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Mortgages, Private Debt, Banks, and Twitter · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller. Every business day we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. We've got interest rate rising.
0:23
Speaker 1: We know that it's been terrible for the fixed income
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Speaker 1: market across the board. Uh, and a big part of
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Speaker 1: that some mortgage markets. When we want to talk, you know,
0:31
Speaker 1: what's going on in the MBS, that's mortgage backed securities.
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Speaker 1: We bring in Eric Heidelberg, MBS strategists for Bloomberg Intelligence.
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Speaker 1: What is the super strava biker? I don't know. I
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Speaker 1: know that I probably put too much, too many miles
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Speaker 1: on my bike. So Paul's a big peloton guy, But
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Speaker 1: you actually move on your bicycle. Uh, this time of year,
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Speaker 1: I might be on something called Swift, which is inside,
0:57
Speaker 1: but we feel like we're moving because it's like in
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Speaker 1: a cartoon world with other people. So it's in the
1:02
Speaker 1: metaverse alright, Erica, So again, you know we look at
1:08
Speaker 1: I n go to give us a snapshot of all
1:10
Speaker 1: the indexes out there, and just in fixed and come world,
1:14
Speaker 1: like the equity world, just read everywhere. Talk to us
1:16
Speaker 1: about how the mortgage backed security market has been behaving. Well, um,
1:23
Speaker 1: there there probably aren't enough big words to describe it,
1:27
Speaker 1: but basically it's it's having its worst year ever by
1:30
Speaker 1: a significant margin, like at minus fourteen at some point
1:34
Speaker 1: in the middle of last month, we were approximately ten
1:37
Speaker 1: times worse than the mortgage market had ever been year
1:40
Speaker 1: to date. Um. And that's what happens when you have
1:43
Speaker 1: a bear market because a lot of that is really
1:46
Speaker 1: just driven by interest rates, which have turned around a
1:48
Speaker 1: little bit recently, but some of that is driven by
1:51
Speaker 1: spread widening too, as the FED has stopped buying, and
1:56
Speaker 1: you know, there's a lot of volatility in the market's
1:59
Speaker 1: not you know, with so much uncertainty around what's going
2:02
Speaker 1: to go on with inflation, etcetera. When was the last
2:04
Speaker 1: time we had a big bear market in mortgage backed securities?
2:09
Speaker 1: Before I was born? So how does the FEDS, I mean,
2:17
Speaker 1: how does QT play into this? How do rate rises
2:20
Speaker 1: play into this? Because um, didn't your own pali snap
2:23
Speaker 1: at somebody who asked if they were going to start
2:24
Speaker 1: selling nbs at the last press conference. Yeah, well, he
2:29
Speaker 1: they refused to take that off the table, which is
2:31
Speaker 1: probably wise, especially with some of his UH colleagues going
2:36
Speaker 1: on and saying we really shouldn't have be supporting a
2:40
Speaker 1: credit market, which I guess they consider mortgage backed securities
2:43
Speaker 1: to be. So, you know, he has some FED other
2:46
Speaker 1: other FED members job owning sales, and I think they
2:49
Speaker 1: want to leave that on the table because if mortgage
2:52
Speaker 1: rates aren't responding to their activity, then you know, they
2:56
Speaker 1: want to probably dangle that out there is to potentially
2:59
Speaker 1: keep spreads relatively wide because they are using mortgage backed
3:02
Speaker 1: securities and mortgage rates generally sorry, not really mortgage back securities,
3:06
Speaker 1: but mortgages rates as a lever to try to slow
3:10
Speaker 1: down the inflation rate by trying to slow on the
3:12
Speaker 1: housing market and ali inflationary aspects that a red hot
3:16
Speaker 1: housing market. Cause Google shows me seven point three three
3:20
Speaker 1: six percent for a thirty year fixed mortgage. I think
3:23
Speaker 1: you can shop around and do a little bit better
3:25
Speaker 1: if you need to, but yeah, the effect are great. Yeah. Sure.
3:32
Speaker 1: The effective rate that came out from the NBA this
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Speaker 1: morning was some point oh six, which is the first
3:36
Speaker 1: time it's topped seven percent. Other mortgage rates have been
3:39
Speaker 1: showing it above seven um, and that is the first
3:42
Speaker 1: time we've seen that since two thousand and six, where
3:45
Speaker 1: it actually only reached that level. I was looking at
3:47
Speaker 1: a minute ago, um briefly in two thousand and six,
3:50
Speaker 1: and then before that it's really the early two thousand's
3:53
Speaker 1: before sustained there. And the big difference right now is
3:56
Speaker 1: just that so many homeowners have three percent mortgage rate,
4:01
Speaker 1: whereas at that point, Yeah, you concluded, Matt got it,
4:06
Speaker 1: But I will say that I bought at the absolute
4:08
Speaker 1: top of the market, so I got a good rate,
4:10
Speaker 1: but I paid way too much for my house. Yeah,
4:13
Speaker 1: and and maybe you're better off getting a worse rate,
4:16
Speaker 1: but you know, wait until the housing market comes down
4:18
Speaker 1: a little bit and you can refinance. If if rates
4:20
Speaker 1: ever do turn around that this is certainly a big
4:22
Speaker 1: trend in the opposite direction. Even the arms cost a
4:24
Speaker 1: lot of ten six arms seven point six four four
4:28
Speaker 1: huh Yeah, I think again, you can shop around and
4:31
Speaker 1: do a little bit better there. But I'm not a
4:33
Speaker 1: mortgage originator, so I don't know. So I mean Erica
4:36
Speaker 1: Tuto about the I didn't know anything about really the
4:39
Speaker 1: mortgage backed securities market until the Great Financial Crisis. Then
4:42
Speaker 1: I got like everybody else, I got very smart, very quickly.
