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Big Tech Unlikely To Truly Challenge Wall Street: Ex-OCC Chair · Bloomberg Intelligence

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  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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  Speaker 1: Along with my co host Lisa A. Bramowitz. Each day
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• 0:33
  Speaker 1: Over the past twelve months, there's been increasing discussion about
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  Speaker 1: perhaps whether Google and Amazon and other big technology companies
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  Speaker 1: will become the next Wall Street. Here to talk about
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  Speaker 1: that with us is Keith Norika. He's a partner in
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  Speaker 1: the financial institution's practice at Simpson Thatcher and Bartlett. He's
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  Speaker 1: also former Acting Controller of the Currency from May fifth
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  Speaker 1: November of last year. Keith, thank you so much for
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  Speaker 1: winning us. During your tenure, there was discussion that the
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  Speaker 1: o c C would be open to some kind of
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  Speaker 1: fintech charter, allowing the Googles and Amazons of the world
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  Speaker 1: to UH act more like banks. Can you talk a
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  Speaker 1: little bit about what future you envision for big tech
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  Speaker 1: as as as banks? Well? Sure, Thanks Lisa for having
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  Speaker 1: me today. UM. During my tenure, UM we continued UH
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  Speaker 1: in a initiative by my predecessor, Tom Curry, UH that
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  Speaker 1: dealt with a fintech charter, which was a limited purpose charter.
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  Speaker 1: UM that would allow UH institutions to get a bank
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  Speaker 1: charter to undertake one of the core elements of banking,
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  Speaker 1: taking deposits, lending money, or or processing payments. And and
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  Speaker 1: I think you know, there was a concern UM of that,
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  Speaker 1: that that large companies like Amazon or Google could get
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  Speaker 1: a charter. Now. UM, in my own view, UM, I
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  Speaker 1: don't necessarily see UM that that may be the case.
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  Speaker 1: I think there that they're sort of a superficial allure
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  Speaker 1: of that charter for those companies. But on the other hand,
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  Speaker 1: a lot of regulation comes with getting a bank charter. UM.
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  Speaker 1: And UH, these companies right now, UM, these large tech
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  Speaker 1: companies have a good position in the market. They're heavily
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  Speaker 1: engaged in commerce as we see UM and UM. Obviously UM,
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  Speaker 1: a part of commerce involves processing payments to pay for commerce.
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  Speaker 1: UH and I think that UM, what we're seeing is
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  Speaker 1: they're they're trying to take advantage of everything up to
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  Speaker 1: the up to the line of being a bank without
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  Speaker 1: actually having UH to bear the responsibilities of being a bank.
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  Speaker 1: And banks have a lot of obligations and regulations that
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  Speaker 1: come with them and compliance obligations. Uh And at the moment,
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  Speaker 1: at least, I think the model is more of them
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  Speaker 1: trying to capture as much as they can of the
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  Speaker 1: non bank um sort of financial market, uh, but still
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  Speaker 1: having to ultimately use banks to process and clear payments
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  Speaker 1: and and to do all the compliance obligations that come
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  Speaker 1: with them. And uh so while there, you know, may
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  Speaker 1: in the future be some type of limited purpose bank
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  Speaker 1: charter available to them, just as there has been in
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  Speaker 1: the past for big industrial companies. That's that's our history,
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  Speaker 1: uh and tradition in this country to allow certain limited
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  Speaker 1: purpose banking charters to large industrial companies and tech maybe
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  Speaker 1: the the new um sort of industry that that may support. UM.
