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US Banks Finance Their Own Competition, 25% Auto Tariffs · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 1: Listen on demand wherever you get your podcasts, or watch
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  Speaker 2: One of the big stories on the Bloomberg terminal today
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  Speaker 2: and how US banks finance their own competition to the
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  Speaker 2: tune of one trillion dollars. I'm talking about financing, priving,
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  Speaker 2: some financing to non financial kind of institutions, thinking private equity,
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  Speaker 2: private credit, that kind of thing.
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  Speaker 3: Herman Chan joins us here. He is Bloomberg Intelligence. She
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  Speaker 3: covers all the banks.
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  Speaker 2: Herman, what are the what are the banks, the US
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  Speaker 2: banks doing in terms of, you know, lending to maybe
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  Speaker 2: some non traditional financial institutions like private equity, like hedge funds.
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  Speaker 3: How big of a business is that?
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  Speaker 4: Yeah, it's It's really interesting because the Federal Reserve has
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  Speaker 4: just recently require hired banks to disclose more on lending
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  Speaker 4: to these non bank, non bank financial intermediaries. And what
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  Speaker 4: we've seen is that some banks that we cover, like
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  Speaker 4: Bank OZK, Western Alliance, that could basically mean over fifty
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  Speaker 4: percent of their commercial loan portfolio is to the shadow banks.
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  Speaker 4: So it's an area that is growing where you see
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  Speaker 4: traditional businesses are a bit wary in this current macro
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  Speaker 4: environment which still elevated interest rates, a lot of uncertainty
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  Speaker 4: with the economy. But lending to non bank financial institutions
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  Speaker 4: is an area of course.
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  Speaker 5: So explain shadow banks.
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  Speaker 3: What is that topic?
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  Speaker 4: So it's interesting the regulators have broken out shadow banks
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  Speaker 4: non bank financial institutions as institutions like mortgage lenders, private equity,
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  Speaker 4: private credits, financial institutions that lend but don't have the
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  Speaker 4: depository component to their operations.
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  Speaker 2: So I kind of view these what do you call
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  Speaker 2: them nd fi's, so non depositive and institutions. Aren't they
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  Speaker 2: competitors to the banks themselves, So why am I lending
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  Speaker 2: the money?
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  Speaker 4: They are increasingly competitors. What we have noticed is that
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  Speaker 4: the participants that are borrowing from these non pick financial
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  Speaker 4: competitors are are a bit more riskier, and so they
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  Speaker 4: are viewed as more high yield. And these are areas
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  Speaker 4: that the traditional banking institutions don't want to lend money to.
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  Speaker 4: So a way to get around at is to lend
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  Speaker 4: it to the sponsors, and that's something that's happening. What's
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  Speaker 4: interesting is that the banks themselves will say they're not
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  Speaker 4: competing with the private credit operators head the head, but
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  Speaker 4: we do see a bit of a hallowing out of
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  Speaker 4: the tradition business borrowers. Because if you have private acway
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  Speaker 4: coming in and leveraging the balance sheets of the companies
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  Speaker 4: they borrow, inherently these companies are not going to be
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  Speaker 4: good customers for a traditional bank, So a lot of
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  Speaker 4: these customers continue to go away.
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  Speaker 5: So I'm hearing the industry watched our dogs are worried
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  Speaker 5: about the increase in bank loans to these DFIs. They're
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  Speaker 5: thinking that it can make banks more vulnerable to liquidity
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  Speaker 5: or credit shocks. What are the developments there.
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  Speaker 4: Yeah, well, it remains to be seen, right, So it's
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  Speaker 4: continuing to be a larger and larger portion of the
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  Speaker 4: loan portfolio for these banks, but it's still in the
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  Speaker 4: grand scheme of things. A lot of the banks remain
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  Speaker 4: very diversified, but we haven't seen a downturn with such
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  Speaker 4: a fragmented market where a lot of the lending is
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  Speaker 4: going outside of the traditional banking system. So it's something
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  Speaker 4: that continues to be monitored and something that we're assessing
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  Speaker 4: quarter by quarter.