4:45
Speaker 1: One of the things I learned is you have to
4:47
Speaker 1: really pay attention to the credit quality of the mortgages
4:49
Speaker 1: in your mbs. Just generally speaking, how do we feel
4:52
Speaker 1: about credit quality out there? The credit quality is by
4:56
Speaker 1: a large stellar compared to before the Great Financial isis.
5:01
Speaker 1: One of the things that triggered that was that there
5:03
Speaker 1: was a lot of subprime lending, and a lot of
5:05
Speaker 1: that subprime lending was made in the form of mortgages
5:09
Speaker 1: that reset upwards when rates went up. They were these
5:13
Speaker 1: teaser rates. They were you know, payoups and arms. And
5:15
Speaker 1: as a result, as soon as rates began to rise
5:17
Speaker 1: a little bit in the mid two thousands, those homeowners yeah, okay,
5:22
Speaker 1: good stuff. Erica started kind forge to get to an
5:24
Speaker 1: appointment with a FED president, Eric Heidelberg, NBA strategist for
5:29
Speaker 1: Bloomberg Intelligence, giving us a lowdown on the mortgage market here,
5:33
Speaker 1: like all the other fixed single markets, really has had
5:35
Speaker 1: a very tough I guess this Elon must Twitter deal
5:44
Speaker 1: is on. That's the news yesterday. Twenty cents I'll believe
5:49
Speaker 1: it when I see on for now. Yeah, the signatures
5:52
Speaker 1: on the documents. Let's do a deep dive into how
5:55
Speaker 1: this might all play out at the Low West coast
5:57
Speaker 1: corresponding for Bloomberg News, he joins us here in our
5:59
Speaker 1: Bloomberg Interact broker studio, as does men Deep seeing our
6:02
Speaker 1: senior technology annals for Bloomberg Intelligence, and let's start with you.
6:05
Speaker 1: Sure well, I guess it's back on, but it is
6:09
Speaker 1: pending a resolution or stay of these legal issues. Is
6:14
Speaker 1: that going to happen. I haven't heard anything, yes, so
6:16
Speaker 1: Must said that he reverts to his original offer fifty
6:19
Speaker 1: four dollars twenty cents to share on the exact same
6:22
Speaker 1: terms that were signed between the two parties April. In
6:25
Speaker 1: his letter to Twitter, he said that it's contingent on
6:29
Speaker 1: a stay of legal proceedings, which Twitter has not indicated
6:32
Speaker 1: either way what they're going to do. Really, all they've
6:34
Speaker 1: said is that they want to close the transaction at
6:37
Speaker 1: that fifty four dollar twenty cents price, and you know,
6:40
Speaker 1: the timing super interesting, you know. According to one source,
6:43
Speaker 1: legal must legal team looked at it, and they looked
6:46
Speaker 1: at what the judge in the case, who was due
6:47
Speaker 1: to preside had said, and they didn't fancy their chances.
6:51
Speaker 1: So that's where we're at. But I mean, so from
6:54
Speaker 1: the Twitter perspective, the best thing to do would be
6:58
Speaker 1: to go through with the lawsuit and have the courts
7:02
Speaker 1: order Musk to buy it, because otherwise, if they agree
7:04
Speaker 1: to drop the suit, then he could just back out again. Yeah.
7:07
Speaker 1: I mean, Twitter has at least been consistent. They sued
7:10
Speaker 1: Musk for specific performance of assigned contract, and they have
7:15
Speaker 1: maintained all along that their intent has always been to
7:19
Speaker 1: close the deal at fifty four dollars twenty cents. The
7:21
Speaker 1: reason I brought all that up is all they said
7:23
Speaker 1: last night was a reiteration that they want to close
7:26
Speaker 1: at fifty four dollars twenty cents. They didn't say whether
7:29
Speaker 1: they dropped legal proceedings. They didn't say whether they accept
7:32
Speaker 1: Musk's latest and reversion of the offer. And so I
7:36
Speaker 1: think that's a really key point you're waiting for, as
7:38
Speaker 1: well as what on earth these Wall Street bankers will
7:39
Speaker 1: do with the debt. All right, men, deep, let's say
7:42
Speaker 1: that Ellen does buy Twitter. I mean it needs some
7:46
Speaker 1: work here. I mean it needs some work in terms
7:48
Speaker 1: of engagement and growing the revenue and what does he
7:52
Speaker 1: dollar asset forty four billion dollars. Yeah, Well, with any
7:56
Speaker 1: large M and A, you have to have some sort
7:58
Speaker 1: of premium, right, You're not going to get it at
8:00
Speaker 1: market value or fair price. So that's a big, big,
8:03
Speaker 1: big premium, big premium. And I think what's uh kind
8:08
Speaker 1: of not clear yet is how he plans to monetize it.
