Latest / Bloomberg Intelligence / BofA Shares Tumble After Fines, Weak Trading Drag Down Results

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BofA Shares Tumble After Fines, Weak Trading Drag Down Results · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts.
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  Speaker 3: Radio.
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  Speaker 4: News.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
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  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
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  Speaker 5: you get your podcasts or watch us live on YouTube.
• 0:24
  Speaker 6: Herman Chan is our senior analyst covering U.S. banks for
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  Speaker 6: Bloomberg Intelligence, and he is here with us now. And
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  Speaker 6: the price action for Bank of America, that $ 1. 2 billion
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  Speaker 6: penalty that came in, that just crossed last night, one
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  Speaker 6: day before the earnings report. Talk about bad timing.
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  Speaker 7: Yeah, yeah.
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  Speaker 2: I guess they were trying to get it into the
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  Speaker 2: third quarter numbers. So it was a 17 cent hit
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  Speaker 2: to earnings, $ 1. 2 billion related to regulatory fine, lax asset
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  Speaker 2: money laundering activity for Bank of America. So hopefully the
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  Speaker 2: bank can get this behind them, but there will be
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  Speaker 2: some repercussions in terms of remediation, hiring new personnel, making
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  Speaker 2: sure those compliance costs are in line to address the issues.
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  Speaker 8: Why are bank stocks down?
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  Speaker 9: It seems like they should be up with all these
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  Speaker 9: huge deals happening. Is it interest rates or what's going on?
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  Speaker 2: I think a lot of it has to do with
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  Speaker 2: the higher for a longer rate environment that we're in,
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  Speaker 2: expecting potentially more rate hikes over the next six to
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  Speaker 2: nine months. That could slow down the economic growth of
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  Speaker 2: the country and really drive potentially higher loan losses for
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  Speaker 2: the group. So credit quality concerns. Nothing is imminent, but
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  Speaker 2: bank investors are always looking around the corner for the
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  Speaker 2: next shoe to drop. So I think that's one of them.
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  Speaker 2: The other thing is that there's some questions on agentic
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  Speaker 2: risk and AI risk, given the fact that Muse really
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  Speaker 2: just took off from nowhere and really surprised a lot
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  Speaker 2: of folks. And there's some questions on if More customers
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  Speaker 2: adopt MUSE and similar agents. Does that mean that customers
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  Speaker 2: will use this for their personal finances and move their
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  Speaker 2: deposits much more quickly and increase the funding cost for
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  Speaker 2: the banks?
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  Speaker 6: So basically, they'll shop around to look for the best
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  Speaker 6: rate and then move their money out of, say, Bank
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  Speaker 6: of America to go somewhere else.
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  Speaker 2: So let's say your checking account is earning zero interest rate.
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  Speaker 2: You can move excess cash into a high-yield savings account,
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  Speaker 2: and that would be detrimental for a bank that's holding
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  Speaker 2: these checking accounts.
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  Speaker 6: Do we know if any of these big banks are
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  Speaker 6: partnering up with MUSE in any way to make sure
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  Speaker 6: that MUSE can work with them as opposed to work
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  Speaker 6: against them?
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  Speaker 1: Yeah, it's still early days.
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  Speaker 2: The banks are saying that there's always been rate-seeking behavior.
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  Speaker 2: And we're in sort of year two or three of
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  Speaker 2: this higher rate backdrop. You saw this last year where
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  Speaker 2: your wealthier asset management clients were already moving money out
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  Speaker 2: of their consumer checking accounts and into higher-yielding products. So
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  Speaker 2: that's nothing new over the horizon. And your typical checking
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  Speaker 2: account's only.
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  Speaker 8: Like $ 3, 000.
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  Speaker 2: To $ 5, 000 in size. So for your typical U.S. customer,
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  Speaker 2: probably won't move the needle that much.
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  Speaker 8: What might turn this around for banks?
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  Speaker 9: I mean, there are these big IPOs happening, lots of mergers,
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  Speaker 9: anything that is a silver lining?