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  Speaker 3: Do you like this business as an analysts? Do you think
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  Speaker 3: it's a good business for some of these banks right now?
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  Speaker 4: It's it's a way to demonstrate some better growth. We
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  Speaker 4: just looked at the numbers before joining and traditional commercial
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  Speaker 4: and industrial lending, it's about in the first quarter, it's
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  Speaker 4: about half a percentage point growth. If you look at
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  Speaker 4: the lending to non big financial institutions, that's up five
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  Speaker 4: point seven percent in the quarter. So if you have
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  Speaker 4: a bit more exposure to that, you can juice your growth,
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  Speaker 4: which in this current environment you're not seeing a lot
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  Speaker 4: of activity there. But again you need to have a
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  Speaker 4: very diversified portfolio.
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  Speaker 3: All right, Herman chen, you're the expert here. We're going
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  Speaker 3: to go with you.
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  Speaker 2: Herman Chinn, Senior analyst for US regional banks. We usually
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  Speaker 2: talk to Herman when something's blowing up, but we want
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  Speaker 2: to talk it's crazy, something's gulpin' right. Here's a new
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  Speaker 2: source of potential long growth for some of these banks
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  Speaker 2: out there. Herman Chann, senior analysts covers the regional banks
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  Speaker 2: for Bloomberg Intelligence, Joining the heres joining us here in
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  Speaker 2: our Bloomberg Interactive Broker Studio.
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  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 3: It's got a Steve Man. He's a Global autos and
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  Speaker 3: I'll Steve.
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  Speaker 2: I know you've got earnings models out there for a
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  Speaker 2: lot of these big auto companies. Are you adjusting your
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  Speaker 2: earnings models for tariffs? Here?
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  Speaker 3: How's that can impact some of these big global automakers.
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  Speaker 6: Yeah, we are actually going through that right now. One
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  Speaker 6: of the things we did publish this morning was the
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  Speaker 6: auto sales forecast for the US. You know, we were
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  Speaker 6: initially looking at down half a percent. We're looking at
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  Speaker 6: being down at least three percent now for the year.
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  Speaker 6: But you know, we are going through the model. One
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  Speaker 6: thing that really stood out for us was really Ford.
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  Speaker 3: Ford.
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  Speaker 6: Look, you know they they're losing Armin and le like
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  Speaker 6: on on ev sales. Uh. The the popular Mochi is
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  Speaker 6: actually made in Mexico, So like for us, if you
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  Speaker 6: tack on another ten ten grand on the price and
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  Speaker 6: it goes through the bottom line. You know, it could
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  Speaker 6: hit another you could hit five hundred million dollars on earnings.
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  Speaker 6: That's ten percent of their earnings. So those are some
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  Speaker 6: of the things we're looking at.
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  Speaker 5: Steve, What are the names that you're seeing are most
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  Speaker 5: exposed here?
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  Speaker 6: Well, I think on the downside, are definitely the legacy
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  Speaker 6: you know, the big three autos, plus the the foreign
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  Speaker 6: legacy auto makers. You know, they do have a lot
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  Speaker 6: of production outside of the US. As you can see,
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  Speaker 6: you know, the peer plays, not just Tesla, Rivian and Lucid,
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  Speaker 6: are actually relatively performing relatively better because there's a possibility
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  Speaker 6: that the peer plays could take marketshare ev market share
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  Speaker 6: from legacy automakers if they have to increase prices on
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  Speaker 6: those ev imports that they make in Mexico. The other
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  Speaker 6: thing that's interesting too that we're keeping an eye on
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  Speaker 6: is really on the retail auto parts companies like O'Reilly, AutoZone,
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  Speaker 6: Advanced Auto Parts. You know, they're actually bucking the trend.
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  Speaker 6: They're up and simply the reason is that you know,
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  Speaker 6: if people are not buying new cars, they're gonna have
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  Speaker 6: to maintain existing ones, and so you know, those DIY
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  Speaker 6: parts stores are are are actually doing well today.