8:12
Speaker 1: Clearly he has his ideas around you know, coming up
8:15
Speaker 1: with a subscription model or just kind of leveraging the
8:19
Speaker 1: franchise as you know, a super app, which is what
8:22
Speaker 1: he tweeted about yesterday. X So, look, I think with Musk,
8:28
Speaker 1: because he's the face of Tesla, and Tesla as a
8:31
Speaker 1: company has had a very good ear in terms of
8:34
Speaker 1: attracting talent and what they're doing around you know, supercomputer
8:38
Speaker 1: and robots and just evis in general. I think what
8:42
Speaker 1: he's looking for is not to go through the trial
8:45
Speaker 1: because there will be bad PR and it's gonna hurt
8:48
Speaker 1: Tesla and then so really it's really care about bad PR.
8:53
Speaker 1: I mean, if there's one billionaire out there that's gotten
8:56
Speaker 1: bad PR, it is Elon Musk. He's the king of
8:59
Speaker 1: bad PR. Well, they had an AI day on Friday,
9:03
Speaker 1: where it was really aimed at getting more talent, attracting
9:08
Speaker 1: talent around AI and machine learning to help him with
9:11
Speaker 1: his supercomputer and you know all the things that tell
9:13
Speaker 1: SLA is doing. So they really care about talent right now.
9:17
Speaker 1: And I think if he goes through this trial, it's
9:19
Speaker 1: going to bring in a lot of negative publicity talking
9:22
Speaker 1: about twelve or thirteen billion dollars a debt. I'm looking
9:25
Speaker 1: at the f A function on the bloomber terminal consensus
9:28
Speaker 1: IBATA is like a billion a billion three. They can't
9:31
Speaker 1: have that kind of leverage. What are they thinking? Well, so,
9:35
Speaker 1: I mean his plans is to get Twitter to one
9:37
Speaker 1: billion in daily active users, which is five times where
9:41
Speaker 1: they are now. And uh right, and he wants to
9:43
Speaker 1: bring out the cyber truck by last year. That's not
9:46
Speaker 1: gonna happen, all right, timing, What's when do we think
9:49
Speaker 1: this thing is gonna close? Actually? Is there anybody's venturing?
9:52
Speaker 1: I guess this is what's so fascinating. He wants to
9:55
Speaker 1: do the deal at the original terms of April. If
9:57
Speaker 1: you look at section two point to the closing se
10:00
Speaker 1: and I love that and the articles of closing that
10:02
Speaker 1: we're in there. They've all been fulfilled. The Twitter shareholders
10:05
Speaker 1: voted for it, the regulatory waiting periods of past. That's
10:08
Speaker 1: why I say focus on Twitter and what Twitter does,
10:11
Speaker 1: because they seem to be in control here if they
10:13
Speaker 1: do stay legal proceedings. I think there's a big portion
10:16
Speaker 1: of the market that says it's reasonable to think this
10:18
Speaker 1: deal could close in the days rather than weeks. Could
10:22
Speaker 1: happen very quickly. But as I said, maybe we still
10:25
Speaker 1: do go to some somewhat form of trial. Maybe the
10:27
Speaker 1: court has jurisdiction over the closing dynamic and a little
10:32
Speaker 1: bit out of Musks control, it seems. I mean, doesn't
10:35
Speaker 1: that make sense for them to ask the judge to
10:37
Speaker 1: just guarantee the closing because they can say, look, okay,
10:40
Speaker 1: he's agreed again. But last time he agreed, he signed
10:43
Speaker 1: all the documents, he committed himself legally, he made it
10:47
Speaker 1: a binding commitment, and then he backed out. So you
10:50
Speaker 1: know what's thet from. You know, there are many voices
10:52
Speaker 1: in the market that thinks the judge will keep an
10:54
Speaker 1: eye on this. Remember this is a chance recurt case.
10:57
Speaker 1: To Paul's point though that I think any of us
10:59
Speaker 1: knew what chance three court was before this week. What
11:01
Speaker 1: is the It's just corporate m and a court. You know,
11:05
Speaker 1: she has the final say. It would have taken her
11:06
Speaker 1: months to reach the decision. But the debt, you know,
11:09
Speaker 1: the Wall Street bankers that musk Haide have to go
11:11
Speaker 1: to the asset managers and sell twelve and a half
11:13
Speaker 1: billion dollars of leverage buyout debt. That is much less
11:17
Speaker 1: attractive than it was in April when this whole thing
11:20
Speaker 1: was hatched. I don't I mean, are you hearing anything
11:22
Speaker 1: from Wall Street the men deep about this capital structure here?