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  Speaker 10: Yeah.
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  Speaker 2: Um, the other thing that slowed in the third quarter
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  Speaker 2: was fixed income trading. So that was a bit of
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  Speaker 2: a surprise for across the group, given the fact that
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  Speaker 2: we had the really steep run up in interest rates
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  Speaker 2: in the third quarter and less activity in, in September.
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  Speaker 2: So if we can get better trading results, um, in
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  Speaker 2: the fourth quarter, which is typically seasonally soft, given the
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  Speaker 2: holiday months, um, that, that could turn things around. Um,
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  Speaker 2: re-engagement in IPOs that some of them have been delayed.
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  Speaker 2: And if we have a more open capital markets backdrop,
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  Speaker 2: that could increase some confidence that the backlog can be
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  Speaker 2: realized for banks like Morgan Stanley, Goldman, and JP Morgan.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 4:20
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 4:23
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 4:26
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 4:31
  Speaker 6: Let's talk some Matrix or some Johnny Carson if you're
• 4:34
  Speaker 6: old school like John Tucker.
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  Speaker 7: Oh, bending spoon. Yeah, I have to go back to
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  Speaker 7: Johnny Carson. Remember that guy? What was his name? What
• 4:41
  Speaker 7: was his name again? He used to go on Carson.
• 4:44
  Speaker 7: and bends spoons with his mind power. And Carson set
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  Speaker 7: him up one day to show that he was a
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  Speaker 7: complete fraud. But then there was the movie.
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  Speaker 1: Well, the idea of bending spoons stuck.
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  Speaker 8: He wasn't really bending spoons with his mind.
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  Speaker 6: We just thought we saw it.
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  Speaker 4: Yeah.
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  Speaker 6: Well, I don't know if we thought we saw this
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  Speaker 6: taking place either. Berkshire Hathaway, investing... an additional $ 330 million
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  Speaker 6: in the company bending spoons. So we want to bring
• 5:13
  Speaker 6: in Matthew Palazzola. He is our senior analyst on PNC Insurance,
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  Speaker 6: which means he covers Berkshire Hathaway in his area of
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  Speaker 6: coverage to talk a little bit more. So whenever a
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  Speaker 6: company gets the endorsement of Warren Buffett, the shares surge.
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  Speaker 6: And this is kind of what happened here with Bending Spoons,
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  Speaker 6: the stock rising as much as 55%.
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  Speaker 10: Yeah, so we definitely do not know if Warren Buffett's
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  Speaker 10: behind it. He probably isn't, to be honest. It's Warren
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  Speaker 10: Buffett's Berkshire Hathaway, so in a way he is. But
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  Speaker 10: I was walking back from a meeting and I start
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  Speaker 10: getting instant messages about Matrix references. I said, what is
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  Speaker 10: going on? And yeah, it finds out that they invested
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  Speaker 10: in the IPO of this company in July, which I'm
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  Speaker 10: almost positive was not public news. I did not know
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  Speaker 10: about that. So they did, I think it was like
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  Speaker 10: $ 300 million in the IPO. They do 13Fs, but those
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  Speaker 10: are only U.S.
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  Speaker 7: Companies.
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  Speaker 10: And this is an Italian company. So it didn't show
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  Speaker 10: up on any of those filings. And $ 300 million for
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  Speaker 10: them is a small number. So they invested in the
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  Speaker 10: IPO and they just did another $ 600, which brings them
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  Speaker 10: to about 4% of the company.
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  Speaker 9: So this is, so this is like, as you said,
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  Speaker 9: an Italian company, what do they do and why, why
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  Speaker 9: do you think Berkshire is.
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  Speaker 8: So interested in them?
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  Speaker 10: So, uh, as Scarlett said, I'm the, I'm the insurance guy.
