund to funds, it's coming from pensions and endowments.
• 33:28
  Speaker 9: And you know, I think we've seen recently where we've
• 33:31
  Speaker 9: been focus a little bit more has been on the
• 33:34
  Speaker 9: family office space. Sometimes they are willing to take a
• 33:38
  Speaker 9: little bit more risk in terms of going with an
• 33:41
  Speaker 9: unknown individual or somebody they feel that maybe more affligating
• 33:45
  Speaker 9: with somebody as they start up, as opposed to going
• 33:47
  Speaker 9: with one of the more household names. But it's sometimes
• 33:49
  Speaker 9: safer to go with the household name because everybody's in there.
• 33:52
  Speaker 2: So when you submitted your budget to your bosses this
• 33:54
  Speaker 2: year for twenty twenty four, what are some of the
• 33:55
  Speaker 2: growth drivers that you kind of laid out for them?
• 33:58
  Speaker 9: I mean, for us, we are looking to do more
• 34:00
  Speaker 9: in the synthetic and swap space. We are looking to
• 34:04
  Speaker 9: offer a little bit more across We're pretty solid in
• 34:07
  Speaker 9: the straight sort of equity space, but looking at a
• 34:10
  Speaker 9: little bit more within convertible bonds, a little bit more
• 34:13
  Speaker 9: within the fixed income space. So I think for us,
• 34:14
  Speaker 9: we're looking to broaden our product offering and so and
• 34:18
  Speaker 9: we've had good traction so forth.
• 34:20
  Speaker 2: So I mean, who are they? What's the competitive landscape
• 34:24
  Speaker 2: here of this prime business these days?
• 34:26
  Speaker 9: Yeah, listen, there are you know, there are five very
• 34:29
  Speaker 9: large prime brokers.
• 34:30
  Speaker 2: That's gold Morgan, Stanley. Ay, maybe I don't know.
• 34:33
  Speaker 9: No, you're right, I just don't want to say competitive name.
• 34:35
  Speaker 2: But sure, so the big, the big, the bulls are
• 34:38
  Speaker 2: all in there for the most part.
• 34:39
  Speaker 9: Yes, But what could potentially change is if the capital
• 34:42
  Speaker 9: requirements changed, they may be more impacted than somebody like ourselves,
• 34:46
  Speaker 9: And so I could see the landscape changing slightly over
• 34:49
  Speaker 9: the next couple of years, and maybe the product mix
• 34:51
  Speaker 9: and use of balance sheet and use of capital kind
• 34:53
  Speaker 9: of changing along with it.
• 34:54
  Speaker 2: Yeah, because that's yeah. I mean, you guys have to
• 34:57
  Speaker 2: deal with those regulatory risks as many as much as
• 35:00
  Speaker 2: any other industry. Mark Alderati, thanks so much for joining us.
• 35:03
  Speaker 2: Mark is a global head of prime services. For Jeffrey's
• 35:07
  Speaker 2: talking about the hedge fund business, they still get two
• 35:09
  Speaker 2: and twenty. Not everybody, not everybody, Okay, very good, because
• 35:12
  Speaker 2: I'm just like two and twenty for what am I getting?
• 35:14
  Speaker 2: I mean, you know, I saw some of the hedge
• 35:16
  Speaker 2: fund results for twenty twenty three. Get results reported today.
• 35:20
  Speaker 2: Kind of a low double digit, big deal.
• 35:22
  Speaker 8: You're listening to the tape. Can's our live program Bloomberg
• 35:26
  Speaker 8: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 35:29
  Speaker 8: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 35:33
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• 35:35
  Speaker 8: flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
• 35:42
  Speaker 2: The discussion of the day for me Media, Entertainment, fun stuff.
• 35:46
  Speaker 2: KEITHA ranganathen Joints As. She's a senior analyst covering media
• 35:50
  Speaker 2: for Bloomberg Intelligence. Joining us via Zoom from our Princeton,
• 35:53
  Speaker 2: New Jersey campus. Keith, Let's start with Disney here, the
• 35:57
  Speaker 2: activist investors and are kind of swirling around this company.
• 36:02
  Speaker 2: The pressure seems to be building on CEO Bob Iger
• 36:05
  Speaker 2: to write the ship to get the stock moving again.
• 36:09
  Speaker 2: What's going on at Disney?
• 36:11
  Speaker 6: Yeah, you're absolutely right, Paul.