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  Speaker 2: Yeah, I'm looking at those stocks. I mean AutoZone for examples,
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  Speaker 2: up two point seven percent today, fifty two week Hi,
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  Speaker 2: A lot of the other names are two three four percent.
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  Speaker 3: And Steve, I'll have you know I did buy a
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  Speaker 3: new or at least a.
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  Speaker 2: New vehicle this past weekend, a Condon but I got
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  Speaker 2: a hybrid.
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  Speaker 3: So how about which hon does this? Okay?
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  Speaker 2: Okay, so I've got, I've got, I've got in front
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  Speaker 2: of the tariffs.
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  Speaker 3: There are some set to go there.
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  Speaker 6: Oh, you're on your way there.
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  Speaker 2: So Stee, what are you hearing from the Hondas of
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  Speaker 2: the world, the Volkswagons, the Toyotas of the world.
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  Speaker 3: How are they viewing this environment?
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  Speaker 6: Yeah, you know, I think they're gonna face some cost
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  Speaker 6: pressures as well. You know, they do have a big chunk. Actually,
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  Speaker 6: the CRV is actually made in Canada, by the way,
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  Speaker 6: So yeah, so they're gonna.
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  Speaker 3: I don't know what the big dealers.
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  Speaker 5: See for Canada.
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  Speaker 3: Yep.
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  Speaker 6: So you know they're gonna they're gonna get hit. But
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  Speaker 6: the difference is that Honda and Toyota in the US,
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  Speaker 6: and I think globally they do have a much lower
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  Speaker 6: dealer inventory so you know, there's there's still a lot
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  Speaker 6: of demand for their cars because they're you know, known
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  Speaker 6: to be more reliable, so you know, you know, they're
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  Speaker 6: may be able to pass on some of the higher costs,
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  Speaker 6: the higher pricing. The price increases the consumers, so they
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  Speaker 6: they would probably fare better within the legacy automaker, but
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  Speaker 6: the European will probably get hit pretty bad, especially like
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  Speaker 6: the luxury brand bm BMW, Mercedes and Audi. You know,
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  Speaker 6: they have a different strategy. You know, they don't they
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  Speaker 6: don't have multiple plants for certain models. They do have
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  Speaker 6: they have a global plant for for for their models.
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  Speaker 6: So so for example, BMW and Mercedes mix SUVs in
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  Speaker 6: the US, so it's going to be hard for them
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  Speaker 6: to shift footprint. But the other way to think about
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  Speaker 6: it is, you know, if someone is able to afford
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  Speaker 6: a more expensive vehicle like a Mercedes and BMW, they
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  Speaker 6: may be able to stomach the higher prices.
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  Speaker 3: Yeah, I don't know.
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  Speaker 2: Coming through my BMW X three, I guess it's South Carolina.
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  Speaker 2: I don't know where it was built, but it wasn't
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  Speaker 2: in Stuttgart with the rest of them.
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  Speaker 3: Steve Man, thanks so much, appreciate it.
• 9:45
  Speaker 2: Steve Ban Global Autos and industrials research channels for Bloomberg
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  Speaker 2: Intelligencies down there in a Bloomberg Princeton office. The office
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  Speaker 2: probably some of the best food in all of Global
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  Speaker 2: Bloomberg will laid out there for you right now.
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  Speaker 1: Listening to the Bloomberg Intelligence Podcast. Catch us live weekdays
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  Speaker 2: Talking about the AI trade for two years, it's been listening.
• 10:21
  Speaker 2: It's not just been a tech thing, it's been a
• 10:23
  Speaker 2: market thing. It's every company in the SP five round
• 10:26
  Speaker 2: and their conference calls they talk about AI. It's been
• 10:27
  Speaker 2: going on for a couple of years. One of the
• 10:29
  Speaker 2: ways to think about it is from the real estate perspective. Definitely,
• 10:32
  Speaker 2: you can do that. John Lynn, he does that. He
• 10:34
  Speaker 2: joins us. He's a chief business officer for Equinox, joining
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  Speaker 2: us here in our Bloomberg Interactive Broker studio.