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  Speaker 10: So I'm not an expert on, in spoons or technology, but, um, it's,
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  Speaker 10: it doesn't scream to me like, you know, you hear
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  Speaker 10: Berkshire buying in like tech IDO. Like it's not, I
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  Speaker 10: don't think it's exactly that they buy other companies and
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  Speaker 10: and I guess rehabilitate them and work on the brand.
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  Speaker 10: So those companies are tech companies. Has good bones.
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  Speaker 4: Yeah.
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  Speaker 10: So I think it's not exactly like they're a startup.
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  Speaker 10: They're buying other companies.
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  Speaker 6: So Bending Spoons is kind of like a Berkshire, but
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  Speaker 6: focused on tech companies in a way.
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  Speaker 10: Probably a little bit of a stretch. I mean, maybe
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  Speaker 10: they're like a repair. No one's a Berkshire, right? So
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  Speaker 10: I wouldn't want to go that far.
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  Speaker 1: Okay, that's true. That's true.
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  Speaker 2: Okay.
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  Speaker 8: I do like the idea of Berkshire buying Berkshire.
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  Speaker 1: But it's buying a company that holds a bunch of
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  Speaker 1: other companies.
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  Speaker 2: Right.
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  Speaker 10: It's not like a tech startup. It's buying a company that,
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  Speaker 10: I guess, but they buy them to specifically improve them
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  Speaker 10: or work on them. Where Berkshire kind of will buy
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  Speaker 10: a company because it's a great company and they want
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  Speaker 10: to own it.
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  Speaker 1: So it's a little bit private equity-ish.
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  Speaker 4: Yeah, it is.
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  Speaker 6: OK, so is this kind of consistent with Berkshire's approach
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  Speaker 6: to investments overall or does this mark a change?
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  Speaker 10: It seems a little new to me. I mean, you know,
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  Speaker 10: we have Greg Abel as a CEO. We don't know
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  Speaker 10: if he did it. It could have been Ted Welcher,
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  Speaker 10: who's an investment deputy. It could have even been Warren Buffett.
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  Speaker 10: He's still he is officially retired, but he is chairman now. Emeritus,
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  Speaker 10: and he's still talking to Abel. So he could have
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  Speaker 10: been involved. They did buy into the Snowflake IPO in 2020.
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  Speaker 10: They subsequently sold all those shares in 2024. And I
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  Speaker 10: think their investment in Snowflake was around $ 700 million. So
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  Speaker 10: this isn't completely unprecedented, but definitely a departure from their
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  Speaker 10: normal playbook.
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  Speaker 1: So.
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  Speaker 8: Buffett stepped down. I just looked this up earlier this year.
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  Speaker 8: But as you said, he's still sort of in the zeitgeist.
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  Speaker 1: Yes, he looms.
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  Speaker 8: He's not totally gone.
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  Speaker 9: Does this mark a departure for Berkshire, or is this
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  Speaker 9: like a different kind of company? Is this sort of
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  Speaker 9: marking a new era for them, or is this very
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  Speaker 9: much along the lines of... Does this make sense to
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  Speaker 9: you when you look at.
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  Speaker 10: The other things? Yeah, I think... Like I was saying
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  Speaker 10: on the first read, I was like, oh, kind of
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  Speaker 10: didn't really make sense. But to read more a little
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  Speaker 10: bit about Bending Spoons and... the company that they are
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  Speaker 10: probably follows, falls more into their playbook, but definitely a
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  Speaker 10: departure from, from the type of companies they've been invested in. Uh,
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  Speaker 10: they've been looking at, uh, they've traded in and out
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  Speaker 10: of companies and more, although I don't think you'd want
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  Speaker 10: to buy this at the IPO and like kind of
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  Speaker 10: trade out of it, but they've done a little bit
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  Speaker 10: more of that over maybe call it the past five
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  Speaker 10: years in small positions.
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  Speaker 5: Okay.
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  Speaker 6: So, um, Berkshire, obviously not just making an investment in
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  Speaker 6: bending spoons, it's also done other things. It's, um, increased
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  Speaker 6: its stake in Lennar, which is a traditional home builder.