11:27
Speaker 1: I kind of feel like he's got to go to
11:29
Speaker 1: get some more private equity here. Well, the good thing
11:31
Speaker 1: is it's still you know, when you compared to the
11:33
Speaker 1: deck to equity ratio thirty three billion in equity and
11:38
Speaker 1: the remainder twelve point five billion in debt, which is
11:40
Speaker 1: still relatively low, typical buyouts like the Citrix buyout, that
11:45
Speaker 1: component is much higher. So did anybody want a piece
11:48
Speaker 1: of the Citrics buyout? People wouldn't want to touch it
11:50
Speaker 1: with a ten foot pole. Are banks lost six hundred
11:53
Speaker 1: million dollars on the Citrix But that's gonna be dropping
11:56
Speaker 1: a bucket compared to this, I think us can still
11:59
Speaker 1: raise the money by selling his stock. He has hundred
12:01
Speaker 1: and seventy billion in Tesla stocks, so he can, didn't
12:04
Speaker 1: he see from the tweets are from the text messages,
12:07
Speaker 1: I should say that there are a lot of very
12:08
Speaker 1: rich people that want to help him out with cash. Yeah,
12:11
Speaker 1: but again, what does this all come down to? You know? Trust?
12:14
Speaker 1: This has been a bit of a roller coaster and
12:16
Speaker 1: what we don't know from the court filings and disclosures
12:19
Speaker 1: as part of the discoveries, what do all those rich
12:21
Speaker 1: people think today? October five, Levan, a Eastern Are they
12:25
Speaker 1: willing to get on board? Who knows? Alright, guys, great stuff.
12:28
Speaker 1: Appreciate you coming in here. Ed Ludlow, West Coast correspondent
12:31
Speaker 1: for Bloomberg News. He's been trolling around New York for
12:33
Speaker 1: the past few weeks. We have no idea what's going on,
12:36
Speaker 1: but we got Mandeep Sing. He's a Bloomberg in bloom
12:40
Speaker 1: b I industry. Uh. He covers all things technology and
12:43
Speaker 1: he's in the office quite off. Yeah, he's in your
12:45
Speaker 1: office quite often. He's one of these proud of him
12:47
Speaker 1: we are, so we always appreciate getting that round table.
12:49
Speaker 1: So looks. We'll keep our eyes on this Twitter. Will
12:52
Speaker 1: they close? Boy? Talk about it in public markets? Two
12:58
Speaker 1: just Marketer on everywhere and deals. You don't see I
13:04
Speaker 1: p O s. You see E t F launches, But
13:06
Speaker 1: that's pretty much it. I mean, so if here's you
13:10
Speaker 1: should have a television show about that on Monday Steam.
13:13
Speaker 1: So people go into the private market, we hear more
13:15
Speaker 1: and more about this private equity, private debt. We're going
13:18
Speaker 1: to dive deeper into that biz. And we can do
13:21
Speaker 1: that with Randy Schumer. He's co had of Senior Lending
13:23
Speaker 1: and senior managing director Churchill Asset Management. He joined us
13:26
Speaker 1: live here in our Bloomberg Interactive Broker studio. So, Randy,
13:29
Speaker 1: it's been tough everywhere out there for investors. Talk to
13:32
Speaker 1: us about the private capital business that you've been so
13:35
Speaker 1: involved in. How two been for you guys, Well, for
13:38
Speaker 1: somebody who's been in it for a long long time,
13:40
Speaker 1: it's interesting to actually see it coming into its own
13:44
Speaker 1: And part of the reason is because, as you guys
13:45
Speaker 1: have described, what the FED is doing with quantitative tightening
13:49
Speaker 1: and interest rate hikes is creating a vacuum in the
13:52
Speaker 1: public markets. So there's no clearing price for public bonds
13:56
Speaker 1: right now, and the loans are both loans and bond
13:58
Speaker 1: market are kind of offline because nobody knows how much
14:01
Speaker 1: if you're an issuer, how much is that going to
14:03
Speaker 1: cost me? So what they're doing is they're going to
14:05
Speaker 1: the private markets, in large part because it's long term
14:08
Speaker 1: capital that's been locked up for us to invest in
14:11
Speaker 1: companies and other peers of ours, and we can go
14:14
Speaker 1: out with those companies and say we actually can give
14:17
Speaker 1: you capital that's not volatile, that's not that is going
14:20
Speaker 1: to be positive in terms of for investors interest rates
14:23
Speaker 1: going forward because it's a floating rate asset class and
14:25
Speaker 1: for senior debt. So that's why it's getting attention. And
14:29
Speaker 1: the other thing for investors is that because you've got
14:32
Speaker 1: a somewhat risk off environment, leverages coming down, covenants are tighter,
14:37
Speaker 1: and even more important, yields are higher right now for
14:39
Speaker 1: private credit? Are they do these borrowers continue to agree
14:44
Speaker 1: to floating rates? I mean, I guess now you want it,
14:46
Speaker 1: right because as we're starting to get to what feels
14:48
Speaker 1: like the top, you want to get into a floating rate. Well,
14:50
Speaker 1: they want it because it's available capital. So they're willing
14:53
Speaker 1: to pay the price. Secondly, the unitrunch financings that were
14:57
Speaker 1: higher leverage, so six and seven times cash flows are
15:01
Speaker 1: no longer in the market, and so from an investor perspective,
15:03
Speaker 1: at five times and even less, that's very attractive. Junior
15:07
Speaker 1: capital now is being put into these capital structures to
15:11
Speaker 1: provide the issue where the little bit more flexibility. Now
15:15
Speaker 1: junior capital is a fixed rate instrument, so it's good
15:18
Speaker 1: for the issue where because they lock in their cost,
15:21
Speaker 1: and it's good for an investor because the fixed rate
15:23
Speaker 1: cost is it's higher, it's you know, ten to twelve percent.
