Latest / Bloomberg Intelligence / BI Weekend: ASML Orders, US Bank Earnings

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BI Weekend: ASML Orders, US Bank Earnings · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Intelligence
0:12
Speaker 1: with Alex Steel and Paul Sweeney.
0:14
Speaker 2: The real app performance has been the US corporate high yield.
0:17
Speaker 3: Are the companies lean enough? Have they trimmed all the fats?
0:20
Speaker 2: The semiconductor business is a really cyclical business.
0:23
Speaker 1: Breaking market headlines and corporate news from across the globe.
0:27
Speaker 3: Do investors like the M and A that we've seen?
0:30
Speaker 2: These are two big time blue chip companies.
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Speaker 3: The window between the peak and cut changing super fast.
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Speaker 1: Bloomberg Intelligence with Alex Steel and Paul Sweeneye on Bloomberg Radio.
0:43
Speaker 4: I'm Paul Sweeney and I'm Noram Melinda filling in for
0:45
Speaker 4: Alex Steele.
0:46
Speaker 2: On Today's Bloomberg Intelligence Show. We dig inside the big
0:49
Speaker 2: business stories Impactney Wall Street and the global markets.
0:51
Speaker 4: Each and every week we provide in depth research and
0:54
Speaker 4: data on some of the two thousand companies and one
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Speaker 4: hundred and thirty industries are analysts cover worldwide.
1:00
Speaker 2: Today, we'll look at how the most volatile quarter since
1:02
Speaker 2: the heights of the pandemic has delivered a windfall to
1:04
Speaker 2: Wall Streets trading desk.
1:06
Speaker 4: Plus, we'll discuss how Volkswagon and Mercedes are being impacted
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Speaker 4: by electric vehicles in China.
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Speaker 2: But first we look at ASML, one of the world's
1:14
Speaker 2: leading suppliers for the semiconductor industry. ASML shares plunged the
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Speaker 2: most in twenty six years after the company reported weak
1:20
Speaker 2: orders last quarter for its chip making machines.
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Speaker 4: ASML also lowered its guidance for next year, and this
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Speaker 4: is now forcing investors to reevaluate the health of the
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Speaker 4: semiconductor industry.
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Speaker 2: For more on this, co host Alex Steele and I
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Speaker 2: were joined by Mandeep Sing, Bloomberg Intelligence senior tech industry analyst.
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Speaker 2: We first asked man Deep if this is a negative
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Speaker 2: sign for AI chip demand.
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Speaker 5: I mean, look, when it comes to ASML, again, everything
1:45
Speaker 5: is driven by CAPEX, and when I say CAPEX, it's
1:48
Speaker 5: really coming from the foundry guys like TSMC, like Samsung.
1:53
Speaker 5: We know Samsung had layoffs recently, so clearly they are
1:57
Speaker 5: not doing value well. But TSMC is so the fact
2:01
Speaker 5: that their buyers are so concentrated and the geopolitical tensions continue,
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Speaker 5: and you know the second half estimates the comps are tougher.
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Speaker 5: To me, this is just a sign of expectations kind
2:16
Speaker 5: of going up to the point where you will not
2:19
Speaker 5: see any positive revisions from the print this quarter. And
2:22
Speaker 5: that's what happened with Expectations had gone up and they
2:25
Speaker 5: didn't surprise to the upside, so we could expect the
2:28
Speaker 5: same from others.
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Speaker 2: The magnitude of the miss on the orders versus the
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Speaker 2: estimate seemed huge to me. Yes, that typical or not
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Speaker 2: to play. When they missed, they really miss well.
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Speaker 5: So's that comes down to how semis typically is when
2:43
Speaker 5: you go back to prior cycles. When these companies miss,
2:46
Speaker 5: they miss big. We have seen that with Micron, we
2:48
Speaker 5: have seen that with some of the other names. But
2:51
Speaker 5: in the case of a SML, the secular drivers are intact.
2:55
Speaker 5: When you think about, you know, every foundry looking to
2:58
Speaker 5: use their machines, looking to go to you know, smaller
3:01
Speaker 5: nodes TSMC so they are their largest customer. And when
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Speaker 5: you think about, you know, how well TSMC has done
3:08
Speaker 5: in terms of their AI revenue. I don't think they
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Speaker 5: are cutting back capex, but it's always about that incremental
3:15
Speaker 5: buyer when it comes to these semi companies, especially the
3:18
Speaker 5: ones that are reliant on CAPEX spend. And if you
3:21
Speaker 5: take China out of the equation or the fact that
3:24
Speaker 5: they are restricted in some way. Those are some of
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Speaker 5: your incremental buyers.
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Speaker 6: This is a really ignorant question. Where does in Nvidia
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Speaker 6: sit in this story that we're talking about.
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Speaker 5: Well, Nvidia is sort of the first derivative. So if
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Speaker 5: TSMC is not buying machines from ASML, that means they
3:41
Speaker 5: are not expanding their supply for you know, the latest
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Speaker 5: cost packaging and the foundry side in terms of manufacturing
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Speaker 5: Nvidia's chips. So TSMC determines what kind of capacity expansion
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Speaker 5: they're looking for for twenty twenty five and beyond, and
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Speaker 5: based on that they are placing an order for a
4:00
Speaker 5: SML equipment. So it is a very big sign. And
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Speaker 5: to your point about Intel being a buyer, well, Intel
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Speaker 5: is under pressure to curtail their capex as well, so
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Speaker 5: you're taking a lot of the incremental buyers out of
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Speaker 5: the equation even though there is no substitute for ASML.
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Speaker 5: So it's not as if ASML is losing market share
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Speaker 5: to anyone. It's just the incremental buyers are fewer compared
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Speaker 5: to where they were. You know, a couple of quarters back.
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Speaker 2: Okay, what I know about AI you can put into
4:27
Speaker 2: a shot class. So answer this question like, I'm a
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Speaker 2: five year old. Is this fundamentally change the AI story
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Speaker 2: for tech?