• 10:39
  Speaker 3: John to us, what you guys do at Equinics.
• 10:41
  Speaker 7: Thanks so much for having me. We're really the fundamental
• 10:44
  Speaker 7: digital infrastructure provider of the world. Building two hundred and
• 10:47
  Speaker 7: sixty eight data centers across seventy four market.
• 10:49
  Speaker 3: You're the guys.
• 10:50
  Speaker 7: We are the guys building and connecting all of these
• 10:53
  Speaker 7: cloud providers and enterprises making all of that data available
• 10:56
  Speaker 7: for AI.
• 10:57
  Speaker 5: And it's really interesting because I was just speaking with
• 10:59
  Speaker 5: him during the break saying that I cover US real
• 11:02
  Speaker 5: estate stocks, I cover real estate investment trust, and that's
• 11:05
  Speaker 5: exactly what ethics falls in that patch. This is my guy,
• 11:09
  Speaker 5: So wonderful to have this conversation. But I think that
• 11:12
  Speaker 5: there's often people don't really when you think about data centers,
• 11:14
  Speaker 5: they don't often think about the people that are actually
• 11:17
  Speaker 5: providing the real estate forward data center. So can you
• 11:19
  Speaker 5: talk a little bit about how Equinis differs from maybe
• 11:22
  Speaker 5: for thinking about a data center itself, but more or
• 11:24
  Speaker 5: less the fact that you guys are acquiring properties and
• 11:27
  Speaker 5: doing it that way.
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  Speaker 7: Yeah, you can think about it as full scope development,
• 11:30
  Speaker 7: where I mean we're going from raw land getting their
• 11:32
  Speaker 7: entitlements and then building the entire data center and then
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  Speaker 7: operating that for perpetuity essentially, and our focus is around
• 11:39
  Speaker 7: making sure we're getting as many customers as possible into
• 11:41
  Speaker 7: the facilities and really interconnecting their data flows together, which
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  Speaker 7: is pretty unique. In the data center space, which has
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  Speaker 7: also been a great opportunity for us to participate in
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  Speaker 7: the AI growth.
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  Speaker 3: What are you guys seeing here?
• 11:52
  Speaker 2: What are you seeing from your clients, the people you
• 11:54
  Speaker 2: talk to about kind of their needs going forward? Because
• 11:58
  Speaker 2: right now, I think in the marketplace you look, it's
• 12:00
  Speaker 2: like Invidious Stock and some of the other stocks that
• 12:02
  Speaker 2: trade around the AI theme.
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  Speaker 3: Twenty twenty five has not been a good year.
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  Speaker 2: After obviously phenomenal extraordinary growth in twenty three twenty four,
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  Speaker 2: maybe before that. How are you viewing the growth here
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  Speaker 2: in AI and from your end of the business, the
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  Speaker 2: real estate side.
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  Speaker 7: Yeah, First, I'd just say, you know, AI is a
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  Speaker 7: portion of the demand for data centers, but data center
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  Speaker 7: as a whole are powering everything that everybody is doing
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  Speaker 7: right like listening to this broadcast, you know, ordering food
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  Speaker 7: for lunch, you know, trading, trading on the exchange, et cetera.
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  Speaker 7: I mean, you need computers for everything nowadays, and that's
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  Speaker 7: still continuing. I think, you know, digital transformation is not
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  Speaker 7: in the early stages anymore, but we're far from done,
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  Speaker 7: and so that is just the secular driver that will continue.
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  Speaker 7: From the eye landscape, I'd say, obviously, a huge amount
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  Speaker 7: of interest and excitement, and I think the it caught
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  Speaker 7: the imagination of everyone, and I'd say, right now, what
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  Speaker 7: we're seeing is like exciting use cases that are really
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  Speaker 7: providing durable value, right. And I think it's still early
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  Speaker 7: stages for many of that across the general business landscape,
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  Speaker 7: but that's what gets me fund mentally excited. You look
• 13:01
  Speaker 7: at a company like Bristol Myers squib a customer of ours.