15:25
Speaker 1: Even senior debt today is close to ten percent. So
15:28
Speaker 1: it's very attractive from an investor perspective. It's been so hot.
15:30
Speaker 1: I mean, Paul and I talked to so many UM
15:33
Speaker 1: fund managers who are starting to get into private markets
15:37
Speaker 1: and more and more we talked to private capital managers.
15:42
Speaker 1: What if we have a big recession? What you know,
15:44
Speaker 1: the the narrative has been short, shallow recession until recently,
15:48
Speaker 1: and now I think people are starting to worry about
15:50
Speaker 1: a longer term, deeper recession. Is that a problem, Well,
15:53
Speaker 1: it is a problem for the overall markets because we
15:56
Speaker 1: don't know how that recession is going to unfold. It's
15:58
Speaker 1: going to be like a no way do none seems
16:00
Speaker 1: unlikely because the bank capital balance sheets are pretty strong
16:04
Speaker 1: right now. It doesn't feel like it's going to be
16:07
Speaker 1: an industry focus because we've had rolling recessions like that
16:11
Speaker 1: over time in retail and so forth. Um, what probably
16:15
Speaker 1: is going to happen is it's going to be an
16:16
Speaker 1: interest expense UH coverage issue because as interest rates go up,
16:22
Speaker 1: companies that were highly leveled, too highly leveled in our view,
16:25
Speaker 1: are going to suffer because they're not gonna be able
16:27
Speaker 1: to pay their interests. Because think about it, Treasury rates
16:29
Speaker 1: were zero a year ago. There four percent today that
16:33
Speaker 1: described and that's not changing. By the way, the Fed
16:35
Speaker 1: fight against inflation is going to be continuing this year
16:37
Speaker 1: and next year, and so you're gonna see interest rates
16:40
Speaker 1: pretty high. So we think active management is critical. If
16:44
Speaker 1: you are in industries the way Churchill is that are
16:46
Speaker 1: more defensive, like healthcare and technology and software, those businesses
16:51
Speaker 1: are going to do well typically through all cycles. But
16:54
Speaker 1: if you're in chemicals, gaming, energy, housing, those businesses are
17:00
Speaker 1: going to get hurt. And that's where you're going to
17:01
Speaker 1: see in a recession um tighter interest and potentially default.
17:06
Speaker 1: We're already seeing some kickups in large cap defaults just
17:09
Speaker 1: because of that. All right, Let's just assume I'm a
17:12
Speaker 1: super wealthy person out there and I want I just
17:14
Speaker 1: bought a social media company and I need twelve or
17:17
Speaker 1: thirteen billion dollars in debt. Is there even a market
17:20
Speaker 1: out there for me? Well, I think there's there's probably
17:24
Speaker 1: a market. But the question is what's the price right now?
17:27
Speaker 1: And if you look at the public markets, and you're
17:30
Speaker 1: seeing it in spades over the last several days in
17:32
Speaker 1: the public equity markets, but we're seeing it all the
17:34
Speaker 1: time in the credit markets, what is the clearing price?
17:37
Speaker 1: And the clearing price is determined by the value. What
17:39
Speaker 1: is the value of the business and or the or
17:43
Speaker 1: the assets, And that's going to be driven a lot
17:46
Speaker 1: by what is the expectation for the cycle going forward.