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  Speaker 1: I don't foresee them becoming the new Wall Street, so
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  Speaker 1: to speak, because there's a lot of regulation that just
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  Speaker 1: necessarily comes from processing and clearing payments and from really
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  Speaker 1: handling the type of risks that come from, uh, from
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  Speaker 1: from that type of activity. Well and Keith, that's what
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  Speaker 1: I wanted to ask when you were the acting o
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  Speaker 1: c C chair in your conversations with executives at Google
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  Speaker 1: and Amazon and other big technology companies. Was there the
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  Speaker 1: desire to get further into this territory and and be
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  Speaker 1: processors of payment systems? Well, first, I guess start with
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  Speaker 1: the premise of the question. I actually never had any
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  Speaker 1: conversations with any executives from those companies, and I think
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  Speaker 1: that you know, that may tell you a lot right there,
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  Speaker 1: Um that there wasn't that desire to pursue that. Now,
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  Speaker 1: you know, we're starting to see some limited interest in
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  Speaker 1: the traditional limited purpose charters, like uh, you know, Square
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  Speaker 1: has filed an application for an industrial loan company. That's
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  Speaker 1: usually the way, um that that these type of commercial companies,
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  Speaker 1: if you will get into a limited purpose bank charter,
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  Speaker 1: or traditionally has been that case. The fintech charter is
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  Speaker 1: is somewhat new, it's never been used. Uh, and we'll
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  Speaker 1: see how that goes. That's obviously something for my successor
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  Speaker 1: to deal with rather than me. But I think that, um,
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  Speaker 1: you know, there there wasn't yet the sort of interest
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  Speaker 1: that I saw of those large companies, even even in
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  Speaker 1: our even in the o c c S proposed limited
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  Speaker 1: purpose charter. Can you just tell succinctly what does the
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  Speaker 1: controller of the currency do? What is that person's specific responsibility.
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  Speaker 1: Sure UM the controller of the currency charters and supervisors
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  Speaker 1: the national banks in this country, which hold approximately seventy
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  Speaker 1: eight percent of the banking assets UH in the United States.
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  Speaker 1: And it's UH. It's a UM an office that date
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  Speaker 1: dates back to the Civil War as a means to
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  Speaker 1: provide a national currency for the country. The currency function
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  Speaker 1: was later transferred to the Federal Reserve in nineteen thirteen,
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  Speaker 1: but the the office remains as an independent bureau of
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  Speaker 1: the Treasury Department UH to supervise UM really UM the
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  Speaker 1: money center banks, but also many community banks across the country. Okay,
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  Speaker 1: so then what would it What would be the requirements
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  Speaker 1: if you wanted to start your own community bank. Well,
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  Speaker 1: if you want to start your own community bank, you
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  Speaker 1: have to satisfy the chartering requirements UH that you have
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  Speaker 1: a reasonable prospect for success, you have a good management team,
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  Speaker 1: you have a business plan. UH. The O c C
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  Speaker 1: has to have confidence in you to grant that charter.
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  Speaker 1: But then most of the times UH in this country,
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  Speaker 1: you also will need to go get f D I
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  Speaker 1: C insurance. That's a separate application to the f D
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  Speaker 1: I C UH. And if you want to have any
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  Speaker 1: sort of controlling investor. If your company, you need to
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  Speaker 1: become a bank holding company and get permission for that
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  Speaker 1: from the from the Federal Reserve Board. So given the
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  Speaker 1: fact that the o C oversees the monetary supply, what's
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  Speaker 1: your take on bitcoin and all of these cryptocurrencies that
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  Speaker 1: are getting increasingly popular. Well, look, I think there is
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  Speaker 1: a lot of interest in this, and I would say
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  Speaker 1: my um my agency only dealt with a very small
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  Speaker 1: part of this. I think we're seeing, uh, certain securities
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  Speaker 1: issues come into into play here where the sec maybe
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  Speaker 1: take king the lead with the Treasury Department because of uh,
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  Speaker 1: you know, any type of any terrorism, type of or
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  Speaker 1: money laundering concerns. But generally, um, I am. You know,
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  Speaker 1: I believe that people should be able to order their
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  Speaker 1: affairs in a way that makes the most sense for them.
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  Speaker 1: And if there's a certain unit of value that they
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  Speaker 1: wish to base their transactions on, uh, then you know,
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  Speaker 1: they should be free to do that, but they need
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  Speaker 1: to be fully aware of the risks that may come
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  Speaker 1: from that. And just to come full circle, when we
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  Speaker 1: were talking about fintech charters, which firm do you think
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  Speaker 1: is sort of most positioned to engage in more bank
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  Speaker 1: like activities that we should pay attention to. Well, look,
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  Speaker 1: I think to me, the big challenge was finding a firm.