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  Speaker 7: They're doing drug discovery using nvidiagpus and being able to
• 13:08
  Speaker 7: increase and accelerate their time to therapeutics. That's fundamentally going
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  Speaker 7: to improve like human life, right, And I think that
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  Speaker 7: there's so many different aspects that AI can improve based
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  Speaker 7: on that.
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  Speaker 5: So run us through some of your biggest customers. Who
• 13:19
  Speaker 5: do you all work with?
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  Speaker 7: Certainly the cloud providers are some of our top customers.
• 13:23
  Speaker 7: We've got over two thousand different network providers as well.
• 13:25
  Speaker 7: The genesis of the company was really around how do
• 13:28
  Speaker 7: we help the Internet scale? And that ended up being well,
• 13:31
  Speaker 7: how do we help the globes telecommunications and data flows scale?
• 13:35
  Speaker 7: And so when you think about all of the cloud providers,
• 13:37
  Speaker 7: how do they connect to the end customers that's through
• 13:40
  Speaker 7: our facilities. And then as we've built that landscape, we've
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  Speaker 7: ended up basically becoming the place where enterprises put their
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  Speaker 7: most trusted assets. When you think about then, whether they
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  Speaker 7: have some workloads that are in the public cloud, well,
• 13:52
  Speaker 7: they're going to have some that they're going to have
• 13:54
  Speaker 7: ownership and control of themselves. When they put those in
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  Speaker 7: our facilities, it lets them glue that infrastructure together and
• 14:00
  Speaker 7: become like one super powerful environment.
• 14:03
  Speaker 2: And folks, Equinics is a publicly traded company. Eqix is
• 14:08
  Speaker 2: the ticker. It's got a market cap of eighty one
• 14:10
  Speaker 2: billion dollars. And if you want some research on it
• 14:14
  Speaker 2: and you're on the Bloomberg terminal, Jeffrey Langbaum was my
• 14:16
  Speaker 2: reat analyst. He covers eqix, you can go big and
• 14:19
  Speaker 2: that's where you find the research on Equinox. John talk
• 14:23
  Speaker 2: to us about the global form front, and we know
• 14:25
  Speaker 2: you guys are global here. Where are you seeing growth,
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  Speaker 2: stronger growth versus weaker growth?
• 14:31
  Speaker 7: Yeah, I'd say across the landscape, there's still quite a
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  Speaker 7: bit of demand for data center activity. You know, we're
• 14:37
  Speaker 7: particularly excited about some of the emerging markets Southeast Asia,
• 14:40
  Speaker 7: for instance, it's certainly growing quite a bit, but you know,
• 14:43
  Speaker 7: based off of a lot of the recent Surgeon AI
• 14:46
  Speaker 7: and kind of the use cases set up for that,
• 14:48
  Speaker 7: just a tremendous amount of growth in the US over
• 14:50
  Speaker 7: the course of the last two years.
• 14:52
  Speaker 5: So, I mean, when we think about your competitors in
• 14:54
  Speaker 5: this broader landscape, there is obviously digital realty trust when
• 14:57
  Speaker 5: we're thinking about publicly traded routs here in the data
• 14:59
  Speaker 5: center space. And if you look over the past five years,
• 15:02
  Speaker 5: we have equinic shares that have risen forty percent, but
• 15:05
  Speaker 5: that's compared to digital realty that's risen about eleven percent.
• 15:08
  Speaker 5: What do you think that you all are doing differently
• 15:10
  Speaker 5: than your competitors.