17:49
Speaker 1: You tell me where we're going to be with rates
17:52
Speaker 1: next year, and and somebody who's asking me whether we're
17:55
Speaker 1: gonna have a hard landing. We're a barely a one
17:57
Speaker 1: percent growth rate right now. We had negative growth in
18:00
Speaker 1: the first and second quarters. Some folks, you know in
18:03
Speaker 1: Bloomberg including you're saying kind of a one percent It's
18:06
Speaker 1: hard to have a hard landing when you're going along
18:08
Speaker 1: at one percent growth, right, So, what I think we
18:11
Speaker 1: see as sort of a sloppy sideways where companies are
18:14
Speaker 1: are going to be continually trying to figure out, Okay,
18:17
Speaker 1: where do I maneuver through these supply chain shortages? How
18:20
Speaker 1: do I keep my costs down? In an era of inflation,
18:24
Speaker 1: food prices, energy prices continue to go up. And again,
18:28
Speaker 1: if you're if you're in an active management scenario where um,
18:31
Speaker 1: you're having a manager look very carefully at the free
18:35
Speaker 1: cash flows of these businesses. Are retail investors gonna say, Okay,
18:39
Speaker 1: I'm comfortable with this manager because they've been through a
18:42
Speaker 1: downturn before. We've been around for twenty years, We've seen
18:45
Speaker 1: these ups and downs. You're dealing with though much more
18:48
Speaker 1: institutional investors. I mean, you're dealing with big numbers, right,
18:51
Speaker 1: Do you have big assets under management? Um? Is there
18:54
Speaker 1: room for a smaller player in private capital? Is there
18:58
Speaker 1: room for retail investors really get into it? Well, there's
19:01
Speaker 1: definitely room for retail investors. And in that case, it's
19:04
Speaker 1: really a question of education. What is private credit how
19:07
Speaker 1: does it help defining it as an uncorrelated asset class,
19:11
Speaker 1: so it doesn't move with all the markets. So we
19:13
Speaker 1: don't care where the DAO is today or yesterday or tomorrow.
19:16
Speaker 1: What we care is and when we look at our
19:18
Speaker 1: portfolio companies, how are those businesses going to go through
19:21
Speaker 1: a cycle? And then explaining it to investors, here's why
19:24
Speaker 1: you should be comfortable with our track record with very
19:28
Speaker 1: few losses over the last twenty years, through multiple cycles,
19:32
Speaker 1: and with very careful screening of companies to make sure
19:35
Speaker 1: that if we do hit a downturn, that those companies
19:38
Speaker 1: are going to be safe. Real quick, thirty seconds. What's
19:40
Speaker 1: a typical deal for you? What do you look for?
19:42
Speaker 1: So we look for companies that are leaders in their field.
19:46
Speaker 1: We look for companies that are backed by the best
19:48
Speaker 1: private equity firms that we have close relationships with, who
19:51
Speaker 1: do a lot of the thought leadership about Okay, why
19:54
Speaker 1: the sector and why this business um And we look
19:57
Speaker 1: for structures that are conservative fully secured by ass that's
20:00
Speaker 1: in cash flow, low leverage pricing that is at a
20:03
Speaker 1: premium to the public markets. And second and third ways
20:07
Speaker 1: out because we all know that things happen you want
20:09
Speaker 1: to make sure their ways out if something happens that's unexpected,
20:13
Speaker 1: and then there always is all right, good stuff. Randy Schwimmer,
20:16
Speaker 1: co head of Senior Lending and Senior Managing Director Churchill
20:18
Speaker 1: Asset Management, talking about the private capital business and again
20:21
Speaker 1: as the public markets. And you've got a very popular newsletter. Yeah,
20:24
Speaker 1: well we should that because you have a big readership
20:28
Speaker 1: and for this kind of a niche industry, right, I
20:31
Speaker 1: think it's a pretty big deal. I appreciate that the
20:33
Speaker 1: lead left dot com and it's free to any friends
20:35
Speaker 1: of this group right here because we're friends of Bloomberg.
20:38
Speaker 1: Good stuff. I love to hear that. I range Schimmer
20:40
Speaker 1: Joints as we appreciate that. In studio he had the
20:43
Speaker 1: long walk across the street, So we appreciate folks. They're out,
20:46
Speaker 1: they're getting out. And about how about that Hurricane Ian
20:52
Speaker 1: has come and gone, but boy, the destruction in Florida
20:55
Speaker 1: and some other places is just extraordinary. Let's put some
20:58
Speaker 1: numbers around, uh, the costs of the storm. We can
21:01
Speaker 1: do that with Matthew Palozzola. He's a senior analyst covering
21:04
Speaker 1: property and casualty insurance for Bloomberg Intelligence. He trains is
21:07
Speaker 1: here in our Bloomberg Interactive Brokers studio. So, Matt, what's
21:10
Speaker 1: the headline number in terms of the insured loss coming
21:14
Speaker 1: from this storm, which I think is one of the
21:15
Speaker 1: biggest ones sure, So it's shaping up to be perhaps
21:19
Speaker 1: the second largest insured hurricane loss ever after Katrina, after Katrina. Um,
21:26
Speaker 1: and you know, it's actually even bigger than the Twitter
21:29
Speaker 1: Elon deal at at around sixty billion dollars of insured losses,
21:34
Speaker 1: which could imply that the economic losses would be over
21:37
Speaker 1: a hundred billion dollars. And who backs up? The difference
21:40
Speaker 1: is that does the government take over that some of
21:44
Speaker 1: it's a government A lot of infrastructure is not insured,
21:46
Speaker 1: so a lot of it would be that a lot
21:49
Speaker 1: of it could be uh, you know, uninsured properties too. Yea,
21:53
Speaker 1: all right, so this was bad. But if it hit Tampa,
21:57
Speaker 1: I think we were talking to you a week or
21:58
Speaker 1: so ago that could but had a much bigger number.