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  Speaker 1: I think in my own view, I was open to
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  Speaker 1: granting such a charter, but there wasn't necessarily a good
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  Speaker 1: match at the time of during my tenure of a
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  Speaker 1: company that was willing to adhere to sort of bank
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  Speaker 1: like restricts and have sort of bank like um prospects
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  Speaker 1: of success. And so, you know, when you look at
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  Speaker 1: the smaller companies, a lot of these fintech companies are
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  Speaker 1: more tech like in the sense of they're more try
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  Speaker 1: and see how it works. Maybe it'll work, maybe it won't.
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  Speaker 1: That that's not really the way the O c C
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  Speaker 1: charters banks in this country, or any bank regulator for
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  Speaker 1: that matter. There has to be sort of they're sort
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  Speaker 1: of a reputational element um. And so so I'm i
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  Speaker 1: I we didn't find one during my tenure. So I
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  Speaker 1: think we're gonna have to see, all right, we gotta
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  Speaker 1: leave it there, Thanks very much, Keith Norieka. He is
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  Speaker 1: a partner in the financial institutions practice of Simpson Simpson
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  Speaker 1: Thatcher and Bartlett cell Gene is spending a lot of
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  Speaker 1: money they have announced that they're going to be spending
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  Speaker 1: nine billion dollars for Juno Therapeutics. Also Santa Fee spending
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  Speaker 1: about eleven and a half billion dollars for bio Verative.
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  Speaker 1: Here to help us understand this merger activity is Max
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  Speaker 1: Neeson Our Bloomberg, Gadfly, Columis. He covers healthcare, biotechnology and pharmaceuticals. Max,
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  Speaker 1: I'm looking at your most recent column that you just
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  Speaker 1: put out, and you are skeptical about the price that
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  Speaker 1: the companies are paying for this. You say that perhaps
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  Speaker 1: this just is a case of being forced to do mergers.
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  Speaker 1: Why is that so? Both companies are under a good
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  Speaker 1: deal pressure to do a sizeable deal for for a
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  Speaker 1: couple of different reasons. Celgene last year cut their long
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  Speaker 1: term revenue forecast ended up really doing a big hit
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  Speaker 1: to the share price. And then Santa Fee. Um, you know,
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  Speaker 1: it's involved heavily in the diabetes business with some aging
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  Speaker 1: products and a lot of price competition. It also kind
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  Speaker 1: of swung and missed on on two big deals over
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  Speaker 1: the past couple of years, so as really looking to
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  Speaker 1: get something done, and um, I do think that that
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  Speaker 1: pressure might have played a role in moving these companies
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  Speaker 1: to do deals that definitely have risks. Okay, so let's
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  Speaker 1: talk about those risks. First of all, why don't you
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  Speaker 1: start with the deal that you think holds the most risks?
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  Speaker 1: And interestingly, both cell Gene and Santa Fees shares both declined,
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  Speaker 1: uh and perhaps that had to do with the price
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  Speaker 1: that they were paying for their acquisition target. I definitely
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  Speaker 1: think so, I'd say, if I had to pick one
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  Speaker 1: that has the biggest kind of downside risk, it's it's
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  Speaker 1: probably Santa Fees deal. Um it's for a company Biovariative
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  Speaker 1: that focuses on hemophilia, and um it sells kind of
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  Speaker 1: prophylactic treatments that you take ahead of time to reduce
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  Speaker 1: the likelihood of a bleeding event. Um And and make clear,
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  Speaker 1: hemophilia is when your blood can't close. Yeah, it's a
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  Speaker 1: clouding disorder exactly gion etique. But there are a bunch
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  Speaker 1: of companies that are working on kind of gene therapies
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  Speaker 1: that that potentially offer um one time effective cures for hemophilia.