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Speaker 5: It doesn't. It's just that everyone is expecting some sort
4:39
Speaker 5: of digestion period when it comes to AI. We have
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Speaker 5: had you know, a long up to the right sort
4:45
Speaker 5: of scenario so far. When it comes to generative AI,
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Speaker 5: and everyone expects a pause at some point, their signs
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Speaker 5: are you know, in Vidia chip demand remains in say
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Speaker 5: siable despite the restrictions, but when it comes to you know, SEMIS,
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Speaker 5: the way it works is first your foundry guys are
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Speaker 5: gonna slow down their supply expansion. Then you know, and
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Speaker 5: video will see fewer beat and raises, and so there
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Speaker 5: is a derivative aspect to how it flows through. It
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Speaker 5: doesn't all happen in the same quarter, and to me
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Speaker 5: ESML missing is one of the first signs that you know,
5:21
Speaker 5: things may be cooling down a little bit. It may
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Speaker 5: not get reflected in Video's quarter this time around, but
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Speaker 5: two quarters down the line and Vidia could get effected.
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Speaker 6: Which then also reads the question like which customer is
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Speaker 6: the problem for ASML, like what are their customer lists
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Speaker 6: are calling them saying like, guys, look, we don't really
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Speaker 6: need the equipment, like we know it may not be TSMCS,
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Speaker 6: then is an Intel because that's more of an idiosyncratic
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Speaker 6: Intel issue rather than like a broader AI chip story issue.
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Speaker 5: Yeah, and Intel and Samsung, I mean, look, Samsung, we
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Speaker 5: know isn't doing very well on the manufacturing side. When
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Speaker 5: people talk about generative AI chips and GPUs, everyone is
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Speaker 5: going to MC as if there's only game in town.
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Speaker 5: Samsung isn't able to switch to that latest note for
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Speaker 5: you know, generative AI chips, and that's where we heard
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Speaker 5: Samsung doing a layoff. So clearly they are curtailing their costs.
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Speaker 5: Intel is curtailing their costs. So you take out two
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Speaker 5: of the top buyers of ASML gear and we know
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Speaker 5: they sell you know, multimillion dollar machines, So these are
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Speaker 5: expensive purchases. And it's not as if ASML is losing business,
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Speaker 5: it's just it won't get reflected in the next quarter
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Speaker 5: or you know, the couple of quarters.
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Speaker 4: Our thanks, saman Deep saying Bloomberg Intelligence senior tech industry analysts.
6:38
Speaker 2: Each week we look at research from Bloomberg and EF
6:41
Speaker 2: previously known as New Energy Finance.
6:43
Speaker 4: They're the team at Bloomberg that tracks and analyzes the
6:45
Speaker 4: energy transition from commodities to power, transport, industries, buildings, and
6:49
Speaker 4: agriculture sectors. This week, we take a look at how
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Speaker 4: corporations are on pace to purchase record clean energy in
6:55
Speaker 4: twenty twenty four.
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Speaker 2: For more on this, co host Alex Steele and I
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Speaker 2: were joined by Kyle prison bnef's head of sustainability research
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Speaker 2: first to ask Kyle to take a look at the
7:05
Speaker 2: kind of corporations that are signing green power purchase agreements.
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Speaker 7: So they're locking into long term contracts for typically solar windpower,
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Speaker 7: but we're now seeing them expand into other forms of
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Speaker 7: low carbon technology for example, like nuclear, like hydro and geothermal.
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Speaker 7: Big technology companies have really led in this space. So
7:23
Speaker 7: it's the companies like Amazon, Meta, Google, Microsoft, they're signing
7:28
Speaker 7: the most deals at a large scale. But we're seeing
7:30
Speaker 7: a lot of heavy emitting, hard to abate sectors getting
7:33
Speaker 7: into this space now, so materials companies, industrials, oil and
7:37
Speaker 7: gas companies. They're starting to break into new markets where
7:40
Speaker 7: big tech maybe doesn't have as big of a footprint,
7:42
Speaker 7: and they're starting to sign these long term, large scale
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Speaker 7: clean energy deals.
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Speaker 2: Where are the clean energy deals happening is it here
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Speaker 2: in the US, is it in Europe? Or where are
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Speaker 2: these things mostly happening?
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Speaker 7: Historically was the US, So between twenty fifteen and twenty
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Speaker 7: twenty two, around two thirds of all these corporate clean
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Speaker 7: up energy power purchase agreements were signed in the United States.
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Speaker 7: In twenty twenty three, that number drop to around forty
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Speaker 7: five percent. So corporations are increasingly spreading out and signing
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Speaker 7: deals in Europe, in Latin America and Southeast Asia, for example.
8:13
Speaker 7: In Asia in particular, you have a lot of demand
8:15
Speaker 7: for electricity from corporations and you have a huge supply
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Speaker 7: chain footprint, and historically those companies haven't been able to
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Speaker 7: buy clean energy. But through a lot of policy lobbying
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Speaker 7: and a lot of work on the ground with regulators,
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Speaker 7: you now have opportunities to buy clean energy. In Japan,
8:29
Speaker 7: South Korea, Vietnam's a new market, so there's a lot
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Speaker 7: of new, exciting expansion.
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Speaker 3: What's the price for these things and how do they
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Speaker 3: compare it to traditional energy?
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Speaker 7: So that's been one of the biggest drivers in the
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Speaker 7: growth of this market right. So through September of this year,
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Speaker 7: companies have announced over thirty one gigawatts of clean energy
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Speaker 7: through corporate power purchase agreements. That's the size of a
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Speaker 7: small country in a given year, and we're on record pace.
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Speaker 7: And the biggest reason for that is that sol earned
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Speaker 7: wind on a new build basis are now cheaper than
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Speaker 7: colon gas in many markets around the world. So as
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Speaker 7: a corporate buyer, I can undercut those prices for power
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Speaker 7: that I might be paying, for example, from a utility
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Speaker 7: or from the grid by locking into a long term,
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Speaker 7: fixed contract for renewables and for renewables.
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Speaker 2: Is this is the adoption of renewables or the growth
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Speaker 2: of the renewables market. Is that driven by the market
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Speaker 2: or by regulations governments saying you gotta do this?
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Speaker 7: What do we learn I mean to the last question,
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Speaker 7: it's really primarily driven by economics. But reliability is a
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Speaker 7: huge factor here. So big technology companies they're now going out,
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Speaker 7: they're building these data centers. You're seeing a big expansion
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Speaker 7: in manufacturing capacity. All of this requires the lights to
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Speaker 7: be on twenty four to seven, right, So you can't
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Speaker 7: afford to have a power outage or a grid failure.