22:00
Speaker 1: But still this is just huge. So we avoided the
22:03
Speaker 1: worst case. But it's just it's just a less bad
22:05
Speaker 1: bad case. Um. The direction on Tampa people were talking
22:09
Speaker 1: about that kind of scenario costing insurance companies a hundred
22:12
Speaker 1: billion dollars which might have cost two dred billion in
22:15
Speaker 1: economic losses. So, um, what is the result here for
22:20
Speaker 1: the insurers? I mean, um, they're obviously prepared for this
22:24
Speaker 1: kind of thing, but this is pretty big. So this
22:26
Speaker 1: is a big um. This will hit the reinsurance market,
22:29
Speaker 1: which is insurance for insurance companies. A couple of things
22:32
Speaker 1: to note is that catastrophe losses there haven't been a
22:36
Speaker 1: lot so far in the year, especially in the quarter,
22:38
Speaker 1: so they have budgets for these things. We we have
22:41
Speaker 1: some analysis that says this could cost about of third
22:47
Speaker 1: quarter earnings on average for a selected group of companies,
22:50
Speaker 1: which is what we would say an earnings event, not
22:53
Speaker 1: a capital event. All right, So to us about just
22:56
Speaker 1: the insurance industry in in Florida in general, because it
22:59
Speaker 1: kind of goes to the insurance business. I mean, it's
23:01
Speaker 1: not it. I thought the insurance infrastructure umbrella in place
23:06
Speaker 1: like Florida, which has so you know, they're so prone
23:09
Speaker 1: to these storms, would be more robust. But it's really not,
23:12
Speaker 1: is it. And it's it's in trouble. So one of
23:15
Speaker 1: the biggest, not the biggest insurer in the state is
23:17
Speaker 1: the state. So if you can't get insurance from private
23:19
Speaker 1: insurance companies. You have to go to citizens, which is
23:22
Speaker 1: the state fund. Uh and the policies and forces have
23:25
Speaker 1: been growing and growing, and what's essentially happening is the
23:28
Speaker 1: reinsurance companies don't want to give reinsurance to the primary
23:31
Speaker 1: companies there and a lot of the smaller ones have
23:34
Speaker 1: either left the state are actually gone insolvent. What does
23:36
Speaker 1: this mean for rates for premiums? So typically the adages
23:41
Speaker 1: you get a big storm loss and rates kind of
23:43
Speaker 1: spike up. Um rates will be going up for homeowners
23:46
Speaker 1: insurance anyway. Rates on the commercial side have been going
23:50
Speaker 1: up for a couple of years anyway, So I don't
23:51
Speaker 1: think that adage is gonna hold this at a time
23:54
Speaker 1: when rates rates are going up. Oh well, you know,
23:57
Speaker 1: interest rates are going up, which helps the insurance comes
24:00
Speaker 1: on the investment income side, which theoretically means they don't
24:03
Speaker 1: need to raise prices as much, but they still will
24:05
Speaker 1: get your hopes what percentage of you know, you drag denistry.
24:10
Speaker 1: You look at some of these homes, are they all
24:11
Speaker 1: insured or do people just say it's too expensive, I'm
24:14
Speaker 1: just going to roll the dice. So if you have
24:16
Speaker 1: a mortgage, you need insurance right, And if you're in
24:19
Speaker 1: a flood zone and you have a mortgage, you need
24:21
Speaker 1: flood insurance. I think what where the we're not going
24:25
Speaker 1: to do it is is the take up on flood
24:27
Speaker 1: insurance outside of designated flood zones. So like if you
24:30
Speaker 1: looked at these counties down there, that take up rate
24:32
Speaker 1: people who buy the flood insurance is around thirty and
24:36
Speaker 1: that's probably only the people who need to buy it.
24:38
Speaker 1: So the people who don't need to buy it don't
24:40
Speaker 1: buy it, and then they have a flood loss and
24:42
Speaker 1: it's out of there. And that's what these losses are, right,
24:43
Speaker 1: because it was the surge that was the most damaging.
24:46
Speaker 1: So some of it is when I'd say sixty billion,
24:49
Speaker 1: that is not including the flood. It might include some
24:52
Speaker 1: of the National Flood Insurance Program, but it's not. That's
24:56
Speaker 1: mostly not the flood losses because a lot of that
24:59
Speaker 1: will be uninsured. So what's it like to be an
25:02
Speaker 1: insurance company these days? With wildfires every day in the news.