• 36:12
  Speaker 10: I mean, the if you look at kind of Disney shares,
• 36:15
  Speaker 10: they're down about fifty five percent from their March twenty
• 36:17
  Speaker 10: twenty one highs. So obviously there's a lot that needs
• 36:20
  Speaker 10: to be done here. Having said that, though, I think
• 36:23
  Speaker 10: Bob Iger obviously recognizes what needs to be done. He
• 36:27
  Speaker 10: has kind of taken a lot of steps, whether it's
• 36:29
  Speaker 10: restoring the dividend, whether it's you know, kind of right
• 36:32
  Speaker 10: sizing content expenses, you know, coming up with, you know,
• 36:36
  Speaker 10: plans to reinvigorate streaming. They've had almost thirty percent streaming
• 36:40
  Speaker 10: pricing increases. They're looking to kind of get gained full
• 36:45
  Speaker 10: ownership of Hulu. So he's really juggling a lot of
• 36:48
  Speaker 10: different balls here, But you're absolutely right in terms of,
• 36:51
  Speaker 10: you know, the activist investors. They're obviously swirling around Disney.
• 36:55
  Speaker 10: But Eiger this morning at least, seems to be kind
• 36:58
  Speaker 10: of shoring up his defenses with news about you know,
• 37:01
  Speaker 10: this kind of strategic partnership with Value Act as well
• 37:06
  Speaker 10: as Blackwells, so they seem to be kind of getting some,
• 37:11
  Speaker 10: you know, support in their fight against Nelson Peals.
• 37:15
  Speaker 2: Is there anything? I mean, you look at the Walt
• 37:17
  Speaker 2: Disney Company and the cable networks led by ESPN, the
• 37:21
  Speaker 2: theme parks, the the film studios, all the studios they own,
• 37:25
  Speaker 2: all the brands they own. There's so many valuable assets
• 37:29
  Speaker 2: there that I guess if you do with some of
• 37:31
  Speaker 2: the parts, maybe you could say that the stock is undervalued.
• 37:34
  Speaker 2: And I'm sure the Disney's done that internally realistically. Do
• 37:37
  Speaker 2: you think there's any big deals that Bob can do
• 37:39
  Speaker 2: here to unlock value, whether it's sell ESPN or anything
• 37:43
  Speaker 2: like that.
• 37:45
  Speaker 10: So I think the one deal, and obviously this is
• 37:47
  Speaker 10: already ongoing, is they're looking to gain full ownership of Hulu,
• 37:51
  Speaker 10: and that's underway right now. So we were not really
• 37:53
  Speaker 10: sure what they're going to pay there. They obviously have
• 37:55
  Speaker 10: to pay a minimum of about nine billion dollars for
• 37:57
  Speaker 10: that thirty three percent stake of Comcast, but then whether
• 38:01
  Speaker 10: it'll go higher to about thirteen fourteen fifteen billion, nobody
• 38:03
  Speaker 10: really knows. In terms of other deals, I'm not really
• 38:06
  Speaker 10: sure they want to do anything very big. We do
• 38:09
  Speaker 10: know that they're looking to actually divest their India operations.
• 38:12
  Speaker 10: They're in the process of merging it with one of
• 38:14
  Speaker 10: the biggest Indian wireless operators, which is Reliance, to create
• 38:19
  Speaker 10: a huge media conglomerate there. So they're really looking to
• 38:22
  Speaker 10: kind of more trim and kind of streamline their operations.
• 38:27
  Speaker 10: So I'm not necessarily sure they're going to go out
• 38:29
  Speaker 10: and be more acquisitive in terms of ESPN. They have
• 38:33
  Speaker 10: clearly said that they're not looking to get rid of
• 38:36
  Speaker 10: the asset. They're looking more for some kind of a
• 38:37
  Speaker 10: strategic partnership. Not really sure whether that's going to be
• 38:40
  Speaker 10: a tech giant or whether that's going to be one
• 38:42
  Speaker 10: of the leagues. So that's a little bit of a
• 38:44
  Speaker 10: weight and watch. But I think the one thing that
• 38:46
  Speaker 10: the street is really looking for clarity on is what
• 38:48
  Speaker 10: they're going to do with their linear TV assets. We
• 38:50
  Speaker 10: know that last year Barb Biger had kind of floated
• 38:53
  Speaker 10: this whole idea that you know, he's not married to
• 38:56
  Speaker 10: the linear TV ecosystem. He doesn't mind getting rid of assets.
• 38:59
  Speaker 10: But the kind of walk that back a little bit.
• 39:01
  Speaker 10: So again there's a little bit of you know, uncertainty,
• 39:05
  Speaker 10: I guess with what happens with the linear TV assets, all.