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Speaker 7: So locking into one of these contracts for solar and wind,
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Speaker 7: that gives you more reliability. And again that expansion into
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Speaker 7: other forms of what we would call zero carbon base
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Speaker 7: load power that could generate twenty four to seven, like
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Speaker 7: nuclear and geothermal, that also kind of emphasizes that reliability.
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Speaker 7: So it's a combo of that along with sustainability.
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Speaker 6: And how do you think that this sort of partnership
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Speaker 6: and evolution happens. It's still going to be these long
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Speaker 6: term power purchase agreements or is it going to be
10:06
Speaker 6: like these hyper scalers And you know, maybe even like
10:09
Speaker 6: a sman industry or the hard to debate industry just
10:12
Speaker 6: sets up like their little small modular reactor right next
10:15
Speaker 6: to their facility, or a wind farm right next to
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Speaker 6: their facility. I mean, I'm being hyperbole, but you get
10:21
Speaker 6: the idea versus plugging into the grid for example.
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Speaker 7: You definitely need collaboration on the grid side, right, and
10:27
Speaker 7: the utility scale side of this market. Of course, there
10:30
Speaker 7: are opportunities to build a solar project or a wind
10:34
Speaker 7: farm on site and leverage energy storage to get that
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Speaker 7: power directly, but we need utilities, right, and we need
10:40
Speaker 7: grid planners to start collaborating with these corporate buyers to
10:44
Speaker 7: ensure that this grid scale up is done sustainably. If
10:46
Speaker 7: we start to build all these hyperscaler data centers in
10:49
Speaker 7: for example, the Data Center Corridor in the eastern US
10:52
Speaker 7: or in Texas. You need to ensure that there's enough
10:55
Speaker 7: transmission capacity to ensure that that power gets moved from
10:58
Speaker 7: A to B. Right, So that's to involve regulators, that
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Speaker 7: starts to involve utilities. So it really is kind of
11:03
Speaker 7: an approach that everyone needs to be involved in for
11:06
Speaker 7: this to be successful.
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Speaker 2: You know where they do wind farms in a big way, Ireland,
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Speaker 2: driving around tons of that.
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Speaker 7: A lot of data centers in Ireland as well, so
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Speaker 7: it's extra important there.
11:16
Speaker 2: Yeah, so they were ever there, just big ones as well,
11:19
Speaker 2: and it's windy there, so it works being an island
11:21
Speaker 2: and all talk to just about you mentioned nuclear energy.
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Speaker 2: What's the future of nuclear here in this country? Can
11:27
Speaker 2: we build these little nuclear plants that can do things
11:29
Speaker 2: and not pose a big risk.
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Speaker 7: So I, unfortunately I can't comment too much on nuclear
11:34
Speaker 7: We have an guy, we do have a nuclear guy.
11:37
Speaker 7: I'll leave it to him, but what I would say
11:40
Speaker 7: is right, there was a lot of noise around this
11:42
Speaker 7: announcement from Microsoft around through my island. Through my island
11:46
Speaker 7: is a name, right, that's a project that obviously evokes
11:48
Speaker 7: a lot of emotion, but we're going to see a
11:50
Speaker 7: lot of corporations continue to look for those deals with
11:53
Speaker 7: that zero carbon based load power. So we wrote about
11:56
Speaker 7: this the other week. This won't be the last nuclear
11:58
Speaker 7: deal from big tech, right You'll see more geothermal deals.
12:01
Speaker 7: So it's going to play a really important role here
12:04
Speaker 7: as a reliable source of power that's also low carbon.
12:07
Speaker 6: What region is signing the most of these clean PPAs
12:11
Speaker 6: right now?
12:11
Speaker 7: It's Texas and it's based purely on economics. So in
12:15
Speaker 7: for example, northern and western Texas, the price of power
12:18
Speaker 7: for wind is incredibly cheap and you have fantastic wind resources,
12:22
Speaker 7: so you have a lot of companies going out and
12:24
Speaker 7: signing deals there. But increasingly companies want to emphasize where
12:27
Speaker 7: can they make the biggest impact by adding clean power.
12:30
Speaker 7: If you already have all of this low carbon wind
12:33
Speaker 7: and solar generating in Texas, are you really making that
12:36
Speaker 7: much of a difference by adding another project there, for example,
12:39
Speaker 7: compared to the eastern US where you have more coal power,
12:42
Speaker 7: right where you can have a bigger impact on decarbonizing
12:44
Speaker 7: the grid. So what we're going to slowly start to
12:47
Speaker 7: see is more corporations expand that footprint, both to other
12:50
Speaker 7: parts of the United States outside of Texas, but other
12:53
Speaker 7: new regions in the world.
12:54
Speaker 2: Are thanks to Kyle Howrison, bnef's head of sustainability research.
12:57
Speaker 4: Coming up, we'll get how a slump in demand from
13:00
Speaker 4: is impacting the luxury goods maker LVMH.
13:03
Speaker 2: You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in
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Speaker 4: I'm Paul Swing and I'm Normalanda, filling in for Alex Steel.
13:38
Speaker 2: We move now to US bank earnings.
13:40
Speaker 4: The most fallat a quarter since the heights of the
13:42
Speaker 4: pandemic has delivered a windfall to wall streets trading desks
13:46
Speaker 4: last quarter.
13:46
Speaker 2: Goldman Sachs Bank of America City Group and JP Morgan
13:49
Speaker 2: Chase posted equities and fixed income trading halls that surpassed
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Speaker 2: analyst estimates.
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Speaker 4: This week, Morgan Stanley joined the party and reported better
13:56
Speaker 4: than expected trading revenue, fueling a thirty two percent profits
14:00
Speaker 4: last quarter. As a result, Morgan Stanley shares surged the
14:03
Speaker 4: most in four years.
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Speaker 2: For More, we were joined by Alison Williams, Bloomberg Intelligence,
14:07
Speaker 2: senior analysts for Global Banks. We first asked Allison to
14:10
Speaker 2: break down Morgan Stanley's quarterly results.