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  Speaker 1: They're very early stage. We still don't know if they're
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  Speaker 1: gonna kind of work and last, and they're gonna be
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  Speaker 1: really expensive, but that's kind of an existential threat to
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  Speaker 1: this company's business model. And they're working on the same
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  Speaker 1: thing but really early stage, their way behind some of
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  Speaker 1: these other firms. So you know, this is gonna be
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  Speaker 1: a near term burst boost for their sales and earnings,
• 11:18
  Speaker 1: but you know it really could go pretty badly. Cell
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  Speaker 1: Gene um, you know, they're making a bet on these
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  Speaker 1: kind of new cell therapies that offer a potential cure
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  Speaker 1: for blood cancers. But um, it's a company it's a
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  Speaker 1: little bit late to the first generation of these treatments
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  Speaker 1: and um, so that means that this is a big
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  Speaker 1: bet on the future generations the kind of more advanced
• 11:39
  Speaker 1: and safer versions of these therapies. And there are a
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  Speaker 1: lot of companies involved in that. Um. You know, it's
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  Speaker 1: unclear if if Juno and Celgene are gonna come ahead,
• 11:47
  Speaker 1: so so they're risk with that as well. Now. Bio
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  Speaker 1: Verative based in Waltham, mass home to Bloomberg one six
• 11:52
  Speaker 1: one Boston, New Report, and thirty in Metro West and
• 11:56
  Speaker 1: the South Shore. We of course welcome all of our listeners.
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  Speaker 1: If had three four hundred employees, I mean this is
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  Speaker 1: not a I'm just saying this is a through eleven
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  Speaker 1: and a half billion dollar deal. They do they have
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  Speaker 1: something so special for hemophilia and blood disorders that would
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  Speaker 1: create this kind of premium. And if you've got four
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  Speaker 1: hundred employees and someone spending eleven and a half billion dollars,
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  Speaker 1: you better have something. Yeah. So that that's the thing
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  Speaker 1: that I And if it was so great, why did
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  Speaker 1: bioge and spin them off? Exactly? I mean, so I
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  Speaker 1: think Biogen's motivation was that they're trying to become more
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  Speaker 1: narrowly focused on um on neurology, on on disease of
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  Speaker 1: the brain, and this was kind of ancillary to that.
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  Speaker 1: But um, you know that that is the thing that's troubling.
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  Speaker 1: They're paying a big premium for that kind of near
• 12:41
  Speaker 1: term growth boost. There are some you know, longer term
• 12:45
  Speaker 1: prospects for for growth that more people are going to
• 12:48
  Speaker 1: move to this sort of prophylactic treatment from kind of
• 12:51
  Speaker 1: the acute treat No, no no, no, I understand that on
• 12:54
  Speaker 1: the on the on the medical side, but I mean,
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  Speaker 1: this company is it's a nine million dollar revenue company,
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  Speaker 1: So I mean, is there a metric? Is there some
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  Speaker 1: kind of magic formula that they ended up coming up with?
• 13:05
  Speaker 1: This eleven and a half billion dollar price tag. You know,
• 13:09
  Speaker 1: with with biotech, it's always a little bit of the
• 13:12
  Speaker 1: you know, the kind of on market growth. You have
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  Speaker 1: to pay a premium for that because there's just not
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  Speaker 1: that many companies with kind of recently approved in growing drugs.
• 13:20
  Speaker 1: And then there's the fact that you put some premium
• 13:22
  Speaker 1: on the pipeline, which you know is always an exercise
• 13:25
  Speaker 1: and in kind of shaking a magic eight ball. Um,
• 13:29
  Speaker 1: you do your best based on the science and you know,
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  Speaker 1: evaluating similar treatments that are actually on the market, but
• 13:34
  Speaker 1: you really have no idea until they hit the market
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  Speaker 1: and start selling. How are these companies planning to pay
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  Speaker 1: for their acquisitions? How are they going to pay for them?
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  Speaker 1: To centerfes leveraging up to some degree, I think, Um,
• 13:48
  Speaker 1: but you know they both have a ton of cash.