• 39:08
  Speaker 2: Right, So that kind of goes to the next question,
• 39:10
  Speaker 2: which is kind of the streaming business, the pivot from
• 39:14
  Speaker 2: you know, broadcasting cable television channels over your cable system
• 39:17
  Speaker 2: to a streaming model. Netflix makes a lot of money
• 39:21
  Speaker 2: doing it, but nobody else really does. What are we
• 39:24
  Speaker 2: going to see in twenty twenty four with the streaming
• 39:26
  Speaker 2: business from the big media companies?
• 39:28
  Speaker 6: Yeah, absolutely right.
• 39:29
  Speaker 10: Nobody else other than Netflix right now is making money
• 39:32
  Speaker 10: in streaming. But the new mantra in streaming is is
• 39:35
  Speaker 10: less bad as good. So as long as all of
• 39:37
  Speaker 10: these companies have lower streaming losses, even that is being
• 39:41
  Speaker 10: viewed as a positive sign by investors. So in the
• 39:43
  Speaker 10: case of Disney, for instance, in twenty twenty two, they
• 39:46
  Speaker 10: had over four billion dollars that they lost in their
• 39:49
  Speaker 10: streaming business, they really kind of pared that down pretty
• 39:52
  Speaker 10: significantly in twenty twenty three to about two and a
• 39:54
  Speaker 10: half billion dollars. We think it could go down even further,
• 39:57
  Speaker 10: maybe just about seven to fifty million or eight hundred
• 39:59
  Speaker 10: mill and in twenty twenty four. So they are looking
• 40:02
  Speaker 10: to you know, all of these companies, Disney included, are
• 40:05
  Speaker 10: looking to break even on their streaming businesses. Of course,
• 40:08
  Speaker 10: it's going to be a very very long road for
• 40:10
  Speaker 10: them to kind of get to the profitability levels that
• 40:13
  Speaker 10: Netflix has achieved, because if you look at Netflix operating
• 40:15
  Speaker 10: margins right now in their streaming business, it's about twenty
• 40:19
  Speaker 10: two twenty three percent, and they're looking they're really on
• 40:21
  Speaker 10: a path to get to that thirty percent margin level.
• 40:24
  Speaker 2: Yeah, that's boy, that's kind of where the media companies
• 40:27
  Speaker 2: used to be back in the day. So another theme
• 40:30
  Speaker 2: for twenty twenty four, as I read your research and
• 40:33
  Speaker 2: see some others stuff out there on the street, is
• 40:35
  Speaker 2: maybe some M and A in this industry is his
• 40:38
  Speaker 2: industry maybe needs to consolidate because you know, the profitability
• 40:41
  Speaker 2: isn't what it used to be, and it's tough to
• 40:43
  Speaker 2: be a standalone company if you're not really big, like
• 40:46
  Speaker 2: a Disney like a Netflix. How do you think that
• 40:49
  Speaker 2: might play out.
• 40:51
  Speaker 10: Yeah, we've already seen a lot of rumblings, you know,
• 40:54
  Speaker 10: Paul to that effect. So we've had you know, just
• 40:56
  Speaker 10: like at the end of last year, we had this
• 40:58
  Speaker 10: whole news about maybe Warner Brothers, Discovery and Paramount kind
• 41:02
  Speaker 10: of coming together, and then that's sparking a huge discussion
• 41:05
  Speaker 10: about whether, you know, maybe comcasts should also be in
• 41:07
  Speaker 10: the fray for some of these assets. I think the
• 41:09
  Speaker 10: real problem, and I think that what the street is
• 41:11
  Speaker 10: having a real hard time kind of grappling with, is,
• 41:15
  Speaker 10: you know, the debt levels of some of these companies.
• 41:17
  Speaker 10: So if you kind of look at Warner Brothers and Paramount,
• 41:19
  Speaker 10: the reason that they probably will not like that deal
• 41:21
  Speaker 10: is one is, of course, you have very very heavy
• 41:23
  Speaker 10: linear TV exposure. And remember linear TV, of course isn't
• 41:26
  Speaker 10: secular decline because you're having about ten percent cord cutting
• 41:31
  Speaker 10: people canceling their PATV subscriptions. But again, if you look
• 41:34
  Speaker 10: at that Warner Brothers Discovery in Paramount combination, that's sixty
• 41:36
  Speaker 10: billion dollars in debt and nobody kind of really likes that. So,
• 41:42
  Speaker 10: you know, I don't really know how it's all kind
• 41:45
  Speaker 10: of going to shake out. Of course, I think M
• 41:47
  Speaker 10: and A is going to be the top hot topic
• 41:50
  Speaker 10: or the hottest topic for twenty twenty four, but not
• 41:52
  Speaker 10: really sure if any deal necessarily makes sense, just because
• 41:57
  Speaker 10: of that very very heavy linear TV exposure.