14:12
Speaker 8: I think the real number that's giving investors confidence in
14:15
Speaker 8: our opinion, you know, is the wealth flows.
14:18
Speaker 9: So we've had some uneven flows.
14:21
Speaker 8: Last quarter was was relatively weak, and I think o
14:24
Speaker 8: the rebound this quarter maybe instilling a little bit of confidence.
14:28
Speaker 8: As you know, they are strong institutionally, but they have
14:33
Speaker 8: shifted their business over time to this, uh more towards
14:37
Speaker 8: the wealth business. Gorman had sort of put some aggressive
14:40
Speaker 8: targets out there before handing over the rains its head
14:43
Speaker 8: pick and so and so to be clear, they really,
14:48
Speaker 8: you know, beat the numbers across the board. It was
14:51
Speaker 8: led by the institutional business, the equities trading business, in
14:54
Speaker 8: which they're relatively more skewed did very well, partly because
14:59
Speaker 8: they are skewed that business, and they did outperform. They
15:02
Speaker 8: had the best growth in trading and fees across the
15:06
Speaker 8: big six US bank so upset across the board, benefiting
15:10
Speaker 8: from their mix, benefiting from their performance. But the wealth
15:13
Speaker 8: flows are really what the focus is for investors also
15:16
Speaker 8: because stocks are aiding their asset values, aiding fees and
15:22
Speaker 8: so that pre tax margin in the business. The other
15:26
Speaker 8: key metrics also doing better.
15:28
Speaker 3: Alison, how much can we expect the wealth assets to
15:31
Speaker 3: keep growing?
15:32
Speaker 8: So, you know, that is the multiple trillion dollar question.
15:36
Speaker 8: That is one of the aggressive targets that was put
15:40
Speaker 8: out there was to you know, sort of aggressively grow
15:43
Speaker 8: this assets, and it did seem like there were some
15:46
Speaker 8: pretty healthy market gains priced in. So the markets are
15:50
Speaker 8: delivering on those gains certainly this year, and the flows
15:55
Speaker 8: are also helping. But you know, we would want to
15:59
Speaker 8: see a couple more quarters of evidence that you know,
16:03
Speaker 8: they've really built the momentum there. We would expect Morgan's
16:07
Speaker 8: family to have a strong quarter in wealth this quarter,
16:12
Speaker 8: just where stocks are. I mean, the global market cap
16:17
Speaker 8: reached a record high, according to Bloomberg data at the
16:20
Speaker 8: end of the third quarter, and I would keep in
16:22
Speaker 8: mind that the pricing of those wealth fees really relates
16:27
Speaker 8: to the beginning of quarter value.
16:29
Speaker 9: So that's helpful for the bank for the fourth quarter
16:32
Speaker 9: as well.
16:33
Speaker 8: But you know, to your question, outs, when we're thinking
16:36
Speaker 8: about the overall franchise and we're thinking about the growth,
16:39
Speaker 8: we should keep in mind that there is a big
16:42
Speaker 8: talent to the business this year from markets, and to
16:45
Speaker 8: some extent, the future growth is sowhat dependent on that.
16:50
Speaker 2: It just seems Allison, as I kind of read your
16:52
Speaker 2: research and yeah, I know you guys have break data
16:55
Speaker 2: on market share across all business lines, it just seems
16:58
Speaker 2: like we're going to Stanley, Golden, Sachs, Morgan, they're just
17:01
Speaker 2: kind of running away from everybody else on the planet.
17:04
Speaker 2: I mean, is that in fact the case.
17:06
Speaker 9: They have been?
17:08
Speaker 8: And you know, whenever we expect you know that like, okay,
17:11
Speaker 8: who's gonna who's left that can you know, blow up
17:15
Speaker 8: that's a technical term, if you will, and see some
17:19
Speaker 8: more share to these banks who are kind of running
17:21
Speaker 8: out of names. But if you think about, for example,
17:24
Speaker 8: what's happening in prime brokerage, right, so a lot of
17:29
Speaker 8: these larger institutional hedge funds that have you know, sort
17:36
Speaker 8: of these multipod shops, et cetera. To the extent that
17:38
Speaker 8: those bigger firms are gaining assets and doing better, that's
17:43
Speaker 8: benefiting you know, the leaders Morgan, Stanley Goldman and JP Morgan,
17:48
Speaker 8: and so as as the bigger clients get bigger, that's
17:51
Speaker 8: helping those firms as well. Within the trading business. The
17:55
Speaker 8: other thing I would point to is, you know, the
17:57
Speaker 8: investments in technology. These companies made the investments in technology,
18:02
Speaker 8: and that's also helping them to win share in the
18:05
Speaker 8: trading businesses.
18:06
Speaker 6: I'm gonna steal Paul's comment slash question saying what does
18:09
Speaker 6: this all mean about the European banks And are the
18:12
Speaker 6: US banks eating their lunch or is the lunch being
18:14
Speaker 6: spread around?
18:15
Speaker 9: So I think for this quarter, the pie is getting bigger.
18:20
Speaker 8: So you know, in terms of whether eating lunch or pie,
18:24
Speaker 8: you know, the US banks have been gaining share against
18:27
Speaker 8: the Europeans for many many years. We think that does continue,
18:32
Speaker 8: but we think the pie is also bigger this quarter.
18:35
Speaker 8: And what we heard specifically was, you know, for example,
18:38
Speaker 8: JP Morgan strength across regions, and what we heard from
18:42
Speaker 8: these banks was strength across derivatives, prime and cash equity,
18:46
Speaker 8: so it is really broad based. The other thing that
18:49
Speaker 8: we think is notable for UBS in particular is the
18:53
Speaker 8: strength in Asia. So not surprisingly we saw a pickup
18:57
Speaker 8: in activity in Asia that really benefited the banks, specifically
19:01
Speaker 8: called out by JP Morgan and Morgan Stanley.
19:03
Speaker 9: We think that that is really going to be a
19:05
Speaker 9: help to UBS.
19:07
Speaker 2: So how about on the cost side, Alison, was there
19:10
Speaker 2: any discussion about compensation? I feel like that's been less
19:12
Speaker 2: of a discussion point is. I guess Wall Street compensation
19:15
Speaker 2: has become a little skewed, a little bit more towards
19:17
Speaker 2: the fixed and a little bit less on the variable.