• 15:12
  Speaker 7: I think one, it's our focus around really driving diversity
• 15:16
  Speaker 7: of customer and like kind of having an ecosystem that
• 15:20
  Speaker 7: we've built around the value that we're doing. And so
• 15:22
  Speaker 7: that's incredibly important for us. Like for the AI trade,
• 15:25
  Speaker 7: for instance, we're focusing not just on capturing some of
• 15:27
  Speaker 7: these large training footprints, but really how do we make
• 15:30
  Speaker 7: sure we're getting all of these AI players and exposing
• 15:32
  Speaker 7: them to the rest of our customer base and really
• 15:34
  Speaker 7: again that fuel becomes additional growth across our entire portfolio.
• 15:40
  Speaker 2: Do you develop and build data centers or do you
• 15:43
  Speaker 2: just buy existing.
• 15:44
  Speaker 7: We develop and build?
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  Speaker 3: Where are you developing and building these days? And if
• 15:49
  Speaker 3: you say Texas.
• 15:49
  Speaker 7: Or Florida, Well, we're building all around the world. I
• 15:53
  Speaker 7: think we've got sixty eight current like major construction projects
• 15:56
  Speaker 7: across it. Yeah, so we're very active.
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  Speaker 3: Wow, come up to it's.
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  Speaker 5: Really it's big company in this.
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  Speaker 3: I mean, yeah, you guys have to come to my path.
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  Speaker 7: It's a beautiful space.
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  Speaker 5: So what is your you know, what are your thoughts
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  Speaker 5: for people who are saying that, you know, the tech
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  Speaker 5: rally has run too far, you know, maybe we have
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  Speaker 5: capex spend that's just you know, bloated. There's so much
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  Speaker 5: spending in this space. Is this a place to be
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  Speaker 5: investing right now? When we think about AI and in
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  Speaker 5: places of.
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  Speaker 7: That regard, I think the long term trend around this
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  Speaker 7: is going to be inevitable, right. I think it's certainly
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  Speaker 7: we're creating durable value not just for you know, kind
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  Speaker 7: of the planet and all of our customers, but but
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  Speaker 7: for shareholders. I think the uh, the amount of investment
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  Speaker 7: in the space, and like the numbers are candidly like
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  Speaker 7: eye watering right now, and so but a lot of
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  Speaker 7: that I think is just capital accumulation rather than deployment.
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  Speaker 7: And you know, compared to a lot of other markets
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  Speaker 7: in the real estate side, it's actually a little hard
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  Speaker 7: to kind of overbuild just because there's so many natural
• 16:53
  Speaker 7: h like limters in terms of the way we want
• 16:55
  Speaker 7: to scale, from utility power availability, to supply chain to
• 17:00
  Speaker 7: you know, kind of just the amount of trades you
• 17:02
  Speaker 7: need to be able to build and operate these facilities.
• 17:05
  Speaker 7: And so I think that that helps kind of provide
• 17:07
  Speaker 7: more rationality than you know, in some some real estate
• 17:09
  Speaker 7: markets where you know, you can throw up a shell
• 17:11
  Speaker 7: pretty easily, you can you can kind of just like
• 17:13
  Speaker 7: convert and overbuild. In this case, it's a very long
• 17:16
  Speaker 7: development cycle, and so I think you'll you'll see kind
• 17:19
  Speaker 7: of some self metering there.
• 17:20
  Speaker 3: John, thanks very much for joining us. Really appreciate you
• 17:22
  Speaker 3: coming in.
• 17:23
  Speaker 2: John Lynn, he's a chief business officer of Equinox, joining
• 17:26
  Speaker 2: us live here in our Bloomberg Interactive Broker studio. Again,
• 17:29
  Speaker 2: another company walking into my door here in my studio.
• 17:32
  Speaker 3: I had no idea existed. Happens every day now, you know,
• 17:35
  Speaker 3: eighty billion.
• 17:36
  Speaker 2: Dollars in market cap and of course I missed it,
• 17:38
  Speaker 2: but a big real estate investment trust. And I know
• 17:42
  Speaker 2: our bi Anlyst Jeff Langbaum, he's all over here. He's
• 17:44
  Speaker 2: got research on this company as well.
• 17:47
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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• 17:56
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• 18:00
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