• 13:50
  Speaker 1: You know, these are really high margin business of the
• 13:53
  Speaker 1: drug business in general, you're always going to have money
• 13:56
  Speaker 1: to make acquisitions the builder to finance them. But um,
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  Speaker 1: you know the type of return you're going to generate. Um,
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  Speaker 1: there's a lot more variants than in just about any
• 14:05
  Speaker 1: other business. Making an acquisition. You could have you know,
• 14:07
  Speaker 1: no return or very little, very easily. All right, So
• 14:11
  Speaker 1: real quick, which company do you think will be the
• 14:13
  Speaker 1: next to announce a big acquisition in the biopharmaceutical space? UM,
• 14:18
  Speaker 1: I would guess if it's anyone, it's gonna be m
• 14:20
  Speaker 1: gen early enormous cash pile hasn't made a deal in
• 14:24
  Speaker 1: in some time, and um, you know all of that
• 14:28
  Speaker 1: overseas cash coming, and they have a particularly large chunk
• 14:30
  Speaker 1: of it. UM, I'd say they're they're probably next up.
• 14:33
  Speaker 1: All right, Max Neison, thank you so much for joining us.
• 14:35
  Speaker 1: Max Neson is biotic, pharma and healthcare calumnist with Bloomberg
• 14:40
  Speaker 1: gad Fly, joining us here in our eleven three oh studios.
• 14:59
  Speaker 1: A I G certainly getting our attention today. It is
• 15:02
  Speaker 1: starting to reverse course after years of retrenchment. Here to
• 15:07
  Speaker 1: talk about the latest moves that this insurance behemoth made.
• 15:11
  Speaker 1: Jonathan Adams joins us now. He's senior insurance and industry
• 15:14
  Speaker 1: analyst who joins us for Bloomberg Intelligence from Princeton. Jonathan,
• 15:19
  Speaker 1: thank you so much for being with us. So A
• 15:22
  Speaker 1: I G is buying validus put this into perspective for us.
• 15:27
  Speaker 1: How big of a deal is this for A I G.
• 15:29
  Speaker 1: And is it it the right move. It's a five
• 15:33
  Speaker 1: point six billion dollar deal and not huge in terms
• 15:37
  Speaker 1: of UM what types of transactions we've seen in the
• 15:42
  Speaker 1: industry over the past. UM. It increases their commercial lines
• 15:49
  Speaker 1: premium by about ten percent a little bit over UM.
• 15:53
  Speaker 1: In terms of whether it is strategically a good move, UM,
• 15:58
  Speaker 1: I think it's a It's quite a and UH it's
• 16:01
  Speaker 1: moving into the reinsurance business at a time when that
• 16:05
  Speaker 1: business has faced some difficult pricing pressure. Not only that, UH,
• 16:11
  Speaker 1: you may recall that A i G posted three billion
• 16:14
  Speaker 1: dollars of catastrophe losses in the third quarter, and that
• 16:17
  Speaker 1: was due to significant exposure they have in their property
• 16:20
  Speaker 1: lines business. They said at the time they were looking
• 16:23
  Speaker 1: for opportunities to lower the volatility in that business and
• 16:28
  Speaker 1: that they would lower their exposure to property risk. This
• 16:33
  Speaker 1: deal adds that exposure because that's a primary business for Validus.
• 16:38
  Speaker 1: So I'm not sure it ultimately will complete UH some
• 16:43
  Speaker 1: of the strategic moves that the company wanted to UH
• 16:47
  Speaker 1: to do. So why do this deal? Well, UH CEO
• 16:52
  Speaker 1: Brian Duperl has UH said that he wanted to expand
• 16:57
  Speaker 1: A I G. And he wanted to make an acquisition
• 17:00
  Speaker 1: and that would help the company grow. UM. This certainly
• 17:05
  Speaker 1: UH fits in that category to some degree. UH. It
• 17:08
  Speaker 1: adds some new lines of business. Validus has a crop
• 17:12
  Speaker 1: business that the A I G does not participate in
• 17:15
  Speaker 1: that in that business, so it helps them there, and
• 17:18
  Speaker 1: it also helps them in their specialty lines business. So
• 17:22
  Speaker 1: there are some areas where they could generate some premium growth.