19:19
Speaker 9: Yeah, so there's that element of it.
19:21
Speaker 10: Paul.
19:22
Speaker 9: You know, the two things I would point to is
19:24
Speaker 9: keep in mind compensation.
19:25
Speaker 8: Is a cruel din a cruel through the first three quarters,
19:28
Speaker 8: so to some extent it represents the business trends, and
19:32
Speaker 8: to some extent it represents how they think the full
19:34
Speaker 8: year we'll shake out. Secondly, you know, compensation for the
19:40
Speaker 8: investment banking fee side of things sort of was stickier
19:44
Speaker 8: than we would have expected on the downside, and I
19:46
Speaker 8: think that's because there was such a scramble to Higher
19:49
Speaker 8: Town in twenty twenty one. So and investment banks have
19:53
Speaker 8: been talking about a recovery in that fee business for
19:57
Speaker 8: several quarters now, and so I think they that COMP
20:01
Speaker 8: didn't come down as much, So there might not be
20:03
Speaker 8: as much of a search to the upside. But if
20:06
Speaker 8: we looked at costs, if we looked at COMP, you know,
20:09
Speaker 8: in general the profitability was good just because the upside
20:12
Speaker 8: to revenue was so much. Now, is that because the
20:15
Speaker 8: investors banks are keeping conservative and going to see how
20:18
Speaker 8: the fourth quarter shakes out in terms of the accrual basis?
20:23
Speaker 8: Is part of it because of the stickiness as I mentioned,
20:26
Speaker 8: But you did see COMP coming in sort of above estimates,
20:31
Speaker 8: just not as much as the revenue upside.
20:33
Speaker 4: Our thanks to Allison Williams, Bloomberg Intelligence, Senior Analyst, Global
20:37
Speaker 4: Banks and Asset Managers.
20:38
Speaker 2: We move next to earnings from the luxury goods maker LVMH.
20:42
Speaker 4: This week, shares of LVMH plunged for the company reported
20:45
Speaker 4: that sales of fashion and leather goods fell for the
20:47
Speaker 4: first time since the pandemic. The company cited a slump
20:50
Speaker 4: in demand from once insatiable Chinese consumers.
20:53
Speaker 2: For more on this co host Alex Steel and I
20:55
Speaker 2: were joined by Deborah Aik and Bloomberg Intelligence Luxury goods
20:58
Speaker 2: analysts were first asked to break down LVMH.
21:01
Speaker 11: Earnings quite a mixed bag, but yeah, generally across the
21:05
Speaker 11: board are a little bit of a shock in the
21:08
Speaker 11: Q three to everyone, and we felt it would really
21:10
Speaker 11: ripple through the industry with their organic sales down three
21:14
Speaker 11: percent in the Q three and that was all when
21:17
Speaker 11: we went reagion by region. This a small amount of
21:20
Speaker 11: growth in Europe and in North America, but we have
21:25
Speaker 11: decline in sales in China down mid single digit. And
21:29
Speaker 11: what that does overall for nine month, it moves organic
21:32
Speaker 11: sales grow flat year on year. So it's not about pricing,
21:37
Speaker 11: it's about product volume is down around five percent, price
21:40
Speaker 11: and mixer up slightly.
21:42
Speaker 2: So I know, just from talking to you over the
21:44
Speaker 2: year's deb and reading your research, China is really key
21:47
Speaker 2: for this luxury market. What's happening there? Is it just
21:51
Speaker 2: simply reflection of a you know, a tough economic environment there,
21:54
Speaker 2: particularly for the consumer.
21:56
Speaker 11: Yeah, I think if we look at consumer sentiment, it's
21:59
Speaker 11: back to COVID twenty nineteen, twenty twenty lows, it's that bad,
22:06
Speaker 11: and we waited for the financial stimulus package. Boomberg had
22:12
Speaker 11: popped out a consensus seeking two hundred and eighty three
22:15
Speaker 11: billion in terms of stimulus package into the marketplace. And
22:19
Speaker 11: while they talked about supporting housing, residential housing and other
22:25
Speaker 11: back in local government spreadsheets doing a lot more for
22:29
Speaker 11: real estate, they just aren't any numbers yet in the marketplace.
22:32
Speaker 11: And then through October overall the beginning of October, we've
22:36
Speaker 11: had Golden Week and that's been really contrasted money spent
22:39
Speaker 11: on experiences on food. In Shanghai, there have been vouchers
22:44
Speaker 11: going out in the lower income areas in about one
22:47
Speaker 11: in ten or ten percent of money coming in has
22:50
Speaker 11: been via voucher for meals over that period of time,
22:53
Speaker 11: but there's just not as much going into the shopping baskets.
22:57
Speaker 2: How about the Great market I know that's always been
22:58
Speaker 2: a challenge for the luxury brands in China, well around
23:02
Speaker 2: the world, but particularly in China. Is that still a headwind?
23:07
Speaker 11: The companies won't really, you know, talk so deeply about that,
23:10
Speaker 11: but they do try as much as they can in
23:13
Speaker 11: terms of managing that marketplace. I think though a lot
23:17
Speaker 11: of the generation and what these companies are doing online
23:21
Speaker 11: and with newness. There are products even within the Louiston
23:25
Speaker 11: range like they're never full new style bag, which is reversible.
23:29
Speaker 11: Those types of products are doing very well, whether it's
23:32
Speaker 11: from an LVMH or another brand that's struggling, like Ferrogamo,
23:35
Speaker 11: some of its new brands coming out it also reported
23:39
Speaker 11: and you know some of the some of the products
23:41
Speaker 11: coming out there are doing very well and resonating with
23:43
Speaker 11: a younger generation. So they do want authenticity. They've just
23:47
Speaker 11: been very much more aware in that middle range and
23:50
Speaker 11: that are certainly feeding through on some of the portfolio
23:53
Speaker 11: within even within you know, they're very wide and deeper
23:58
Speaker 11: product range that Alvia mage As. I mean, they still
24:01
Speaker 11: did sixty billion, but when you look at their numbers
24:03
Speaker 11: and overall they were one billion off, that's how big
24:05
Speaker 11: they are.