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  Speaker 6: I mean, it feels like they're, they're straying away a
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  Speaker 6: little bit from their focus on industrial companies.
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  Speaker 1: Is that a fair assessment?
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  Speaker 10: A little bit. I mean, I think Greg Abel's really
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  Speaker 10: putting capital to work. I think some, when I talk
• 9:24
  Speaker 10: to clients, people say, well, what are they doing? Are
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  Speaker 10: they not, you know, they can't really move the needle.
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  Speaker 3: Indeed.
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  Speaker 10: They can't move the needle dramatically given how big the
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  Speaker 10: company is, but he's, he's making moves. He's buying back stock, uh, linear.
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  Speaker 10: They own, uh, Clayton Homes, which is a home builder.
• 9:44
  Speaker 10: They build the home and they bring it to you.
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  Speaker 10: So it's an off-site home builder.
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  Speaker 5: Oh, the prefabs, right?
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  Speaker 10: Yeah, a prefab. And then they bought Tyler Morrison, which
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  Speaker 10: was an on-site builder. And now they're increasing their stake
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  Speaker 10: in Lanier, which is another home builder. So it's not.
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  Speaker 10: Departure from some of their core businesses, but they have
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  Speaker 10: experience in the home building business. Greg Abel is long-term bullish.
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  Speaker 10: He acknowledges their cyclicality in the home builders, especially in
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  Speaker 10: those stocks, which is probably why they're buying them now.
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  Speaker 10: But long-term housing supply... shortage is a thesis for Berkshire.
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  Speaker 9: I feel like there's something like a Berkshire bump that
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  Speaker 9: Bending Spoons is experiencing. Is a Berkshire investment still what
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  Speaker 9: it used to be in terms of the Oracle of
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  Speaker 9: Omaha investing in your company and things.
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  Speaker 8: Like that, or is it different?
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  Speaker 10: I think so. I think so. Buffett's still there. It's
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  Speaker 10: the company of Buffett. Able is really carrying on the ethos.
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  Speaker 10: They've got more money, I don't know, than anybody, right?
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  Speaker 10: They've got $ 300 plus billion in cash, $ 300 billion in equities.
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  Speaker 10: So the capital behind it, having that kind of partner
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  Speaker 10: behind you, I think still carries a lot of weight.
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  Speaker 7: Okay.
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  Speaker 6: Well, for now, the market's certainly treating it that way,
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  Speaker 6: given how much bending spoons shares are surging in U.S.
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  Speaker 1: Trade.
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  Speaker 6: And of course, that's why everyone's always on the lookout
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  Speaker 6: for any kind of announcement that Berkshire Hathaway has deployed
• 11:13
  Speaker 6: a new position or increased its position or maybe sold
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  Speaker 6: its position. And that also triggers a bunch of copycat
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  Speaker 6: moves as well. All right, Matthew, thank you so much.
• 11:21
  Speaker 6: Matthew Palazzola of Bloomberg Intelligence. He's a senior analyst covering
• 11:25
  Speaker 6: PNC insurance. You're about to get really busy over the
• 11:27
  Speaker 6: next week, right?
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  Speaker 4: Indeed.
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  Speaker 10: We had earnings. We had the hurricane. We also had
• 11:31
  Speaker 10: progressive report earnings today. That's knocked down a lot.
• 11:34
  Speaker 6: Yeah.
• 11:35
  Speaker 10: I think market's probably underappreciating the fact that they are
• 11:38
  Speaker 10: gaining a ton of market share at attractive margins.
• 11:41
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 11:48
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 11:52
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 11:55
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 11:58
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 12:03
  Speaker 6: One of the headlines that we're paying attention to this
• 12:05
  Speaker 6: morning is Netflix. The company has not yet reported earnings.
• 12:08
  Speaker 6: I think that's in about a week or so, but
• 12:10
  Speaker 6: it is cutting staff. Six percent of its global staff,
• 12:13
  Speaker 6: that's about a thousand positions. So we want to get
• 12:16
  Speaker 6: the instant reaction and analysis from Geetha Ranganathan. She's our U.S.