• 42:00
  Speaker 2: And for years, you know, media investors and analysts have
• 42:03
  Speaker 2: been wondering when and if a tech company, whether it's
• 42:07
  Speaker 2: an Amazon and Apple, somebody, a Google, somebody really big
• 42:10
  Speaker 2: with those limitless pockets, will come in and make a
• 42:13
  Speaker 2: big investment in the media and entertainment business. We really
• 42:15
  Speaker 2: haven't seen that too much here any reason I think
• 42:19
  Speaker 2: this year will be different.
• 42:20
  Speaker 10: I don't think so, Paul. I think, if at all,
• 42:22
  Speaker 10: it'll be even harder this year. I mean, this is
• 42:24
  Speaker 10: a presidential year. We're obviously going to see a lot
• 42:26
  Speaker 10: more of you know, the anti trust and a lot
• 42:29
  Speaker 10: more of you know, the regulatory concerns kind of resurfaced,
• 42:32
  Speaker 10: and I think any of these big tech giants are
• 42:34
  Speaker 10: going to be very very careful not to kind of
• 42:38
  Speaker 10: rub the regulators the wrong way, so it's very hard
• 42:41
  Speaker 10: for us to see them kind of make at least
• 42:43
  Speaker 10: any huge splashy acquisition.
• 42:46
  Speaker 2: The movie business. Are people going to the theaters Anymoregan
• 42:49
  Speaker 2: you said, how's that business kind of behaving now post pandemic.
• 42:52
  Speaker 10: Yeah, that's a great question. Actually we've seen you know,
• 42:54
  Speaker 10: obviously there was both this demand problem and the supply
• 42:57
  Speaker 10: problem that was kind of created by the pandemic. We've
• 43:00
  Speaker 10: actually seen the demand kind of come back pretty nicely,
• 43:04
  Speaker 10: I would say through twenty twenty three, just to kind
• 43:07
  Speaker 10: of put some numbers around it, we saw nine billion
• 43:09
  Speaker 10: dollars at the domestic box office.
• 43:11
  Speaker 6: That is still two.
• 43:12
  Speaker 10: Billion dollars shy of pre pandemic levels, but it's still
• 43:15
  Speaker 10: almost three hundred percent above you know, like twenty twenty
• 43:18
  Speaker 10: when kind of the movie business was completely shut down.
• 43:21
  Speaker 10: So we've kind of seen some resilience that said, you know,
• 43:25
  Speaker 10: we had another shock to the whole I think entertainment
• 43:28
  Speaker 10: world in twenty twenty three after the pandemic, which was
• 43:30
  Speaker 10: really the writer's strike as well as the actors strike,
• 43:33
  Speaker 10: and that is going to have some ramifications for the
• 43:36
  Speaker 10: box office in twenty twenty four because we've seen multiple movies,
• 43:39
  Speaker 10: multiple tent poles actually getting pushed out to twenty twenty five,
• 43:42
  Speaker 10: whether you know it's mission impossible, whether it's the new
• 43:45
  Speaker 10: Snow White movie, Captain America, the New you know, a
• 43:48
  Speaker 10: Spider Verse movie from Sony. All of these, you know,
• 43:51
  Speaker 10: will almost shave off about one to two billion dollars
• 43:54
  Speaker 10: of box office. So right now we're looking at a
• 43:56
  Speaker 10: much weaker kind of box office out for twenty twenty four.
• 44:01
  Speaker 2: All right, very good Keitha Ronganath, and thank you for
• 44:04
  Speaker 2: joining us as always with a breakdown what's happening in
• 44:06
  Speaker 2: the global media and entertainment space. Lots of big themes
• 44:09
  Speaker 2: here for that. So Githa rock anathen and senior Media
• 44:11
  Speaker 2: Anos Bloomberg Intelligence reporting from Princeton there with her research
• 44:16
  Speaker 2: and you can find that at Big for Bloomberg Intelligence
• 44:19
  Speaker 2: b I go in the terminal. We'll get you all
• 44:21
  Speaker 2: the Bloomberg Intelligence research. Some of the best equity credit
• 44:25
  Speaker 2: policy research for equities bond.
• 44:30
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• 44:34
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• 44:37
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• 44:41
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• 44:44
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• 44:47
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