24:06
Speaker 2: Okay, interesting, So if I'm a big you know these
24:08
Speaker 2: luxury brands, European and American luxury brands, what's my strategy
24:13
Speaker 2: in China? Do I just wait for the consumer to
24:15
Speaker 2: turn around? Do I maybe pursue some discounting that I
24:19
Speaker 2: historically would not do to move product?
24:21
Speaker 10: What's the strategy?
24:23
Speaker 11: I think neither of those. I think price is relatively
24:28
Speaker 11: flat after two three years of heightened inflation. Costs are
24:34
Speaker 11: under control generally, and what you do is you innovate.
24:39
Speaker 11: You stay mindful and in the face of the consumer
24:43
Speaker 11: in a very targeted way, and on the back of
24:46
Speaker 11: that you have to have a new product coming through.
24:48
Speaker 11: There's a huge amount of investment of cape spend in
24:52
Speaker 11: supply chain, in distribution logistics online with third parties. There
24:58
Speaker 11: are projects out there that are collaborative projects with local
25:04
Speaker 11: A star celebrities. So you've been very mindful in your
25:09
Speaker 11: ticking boxes in the biggest cities being there and also
25:12
Speaker 11: being really relevant in events too. So you keep going
25:17
Speaker 11: and new wait for the base our thanks.
25:20
Speaker 2: To Debacon, Bloomberg Intelligence luxury goods analysts.
25:23
Speaker 4: Coming up on the program a look into how climate
25:25
Speaker 4: change is making parts of the planet unensurable.
25:28
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25:31
Speaker 2: depth research and data on two thousand companies and one
25:33
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25:37
Speaker 4: I'm Paul Sweeney and I'm normal Linda. This is Bloomberg.
25:46
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
25:50
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25:54
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25:56
Speaker 1: live on Amazon Alexa from our flagship New York State
26:00
Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
26:04
Speaker 4: I'm Paul Swinning and I'm Normalanda filling in for Alex Deel.
26:08
Speaker 2: This week, we focused on a Bloomberg Big Takes story
26:10
Speaker 2: titled Catastrophe Bonds Will Help Florida but Failed Jamaica.
26:13
Speaker 4: You can find it on Bloomberg dot Com and The Terminal.
26:16
Speaker 4: The story looks at the use of catastrophe bonds as
26:19
Speaker 4: climate change makes parts of the planet unensurable, and it
26:22
Speaker 4: examines how vulnerable nations can be left out of luck
26:25
Speaker 4: when disaster strikes.
26:26
Speaker 2: For more, co hosts Alex Steel and I were joined
26:28
Speaker 2: by one of the story's authors, Gautam Nike, Bloomberg's ESG editor.
26:31
Speaker 2: We first asked Gautam to walk us through the story.
26:34
Speaker 10: So essentially, this particular story I've done with a couple
26:37
Speaker 10: of colleagues looks at catastrophe bonds. These are a bet
26:41
Speaker 10: on the probability of huge natural disasters like earthquakes, wildfires, floods,
26:47
Speaker 10: are hurricanes, and obviously the incidents of some of these
26:51
Speaker 10: events have scotten higher and the severity of some climate
26:55
Speaker 10: related events like hurricanes and floods have become more intense.
27:00
Speaker 10: So these catastrophe bonds are a way for insurance and
27:06
Speaker 10: reinsurance companies to pass on the risk of growing disasters
27:10
Speaker 10: onto Wall Street, onto the capital markets, and not to
27:13
Speaker 10: put it on their own balance sheet. The way it
27:15
Speaker 10: works is that if you're an investor in the bond,
27:18
Speaker 10: you can make a very large return that could be
27:20
Speaker 10: fined hard to find in you another fixed income product. However,
27:25
Speaker 10: if the particularly disaster is defined in the bond does occur,
27:29
Speaker 10: then you could lose some or even all of your
27:32
Speaker 10: invested capitals. So it's a gamble on a weather disaster.
27:35
Speaker 2: Very simply, do these work, Yes, they.
27:39
Speaker 10: Absolutely do work. So just to give you the broader context,
27:43
Speaker 10: about seventy percent of all catastrophe bonds are focused on
27:47
Speaker 10: the US windstorm sector because hurricanes and other severe name storms,
27:51
Speaker 10: and a big chunk of that relates to Florida. Obviously,
27:54
Speaker 10: this came into focus recently because of Hurricanes Helene and
27:57
Speaker 10: Milton back to back that caused a lot of flooding
27:59
Speaker 10: and wind damage as well. And the way it works
28:02
Speaker 10: is that if a particular threshold of losses is met
28:07
Speaker 10: for most of these catastrophe bonds, then the issuing party
28:11
Speaker 10: will get a good chunk of the money that's taken
28:14
Speaker 10: out from the money that the capital markets of the
28:17
Speaker 10: Wall Street investors put in when they bought the bond,
28:20
Speaker 10: and that money then goes to pig to fix people's
28:22
Speaker 10: roofs and you know, rebuilt homes.
28:25
Speaker 6: When has it not worked? As I mentioned the title
28:28
Speaker 6: was they helped Florida but failed Jamaic US. So what's
28:30
Speaker 6: the scenario where they don't pay off?
28:33
Speaker 10: Yeah, So catastrophe bonds have been around for about twenty
28:36
Speaker 10: five to thirty years and they've largely developed, as I said,
28:39
Speaker 10: in the US, but also in Europe and Japan against
28:41
Speaker 10: earthquake risk. But increasingly institutions like the World Bank, the IMF,
28:46
Speaker 10: the OECD are trying to popularize them in the developing world. Now,
28:50
Speaker 10: this is a part of the globe that is being
28:52
Speaker 10: disproportionately hit by a lot of climate losses to which
28:55
Speaker 10: they're not directly linked because you know, most of the
28:57
Speaker 10: emissions have come from since the Industrial Revolution in the
29:00
Speaker 10: western parts of the world, but a lot of these
29:03
Speaker 10: weather disasters are focused on southern hemisphere. So the World
29:08
Speaker 10: Bank and other institutions are trying to get developing countries
29:12
Speaker 10: that are facing these risks to issue these catastrophe bonds
29:17
Speaker 10: that have been around in the West. But there is
29:19
Speaker 10: a problem the way the bond is structured. In the West,
29:23
Speaker 10: the ways it developed seems to work quite well, but
29:26
Speaker 10: in a developing country, because they don't have an insurance market,
29:31
Speaker 10: you can't actually calculate the total claims on an insured basis.