• 12:21
  Speaker 6: media analyst who covers Netflix. And Geetha, this all kind
• 12:25
  Speaker 6: of gets at the idea that Netflix is a maturing
• 12:29
  Speaker 6: business now. It isn't seeing the kind of growth that
• 12:31
  Speaker 6: it once did.
• 12:33
  Speaker 4: Yeah, it didn't. And that's exactly, I mean, this job
• 12:36
  Speaker 4: cut exactly confirms those fears. So the last big job cut, Scarlett,
• 12:40
  Speaker 4: that we saw with this company was back in 2022.
• 12:44
  Speaker 4: And remember, that was the first time in their history
• 12:46
  Speaker 4: that they actually reported. subscriber loss. So people very much
• 12:51
  Speaker 4: kind of equate the job cuts with really the slowing
• 12:55
  Speaker 4: growth algorithm. We've definitely seen a deceleration across at least
• 12:59
  Speaker 4: the U.S. markets in terms of engagement. That has been
• 13:02
  Speaker 4: stoking a lot of kind of muted sentiment for the stock. But,
• 13:07
  Speaker 4: you know, there is obviously some positives, but you're absolutely
• 13:10
  Speaker 4: right in the sense that this is definitely a maturing
• 13:13
  Speaker 4: growth story and focus is shifting now away from subscribers
• 13:16
  Speaker 4: to really profitability. And this just goes to prove that.
• 13:20
  Speaker 9: Well, I would like to say for the record that
• 13:21
  Speaker 9: I have been doing my part to engage with Netflix.
• 13:26
  Speaker 9: One question I had, is this just that the space
• 13:28
  Speaker 9: is getting so much more competitive because there are so
• 13:31
  Speaker 9: many new services coming online and so much more competition
• 13:34
  Speaker 9: in streaming or is Is something else going on? Is
• 13:38
  Speaker 9: it just like the eyeballs are getting split?
• 13:42
  Speaker 4: Yeah, no, that's exactly what it is, Stacey. So it's not,
• 13:44
  Speaker 4: you know, it used to be, we used to call
• 13:46
  Speaker 4: it the streaming wars, right? So it used to be
• 13:49
  Speaker 4: Netflix against... you know, a Disney against an HBO Max,
• 13:52
  Speaker 4: but that's just no longer the case. Today, I mean,
• 13:55
  Speaker 4: if you just look at the, you know, zoom out
• 13:57
  Speaker 4: and kind of look at the whole ecosystem, Netflix is
• 13:59
  Speaker 4: not just competing with Disney and Amazon. It's competing with YouTube.
• 14:03
  Speaker 4: That's its biggest competitor. It's competing with other social media
• 14:06
  Speaker 4: platforms like an Instagram, you know, YouTube Shorts, and, you know,
• 14:13
  Speaker 4: gaming platforms. So really, I mean, the competition now is
• 14:16
  Speaker 4: definitely for eyeballs and it's... The universe, I would say,
• 14:21
  Speaker 4: has kind of really broadened for Netflix, and they're feeling
• 14:24
  Speaker 4: the pinch pretty, pretty strongly.
• 14:26
  Speaker 6: Yeah, I remember for earnings reports, Netflix would usually kind
• 14:30
  Speaker 6: of identify who they see as their biggest competition. At
• 14:32
  Speaker 6: one point, Reed Hastings had said sleep was a competition
• 14:36
  Speaker 6: to Netflix, and then YouTube was identified.
• 14:39
  Speaker 8: As the competition.
• 14:41
  Speaker 1: What is the market ticker for that? Exactly, ZZZZZ.
• 14:45
  Speaker 6: Does Netflix still do that, kind of identify who it
• 14:48
  Speaker 6: sees as its biggest foe, its biggest competitor?