• 17:26
  Speaker 1: And it does UM add to earnings UH and their returns.
• 17:32
  Speaker 1: But again, UM, I think at at a very constantly
• 17:35
  Speaker 1: price that actually slightly dilutive to their tangible book value.
• 17:39
  Speaker 1: And I'm not sure this would be the first deal
• 17:43
  Speaker 1: I would UM I would look towards. Well, Jonathan, I'm
• 17:46
  Speaker 1: confused because a lot of people have been calling for
• 17:48
  Speaker 1: A I G to break up further into its parts.
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  Speaker 1: It was of course pummeled during the two thousand and
• 17:55
  Speaker 1: eight credit crisis UM, and it has stripped down its
• 17:59
  Speaker 1: business quite a It is this sort of signaling that
• 18:02
  Speaker 1: it's now going to embark on bulking back up and
• 18:06
  Speaker 1: going in the opposite direction of what a lot of
• 18:08
  Speaker 1: people are saying. It certainly looks that way. And although
• 18:12
  Speaker 1: I admire valid as his management team, it's certainly a
• 18:15
  Speaker 1: good group of individuals. I'm not sure the business offers
• 18:20
  Speaker 1: the types of return that UM really investors would would
• 18:25
  Speaker 1: want to see UM when A I G returns to
• 18:29
  Speaker 1: the expansion mode, which obviously it's done, and I think
• 18:32
  Speaker 1: the signals they'll continue to do so. But again I'm
• 18:35
  Speaker 1: not sure this is leading with your uh strongest foot
• 18:40
  Speaker 1: just I mean, this is just you know, uh speculative, Jonathan.
• 18:44
  Speaker 1: But five and a half billion dollars, there's a lot
• 18:46
  Speaker 1: of money. Why wouldn't they just increase the dividend? Well,
• 18:51
  Speaker 1: I think that goes to the CEO's philosophy and the
• 18:56
  Speaker 1: importance that he puts on signaling to the market ages.
• 19:01
  Speaker 1: Downsizing is over and it's time to look to new
• 19:06
  Speaker 1: industries and to expand. I think that couldn't names I mean,
• 19:09
  Speaker 1: and and clearly I'm not I don't want to put
• 19:11
  Speaker 1: you in the position of having to, you know, offer
• 19:13
  Speaker 1: your A I G. There the perspective, But for five
• 19:17
  Speaker 1: and a half billion dollars, couldn't they have built their
• 19:19
  Speaker 1: own agriculture insurance business. The agriculture business is UM very
• 19:27
  Speaker 1: much of a regulator business, so that maybe isn't the
• 19:30
  Speaker 1: best example. But in terms of expanding their specialty lines, yes,
• 19:34
  Speaker 1: they certainly could add more underwriters and and have expanded
• 19:38
  Speaker 1: in that area um even though they chose to acquire
• 19:42
  Speaker 1: so UM. From my point of view, I think what
• 19:45
  Speaker 1: they're probably would say to you is, look, we've got
• 19:48
  Speaker 1: a great management team and valid Is. We think they've
• 19:51
  Speaker 1: done well in diversifying their own business. We like how
• 19:54
  Speaker 1: they assess risk. To my point about their desire to
• 19:59
  Speaker 1: reduce risk and volatility, they would probably say, what better
• 20:03
  Speaker 1: way than to bring in the expert team from a
• 20:05
  Speaker 1: reinsurer that knows how to handle that risk, and that
• 20:08
  Speaker 1: expertise is what we're going to use. I think that's
• 20:10
  Speaker 1: what they tell you. Again. My concern is that they
• 20:13
  Speaker 1: still are bringing in a lot of exposure in risk
• 20:18
  Speaker 1: onto the books as they do that. Thanks very much.