29:37
Speaker 10: So they've come up with a different way of structuring
29:41
Speaker 10: the bond. It's called a parametric approach. Basically, for a hurricane,
29:46
Speaker 10: it would simply be if the pressure of the hurricane
29:49
Speaker 10: hits a certain threshold, which indicates wind speed, then the
29:53
Speaker 10: bond will pay out. But if it misses, you get nothing.
29:57
Speaker 10: Even if you're missed by the tiniest fractions, the rule
30:00
Speaker 10: say you will get zero, and that's sort of what
30:02
Speaker 10: happened with Jamaica.
30:04
Speaker 2: If you believe in climate change, and if you believe
30:06
Speaker 2: that weathers can become more and more unstable, it might
30:08
Speaker 2: be really hard to price the risk out here because
30:11
Speaker 2: it seems like the risk would always be going up
30:12
Speaker 2: of more and more again unstable weather and catastrophes here,
30:17
Speaker 2: how does the market account.
30:17
Speaker 10: For that, You've been pointed at problem. So when someone's
30:22
Speaker 10: trying to calculate the risk of these kind of weather
30:24
Speaker 10: related catastrophe bonds, all you have really is historical data.
30:30
Speaker 10: So for hurricanes, you have one hundred and fifty hundred
30:33
Speaker 10: and seventy years a pretty robust data going back, and
30:36
Speaker 10: you can make a good estimate. But unfortunately the calculation
30:42
Speaker 10: has been muddied now with climate change, and these forecasts
30:45
Speaker 10: are of course forecasts is something that hasn't happened yet
30:48
Speaker 10: that will project it to happen, but you just don't
30:51
Speaker 10: know how it might unfold depending on, you know, how
30:54
Speaker 10: the world reacts to increased CO two missions. So the
30:58
Speaker 10: whole question is how do you incorporate the climate effect
31:02
Speaker 10: into this historical data and provide a really reliable metric
31:07
Speaker 10: for someone to make a financial bet on. And it's
31:12
Speaker 10: the uncertainty of well, to some extent, the models that
31:15
Speaker 10: are used there by no means perfect, but also this
31:19
Speaker 10: extra new element that we've seen in the last few
31:21
Speaker 10: decades of climate change.
31:24
Speaker 6: So, you guys, as I mentioned in the beginning, this
31:25
Speaker 6: is part three of a series that you guys have
31:27
Speaker 6: done into how climate change is making the planet unensurable.
31:31
Speaker 4: What is your key takeaway here?
31:34
Speaker 10: I think one of the main takeaways would be that
31:38
Speaker 10: it is very hard to accurately model the risk of
31:43
Speaker 10: climate change, and of course their attempts being made to
31:47
Speaker 10: refine it constantly. But if you're trying to ensure a
31:52
Speaker 10: large proportion of the world that is not insured, in
31:55
Speaker 10: the developing world, also parts of Europe. I mean, there's
31:58
Speaker 10: a huge insurance protection and YAP in Europe, and even
32:01
Speaker 10: in the US, for example, in Florida, you know, insurance
32:04
Speaker 10: companies have moved out. They're not providing insurance in California
32:08
Speaker 10: for earthquake risks and wildfi. They're moving out. So the
32:10
Speaker 10: main takeaway is that it's becoming a more difficult problem,
32:15
Speaker 10: it's becoming a more uninsurable planet because of climate risk.
32:19
Speaker 4: Our thanks to Galatam Naike Bloomberg ESG editor. Another great
32:23
Speaker 4: Bloomberg Big Take story we looked at focused on how
32:25
Speaker 4: a lot of the auto industry is getting squeezed by
32:28
Speaker 4: cheap electric vehicles from China.
32:30
Speaker 2: The piece is entitled VW and Mercedes are getting left
32:33
Speaker 2: in the dust by China's evs. From what on the
32:35
Speaker 2: story costs. Alex Steele and I were joined by Oliver
32:37
Speaker 2: Crook Bloomberg, your correspondent. We first asked Oliver, just how
32:41
Speaker 2: far behind Mercedes and VWR?
32:43
Speaker 12: It depends kind of where you want to approach this
32:45
Speaker 12: question from when we talk about the Chinese market, which
32:48
Speaker 12: again is a very key market for Mercedes, BMW and Volkswagen.
32:51
Speaker 12: This is their biggest market, or has traditionally been their
32:54
Speaker 12: biggest market for a very long time. You look at
32:56
Speaker 12: just the three third quarter deliveries that we got just
32:58
Speaker 12: a couple of weeks ago. BMW alone was down thirty
33:01
Speaker 12: percent in terms of the sales that they were making
33:03
Speaker 12: in China, and that is their biggest market. So that
33:05
Speaker 12: illustrates the scale of the importance of this here. The
33:08
Speaker 12: problem is is that this is not just a question
33:10
Speaker 12: of the Chinese slowdown, right. This isn't a question of
33:12
Speaker 12: just we're going to put some stimulus in. Demand's going
33:14
Speaker 12: to come back. The nature of that demand in China
33:17
Speaker 12: is now changing. So what we see now in the
33:19
Speaker 12: Chinese market is that more than half of the car
33:22
Speaker 12: is being sold, there are EV's and so while they
33:24
Speaker 12: still retain a lot of these German car companies some
33:26
Speaker 12: of that market share, a good amount of that market share,
33:28
Speaker 12: it's really not in the EV section and they're not
33:31
Speaker 12: even in the sort of top five or ten in
33:32
Speaker 12: the leader board for evs. So the question is going forward,
33:35
Speaker 12: how do you get competitive again? The problem they have
33:38
Speaker 12: is they had that IC market share. It's about winning
33:41
Speaker 12: that electric market share, and they're just way behind on
33:43
Speaker 12: the inside of the car and the electronics.