• 14:52
  Speaker 4: Oh, absolutely. I mean, you're right. They used to identify
• 14:55
  Speaker 4: their peers. So pretty much, you know, the Amazons and
• 14:57
  Speaker 4: the Disneys of the world. But if you look at
• 14:59
  Speaker 4: all of their newsletters that come out with every earnings
• 15:02
  Speaker 4: report over the past so many quarters, every quarter in
• 15:07
  Speaker 4: and quarter out, they talk about YouTube, right? They talk
• 15:10
  Speaker 4: about them only having about 7% or 8% of total
• 15:15
  Speaker 4: US TV viewing time. And they kind of position it
• 15:17
  Speaker 4: as an opportunity. But the reality is that it hasn't
• 15:21
  Speaker 4: really budged now. They've stayed stagnant at that 8% to 9%.
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  Speaker 4: In fact, their share of total US TV viewing time
• 15:27
  Speaker 4: has been falling. And so that's what's really disconcerting, Scarlett,
• 15:30
  Speaker 4: for investors.
• 15:31
  Speaker 2: Yeah.
• 15:32
  Speaker 8: Are there any of the streaming services that are really
• 15:34
  Speaker 8: doing great?
• 15:35
  Speaker 9: Is it YouTube? Is anyone really dominating this business right now?
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  Speaker 4: I mean, Netflix still dominates, Stacey, when it comes to,
• 15:44
  Speaker 4: you know, obviously subscribers. They have close to almost maybe
• 15:46
  Speaker 4: about 340 million subscribers, although they have stopped reporting subscribers
• 15:52
  Speaker 4: on a quarterly basis. But they do kind of give
• 15:54
  Speaker 4: us milestones. So they're absolutely the giant when it comes to,
• 15:58
  Speaker 4: you know, streaming subscriptions. The market's focus, of course, has
• 16:02
  Speaker 4: shifted to profitability. And again, here, Netflix kind of leads, definitely.
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  Speaker 4: They do have, you know, strong profits, strong operating margin.
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  Speaker 4: But everybody is kind of trying to catch up to
• 16:12
  Speaker 4: them and everybody's clothes on Netflix's heels. You know, the
• 16:15
  Speaker 4: biggest competitor that we are now looking at is this
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  Speaker 4: newly formed Skydance, which is a combination of Paramount and
• 16:24
  Speaker 4: Warner Brothers Discovery. And it has roughly about... 220 million subscribers.
• 16:29
  Speaker 4: So obviously it is definitely going to be a formidable competitor.
• 16:33
  Speaker 4: We know David Ellison is not going to, you know,
• 16:38
  Speaker 4: spare it, you know, content costs. So yeah, definitely something
• 16:42
  Speaker 4: to watch out for.
• 16:44
  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 16:51
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 16:55
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 16:58
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 17:01
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 17:05
  Speaker 6: Apple and OpenAI are heading to court in high stakes
• 17:09
  Speaker 6: AI trade secret fight. They are in dispute over trade secrets,
• 17:16
  Speaker 6: and we want to get a better understanding of what's
• 17:17
  Speaker 6: at stake here. Tamlin Basin is Bloomberg Tech litigation analyst
• 17:22
  Speaker 6: joining us from London. Tamlin, can you just set the
• 17:25
  Speaker 6: scene for us here? What are they disputing over?
• 17:29
  Speaker 1: Yeah, sure.
• 17:30
  Speaker 3: So what they're really disputing over is trade secrets. But
• 17:33
  Speaker 3: these are specifically trade secrets tied to OpenAI's push into
• 17:38
  Speaker 3: creating hardware devices, hardware devices that will have AI incorporated
• 17:43
  Speaker 3: into them. And what Apple alleges is this goes back
• 17:46
  Speaker 3: to an acquisition OpenAI made about a year and a
• 17:50
  Speaker 3: half ago of a company called IO, which had been
• 17:54
  Speaker 3: started by former Apple executives. Apple argues that after this acquisition,
• 18:01
  Speaker 3: some OpenAI employers that came from I.O. then started poaching
• 18:06
  Speaker 3: Apple talent, Apple engineers. And in this process, they were
• 18:10
  Speaker 3: asking potential employees to bring Apple devices that had proprietary
• 18:15
  Speaker 3: data in them to interviews. So this is really what
• 18:19
  Speaker 3: this is about. Apple says this goes beyond talent mobility
• 18:22
  Speaker 3: and this goes directly towards trying to gain proprietary information
• 18:28
  Speaker 3: against the Federal Trade Secrets Act. So that's really the
• 18:31
  Speaker 3: broader stage for this dispute.