• 20:20
  Speaker 1: Jonathan Adams is our senior insurance industry analysts talking about
• 20:24
  Speaker 1: a i G spending five and a half billion dollars
• 20:27
  Speaker 1: for Validus, the future of General Electric, what do we
• 20:45
  Speaker 1: see as the future of the industrial conglomerate. Karen yubile
• 20:49
  Speaker 1: Heart is our industrials analyst for Bloomberg Intelligence, and she
• 20:52
  Speaker 1: has the enviable task of watching what happens with ge Karen,
• 20:57
  Speaker 1: what can you tell us about their actual strategy get
• 21:00
  Speaker 1: into the details of a sort of potential aircraft engine. Uh,
• 21:04
  Speaker 1: sort of deal in a moment. But what is actually
• 21:06
  Speaker 1: the strategy for g E as laid out by management. Well,
• 21:10
  Speaker 1: it is evolving. Uh. You know. The event last week
• 21:14
  Speaker 1: was on the insurance problems on that call um setting
• 21:19
  Speaker 1: aside money because of long term care policies that were
• 21:22
  Speaker 1: sold about a decade ago. Yes, but for the first
• 21:25
  Speaker 1: time the CEO did suggest that he, you know, might
• 21:29
  Speaker 1: get go for selling parts of business. Has been more
• 21:33
  Speaker 1: aggressive moves which people really were looking for, because which
• 21:37
  Speaker 1: businesses could they or should they sell that would generate
• 21:42
  Speaker 1: the biggest premium, the biggest price, Well not totally, butchering
• 21:47
  Speaker 1: the core of the company that that's the good businesses
• 21:51
  Speaker 1: or healthcare and aviation. I don't think they'll let go
• 21:54
  Speaker 1: of them. They need the earnings, they need the cash flow.
• 21:57
  Speaker 1: You know. The most immediate one would be Baker, Hughes
• 22:00
  Speaker 1: and a couple of the smaller businesses, which inaggregate would
• 22:02
  Speaker 1: actually help solve the problem if they put all the
• 22:05
  Speaker 1: cash toward debt in their pension, they would solve a
• 22:07
  Speaker 1: go a long way. Bank of America Mary Lynch coming
• 22:10
  Speaker 1: out today with the downgrade of the shares um perhaps
• 22:14
  Speaker 1: a little bit late. I mean the shares trading it
• 22:16
  Speaker 1: around sixteen dollars right now lost since December two thou
• 22:20
  Speaker 1: and eleven. You should say, yeah, okay, good footnote there.
• 22:24
  Speaker 1: But it's also a report that General Electric supply the
• 22:30
  Speaker 1: engines for the A three eight superjumbos that Emirates has
• 22:36
  Speaker 1: ordered from Airbus. Would that be enough to really change
• 22:39
  Speaker 1: the perception of aviation business? The perception of the aviation
• 22:44
  Speaker 1: business is really good. It's it's it's you know, it's
• 22:47
  Speaker 1: an eighty four billion dollar business. It's got twenty seven
• 22:50
  Speaker 1: ebit margins um you know, mid twenties, just a bit margins,
• 22:55
  Speaker 1: very well positioned, high you know, a lot of parts annuity.
• 22:59
  Speaker 1: But they don't do it all right, I mean they
• 23:01
  Speaker 1: do it in conjunction with Pratton Whitney. I believe well
• 23:05
  Speaker 1: that those are the two engines, those are the two
• 23:07
  Speaker 1: major engines. And then also they got the deal with Saffran.
• 23:10
  Speaker 1: Yes that's a j V. Yeah, So I mean, why
• 23:13
  Speaker 1: not spin off the aviation business? Uh? That would materially,
• 23:18
  Speaker 1: I guess because it's one of the I mean it
• 23:20
  Speaker 1: is a standalone It would make some sense. However, they
• 23:25
  Speaker 1: would lose a lot of the earnings while they have
• 23:28
  Speaker 1: a sort of a credit crunch and cash is you know,
• 23:31
  Speaker 1: I um, and then they'd have an earnings problem. But
• 23:35
  Speaker 1: I think it would make some sense in it is
• 23:37
  Speaker 1: a round jewel. Okay, this might be a really basic question.