33:45
Speaker 6: Yeah, the IC is the internal combustion engine part, which
33:47
Speaker 6: is the hardest part for these guys.
33:50
Speaker 3: Is it actually the battery, Is it just doing it
33:53
Speaker 3: all cheaply?
33:54
Speaker 6: Or is it the bending in the metal?
33:56
Speaker 9: For the evs?
33:57
Speaker 3: Where is the struggle?
33:58
Speaker 12: I mean, it's a combination of all of these things.
34:00
Speaker 12: There is, of course, are the battery components, even the
34:02
Speaker 12: sort of the evs that are sold here in Europe,
34:04
Speaker 12: even the ones that are produced here in Europe. The
34:06
Speaker 12: batteries are still coming from China. All of the components
34:08
Speaker 12: are coming over from China because they've really sort of
34:11
Speaker 12: been very proactive with their raw material policy. Everything from
34:14
Speaker 12: the lithium to this processing that all goes on to China.
34:17
Speaker 12: The other issues, of course, the cost base, and we're
34:19
Speaker 12: starting to see that hit here in Europe where Volkswagen
34:21
Speaker 12: is talking about closing factories for the very first time
34:24
Speaker 12: in its history. They're talking about closing a factory in Belgium,
34:27
Speaker 12: closing a few factories in Germany. And to understand why
34:30
Speaker 12: that's so important, this is a company that has literally
34:32
Speaker 12: never done that before in Europe, in large part because
34:35
Speaker 12: you know, their supervisory board half of their seats are
34:37
Speaker 12: held by sort of union representatives. So if they are
34:40
Speaker 12: moving forward and making that decision, it's because things are very,
34:43
Speaker 12: very challenging the cost base. If you look at the
34:45
Speaker 12: hourly wages of its sort of autoworker in Germany, it's
34:47
Speaker 12: close to like sixty two euros an hour. You go
34:50
Speaker 12: to Hungary just not too far away, it's sixteen euros
34:52
Speaker 12: an hour.
34:54
Speaker 9: Okay, how do they fix it?
34:55
Speaker 6: And that's a silly question, but like do they need
34:57
Speaker 6: a massive amount of subsidies to stimulate demand or do
35:00
Speaker 6: they need sort of unions to get out of their way.
35:02
Speaker 6: What would make this process a little bit easier.
35:06
Speaker 12: It's going to be a combination of all of those things.
35:07
Speaker 12: And one thing that makes it even harder, Alex if
35:09
Speaker 12: we haven't talked about yet, is there actually our new
35:11
Speaker 12: EU regulations coming into force at the end of this
35:14
Speaker 12: year that basically stipulate that twenty percent of all the
35:17
Speaker 12: cars that they need to sell basically need to be EV's.
35:19
Speaker 12: The problem is there's a mismatch between what policy makers
35:22
Speaker 12: wants and what the market wants. Right now, the market
35:25
Speaker 12: is stuck. These guys are still selling below fifteen percent evs.
35:28
Speaker 12: If they fail to hit that twenty percent by the
35:30
Speaker 12: end of this year, they're looking at potentially billions of
35:32
Speaker 12: euros worth of fines. So that's just another sort of
35:34
Speaker 12: overlay there. But this all, you know, I mean, the
35:36
Speaker 12: policy sort of dissonance that exists is one issue. But
35:39
Speaker 12: really these are car makers that have it's partially their
35:41
Speaker 12: own doing, right, They were just far behind on this.
35:43
Speaker 12: The former Volkswagen CEO he really wanted to lean into electrification.
35:47
Speaker 12: They weren't into that. They got rid of him, they
35:49
Speaker 12: brought in somebody new, and now they're really paying the price.
35:52
Speaker 2: Holl Or, how much of this is nationalism We've seen
35:54
Speaker 2: with Apple with the iPhone, maybe the concerns that the
35:57
Speaker 2: Chinese consumer on the margin doesn't want to buy Western products.
36:00
Speaker 12: So listen, I think that that is going to be
36:02
Speaker 12: part of it. And of course this is the Chinese
36:04
Speaker 12: policymakers have been trying to gear their sort of economy
36:07
Speaker 12: to not have the kind of dependencies that they've historically had. Remember,
36:10
Speaker 12: the Chinese were really sort of welcoming with open arms
36:13
Speaker 12: Volkswagen back in the nineteen eighties when they first sort
36:15
Speaker 12: of started producing cars in the Chinese market, because there
36:18
Speaker 12: was no automotive industry in China. What is interesting now
36:21
Speaker 12: is you're seeing some of these European car makers now
36:24
Speaker 12: sort of inverting that sort of same dynamic, where you
36:26
Speaker 12: have partnerships with say Stilantis and Leap Motor, a Chinese
36:30
Speaker 12: company have a joint venture here in Europe where now
36:33
Speaker 12: Stilandis owns fifty one percent, so that they are starting
36:36
Speaker 12: to build Chinese cars at their own plants. And that
36:38
Speaker 12: is so we talked about the sort of threat to
36:40
Speaker 12: the Chinese market that is also coming very very quickly
36:43
Speaker 12: and very soon to the European shores.
36:44
Speaker 6: As well, which is so ironic because if Europe really
36:48
Speaker 6: wanted to green stuff fast, they would just import a
36:50
Speaker 6: boltload of Chinese evs on the cheap and have their
36:53
Speaker 6: consumers buy them to your point. Then it becomes like
36:55
Speaker 6: a nationalized point. Who's in the worst who's in the
36:58
Speaker 6: best spot of this tobackle?
37:01
Speaker 12: Have you really really put me on the spot here
37:02
Speaker 12: we're try to get for I mean, listen, I'll tell
37:06
Speaker 12: you this. The Lantis lost a fifth of their value
37:08
Speaker 12: since the profit warding two weeks ago. For thinking about
37:10
Speaker 12: companies that are really well positioned in Europe. You think
37:12
Speaker 12: about Tesla, They've got manufacturing over in Germany, and guess
37:15
Speaker 12: what they make only evis, so they're able to even
37:18
Speaker 12: sell some of those credits when those regulations kick in
37:20
Speaker 12: next year.
37:21
Speaker 4: Our thanks to Oliver Crook, Bloomberg Europe Correspondent.
37:24
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