• 18:34
  Speaker 8: I mean, Apple has so much dominance in the world
• 18:37
  Speaker 8: of devices.
• 18:39
  Speaker 9: Are they facing potentially a threat? I mean, obviously this
• 18:42
  Speaker 9: is a legal situation, but I mean, do they see
• 18:46
  Speaker 9: companies like OpenAI as a threat in the device space?
• 18:50
  Speaker 3: Yeah, so I think it's important that Apple very rarely
• 18:53
  Speaker 3: exerts IP in cases like this. Sort of one of
• 18:56
  Speaker 3: the instances that stands out, which is really sort of
• 18:59
  Speaker 3: the exception that proves the rule, is when it went
• 19:02
  Speaker 3: after Samsung for patent infringement related to the design of
• 19:06
  Speaker 3: the Samsung phone. So I think when Apple does feel
• 19:09
  Speaker 3: that its proprietary data or designs have been infringed, then
• 19:13
  Speaker 3: it will aggressively go after the other company. And here,
• 19:16
  Speaker 3: AI and devices isn't necessarily a burgeoning market now. So
• 19:22
  Speaker 3: this is really about sort of first mover advantage. Apple
• 19:25
  Speaker 3: says that OpenAI essentially tried to get a shortcut to
• 19:28
  Speaker 3: get there, to get on the market by stealing its
• 19:32
  Speaker 3: proprietary information. So I think that's a way to look
• 19:34
  Speaker 3: at this, is this is about Apple trying to protect
• 19:36
  Speaker 3: its moat and trying to make sure that if OpenAI
• 19:39
  Speaker 3: comes out with any hardware products, that those don't incorporate
• 19:44
  Speaker 3: Apple's what it says are proprietary trade secrets in those.
• 19:48
  Speaker 3: So I think it's more about sort of moat protection
• 19:50
  Speaker 3: at this stage.
• 19:51
  Speaker 6: Is it also about bad blood? Because you mentioned IO,
• 19:53
  Speaker 6: that hardware startup. It was actually founded by Sir Johnny Ive,
• 19:57
  Speaker 6: who's the famous design chief for Apple, who worked hand
• 20:01
  Speaker 6: in hand with Steve Jobs to design the Apple, definitely
• 20:05
  Speaker 6: the Apple iPhone, and I want to say the Macintosh
• 20:07
  Speaker 6: even before then. I mean, he's kind of the brains
• 20:10
  Speaker 6: behind how things look and how it feels in your hand.
• 20:14
  Speaker 6: And of course, he stayed on at Apple after Steve
• 20:16
  Speaker 6: Jobs passed, but at some point he left the firm and,
• 20:20
  Speaker 6: you know, went over to start his own company and
• 20:23
  Speaker 6: then teamed up with OpenAI.
• 20:25
  Speaker 1: Is there, you know, just bad blood between Apple and
• 20:29
  Speaker 1: Johnny Ive?
• 20:30
  Speaker 3: Yeah, so it's interesting because the Apple complaint actually doesn't
• 20:33
  Speaker 3: really reference Johnny Ive at all. Despite this history he
• 20:37
  Speaker 3: has there, it really focuses on the other founders of I.O.
• 20:42
  Speaker 3: who say were more involved in sort of this acquisition
• 20:46
  Speaker 3: strategy to bring over Apple talent. and sort of try
• 20:51
  Speaker 3: to get them to take with them sort of proprietary data.