• 23:41
  Speaker 1: But how will ge go about trying to solicit offers
• 23:47
  Speaker 1: or solicit you know, some estimates of what other companies
• 23:50
  Speaker 1: would pay for their businesses right now without undermining their value. Well,
• 23:56
  Speaker 1: they're in a weakened state. Uh no, no doubt right.
• 23:59
  Speaker 1: I mean I've done to some of the parts valuation
• 24:01
  Speaker 1: that does show there is you know, a decent amount
• 24:03
  Speaker 1: of value um low twenties um equity value. However, they're
• 24:07
  Speaker 1: going to take haircuts on selling these businesses because as
• 24:10
  Speaker 1: a stock, you know, weekends and people get liquidity fear,
• 24:13
  Speaker 1: fair fears, um, they're not going to get those full values.
• 24:17
  Speaker 1: So uh, you know they're gonna have to They're gonna
• 24:19
  Speaker 1: shop the baker Use. They can just start selling down
• 24:22
  Speaker 1: now they have a restriction, but that can be dealt with.
• 24:25
  Speaker 1: They have to go to baker Use Conflict Committee, which
• 24:29
  Speaker 1: is part of the board and and you know, asked
• 24:32
  Speaker 1: to get out early because they they are not legal.
• 24:34
  Speaker 1: They the deal is they can't sell down till July. UM.
• 24:38
  Speaker 1: You know, so that that step one. But that's a
• 24:40
  Speaker 1: fair amount of value that they could get out of
• 24:43
  Speaker 1: that UM. So that would be one fast move they
• 24:47
  Speaker 1: could do without having to you know, they have to
• 24:50
  Speaker 1: get permission of course, but they don't have to look
• 24:52
  Speaker 1: for the market setting the value. So that's that. Okay,
• 24:55
  Speaker 1: So that's Baker hues. What about the Alls Tom acquisition?
• 25:00
  Speaker 1: Could they are they gonna write that off? Do you
• 25:01
  Speaker 1: think that's the latest that people are um speculating on.
• 25:07
  Speaker 1: I don't know that they're going to take a big
• 25:10
  Speaker 1: right off in power yet. Uh. You know, in the
• 25:12
  Speaker 1: fourth quarter you have to take a look at all
• 25:13
  Speaker 1: your assets. That's why that issue is coming up for discussion.
• 25:18
  Speaker 1: It's possible, I think that they will hold on to
• 25:21
  Speaker 1: that UM at its current value at this point. Do
• 25:24
  Speaker 1: you have a sense of what the time frame is
• 25:26
  Speaker 1: that g is following with the asset sales? Well, I
• 25:30
  Speaker 1: don't know that they have any specifically underway so I
• 25:34
  Speaker 1: but I know that with the liquidity concerns, that it's
• 25:37
  Speaker 1: going to be sooner, sooner than later they haven't. I
• 25:39
  Speaker 1: mean the the that's the first time he really talked
• 25:44
  Speaker 1: about it. I think he's seeing the seriousness of we've
• 25:46
  Speaker 1: got to do something bigger. So I think you're gonna
• 25:48
  Speaker 1: You're definitely going to see something, uh, you know sometimes
• 25:51
  Speaker 1: this year. In my opinion, I you know, I wouldn't
• 25:54
  Speaker 1: be surprised if they noun something on Baker use in
• 25:56
  Speaker 1: the short term. Actually, Karen, you will, Heart. Thank you
• 25:59
  Speaker 1: so much for joining us. Karen evel Heart is industrials
• 26:01
  Speaker 1: analyst for Bloomberg is joining us here in our eleven
• 26:04
  Speaker 1: three oh studios. Thanks for listening to the Bloomberg P
• 26:12
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 26:15
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• 26:19
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 26:23
  Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
• 26:26
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.