• 20:54
  Speaker 3: So Apple really goes to great lengths, I think, to
• 20:56
  Speaker 3: not talk up the Johnny Ive situation. And also when
• 20:59
  Speaker 3: they followed the suit, they said this doesn't actually impact
• 21:02
  Speaker 3: our existing relationship with OpenAI, of course, you can have
• 21:06
  Speaker 3: OpenAI on Apple devices, there is this ongoing relationship. And
• 21:11
  Speaker 3: they were clear to note that this lawsuit isn't going
• 21:14
  Speaker 3: to affect that. Of course, depending on how this goes,
• 21:17
  Speaker 3: there could be bad blood developing between the companies. But
• 21:21
  Speaker 3: I think at the outset, Apple was pretty cautious to
• 21:25
  Speaker 3: frame this as this is an isolated incident where we
• 21:28
  Speaker 3: think OpenAI has gone beyond the realm of legality in
• 21:31
  Speaker 3: terms of acquiring talent, and we want to draw a
• 21:35
  Speaker 3: line in the sand and make sure that a court
• 21:37
  Speaker 3: recognizes this as improper conduct.
• 21:41
  Speaker 8: Is this maybe a sign of things to come?
• 21:43
  Speaker 9: Are we expecting to see some of the big AI
• 21:48
  Speaker 9: companies getting into the device space and competing with Apple?
• 21:51
  Speaker 9: Because Apple seems to have stayed out of AI for
• 21:55
  Speaker 9: the most part.
• 21:56
  Speaker 1: Great question.
• 21:57
  Speaker 3: Yeah, yeah, and I think that's probably a good way
• 21:59
  Speaker 3: to look at that. I mean, on one hand, we've
• 22:02
  Speaker 3: already seen quite a bit of litigation just on the
• 22:05
  Speaker 3: sort of talent acquisition side. There's only a limited number
• 22:09
  Speaker 3: of really skilled engineers in this space, and there's quite
• 22:13
  Speaker 3: a bit of poaching going on in Silicon Valley, and
• 22:16
  Speaker 3: we've already seen some lawsuits accusing firms of sort of
• 22:20
  Speaker 3: bringing proprietary data over. I do think a next stage
• 22:23
  Speaker 3: could be on the hardware space, especially as we get
• 22:27
  Speaker 3: beyond trade secrets, probably into those hardware devices are going
• 22:30
  Speaker 3: to be more patented than we do see in the
• 22:33
  Speaker 3: sort of what we've seen today, where it's mostly a
• 22:36
  Speaker 3: copyright issue. I think once you get into proprietary patents,
• 22:41
  Speaker 3: we could see a wave of litigation taking place, you know,
• 22:44
  Speaker 3: over the next few years between these companies. That's sort
• 22:48
  Speaker 3: of been the way that these technology cycles have gone
• 22:51
  Speaker 3: in the past, and I wouldn't be surprised to see
• 22:53
  Speaker 3: it develop that way in the future.
• 22:54
  Speaker 1: Tamlyn, very quickly here.
• 22:56
  Speaker 6: So, the two will face off in court today. How
• 23:01
  Speaker 6: long do we think this will take, this hearing, this
• 23:03
  Speaker 6: whole trial? Is it going to go to trial, or
• 23:05
  Speaker 6: are they motivated to settle?
• 23:07
  Speaker 3: Well, so the hearing today is actually about Apple's request
• 23:10
  Speaker 3: for a preliminary injunction. Basically, it's asking the judge to
• 23:15
  Speaker 3: rule now before we test the merits of the case.
• 23:17
  Speaker 3: And it's really asking the judge to say, put a
• 23:19
  Speaker 3: stop to all this and to grant limited relief. I
• 23:23
  Speaker 3: think that's going to have a hearing in a few weeks.
• 23:26
  Speaker 3: If this goes to trial, it probably won't be until
• 23:28
  Speaker 3: late next year. I think a settlement could be highly
• 23:30
  Speaker 3: likely after this hearing.
• 23:31
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