25:06
Speaker 1: If it's not wildfires, it's raining, then the mud slides
25:09
Speaker 1: from the stuff that was burnt, or hurricanes or superstorms
25:13
Speaker 1: to I mean, I guess they just adjust their models
25:15
Speaker 1: on the risk premium, and they do they go merrily along. Well,
25:19
Speaker 1: if and if it's not that it's a pandemic, and
25:21
Speaker 1: if it's not that it's a war in Ukraine. So uh,
25:25
Speaker 1: you know, look, they're they're used to these things. Non
25:28
Speaker 1: correlated risks are are tough, or massively correlated risks are
25:32
Speaker 1: also tough. So uh, they've been adapting to new things.
25:35
Speaker 1: But one thing that's interesting is there's a ton of
25:37
Speaker 1: stuff that just isn't insured. So it's it's a little
25:40
Speaker 1: bit of an exciting time to be an insurance company
25:43
Speaker 1: because you know, there's cyber there's there's tons of things,
25:46
Speaker 1: there's a lot of new opportunities. They'll be very weary
25:48
Speaker 1: to get into these things, but I think the ones
25:50
Speaker 1: who first move will be good. So away from this storm,
25:54
Speaker 1: when you're at a dinner party, and I'm sure you
25:56
Speaker 1: get a lot of invites as the insurance analysts, of course,
26:01
Speaker 1: what are you excited about? What do you what do
26:03
Speaker 1: you talk to people about when when when the woman
26:05
Speaker 1: next to you says, hey, what are some good opportunities
26:07
Speaker 1: out there? What do you recommend? Um? You know, the
26:12
Speaker 1: the interesting companies, to be honest, are the boring companies. Right,
26:15
Speaker 1: So you look at the bell Weather is like a
26:18
Speaker 1: chub um. You know, it's just a company that keeps
26:21
Speaker 1: growing every year, keeps being the best underwriter every year.
26:26
Speaker 1: And you know what another one's interesting is a I G.
26:27
Speaker 1: They're they're working on a spinoff of their life insurance unit.
26:31
Speaker 1: Their valuation is much lower than the than the group average,
26:35
Speaker 1: and I think their performance has been catching up to
26:38
Speaker 1: the group. So it's it's a nice kind of turnaround story.
26:41
Speaker 1: Kicks me out? Did they how come they insured something
26:45
Speaker 1: for me? And they were great about it, like no
26:47
Speaker 1: questions asked, here's the money, thanks very much, and that
26:51
Speaker 1: they were like, you're not coming back your Picasso, and
26:55
Speaker 1: then they dropped exactly exactly all right. Matthew Palazzola, thanks
26:58
Speaker 1: so much for joining us here our studios here. Matthew Palozola.
27:02
Speaker 1: He covers property and count casualty insurance companies in industry
27:06
Speaker 1: for Bloomberg Intelligence. So he's been a person in demand.
27:09
Speaker 1: He always seems to be this time of year. So, man,
27:14
Speaker 1: I guess so earnings will be kicking off in a
27:16
Speaker 1: couple of weeks and it usually leads with the big
27:19
Speaker 1: investment banks um and I think it's gonna be a
27:22
Speaker 1: little dicey for these guys that the major earning season.
27:26
Speaker 1: I'm focused on a number of other companies. I saw
27:30
Speaker 1: that til Ray is coming out with earnings on Friday.
27:34
Speaker 1: That's the marijuana um we brand company, and then a
27:38
Speaker 1: couple of other weed companies are coming out on Tuesday.
27:41
Speaker 1: I just find it so interesting. I've been talking to
27:43
Speaker 1: some analysts um in the industry, those who are allowed
27:46
Speaker 1: to because it's difficult to get coverage on this, and
27:49
Speaker 1: they're saying, like, these socks are trading for two time
27:52
Speaker 1: sales for five times earnings. I mean, they're priced for uh,
27:56
Speaker 1: some kind of drop in demand. But of course it's
27:59
Speaker 1: only going to ride. This is more and more stags go.
28:01
Speaker 1: All right, but let's talk Wall Street. We do that
28:02
Speaker 1: with Alison Williams, Senior Global Banks and Asset Manager Analysts.
28:06
Speaker 1: I hired her as the Bank Sandles, but her title
28:08
Speaker 1: keeps getting bigger and bigger and bigger. Bloomberg Intelligence Paul
28:11
Speaker 1: has always taking credit for you, by the way, yeah always,
28:14
Speaker 1: let's why tell us what we should be thinking about
28:17
Speaker 1: for these earnings coming off for the big banks and
28:19
Speaker 1: investment banks that you follow me what's JP Morgan, what's
28:22
Speaker 1: Morgan Stanley? What are they gonna be saying in this quarter?
28:25
Speaker 1: So one thing we know is week fees Okay, so
28:29
Speaker 1: I P O S have you know, are are sort
28:32
Speaker 1: of completely gone away almost compared to record year last year.
28:36
Speaker 1: Fees are gonna be down fift Wealth management fees are
28:40
Speaker 1: going to be weak. Asset management fees are gonna week
28:42
Speaker 1: over draft fees are gonna be weak. So okay, but
28:46
Speaker 1: don't we have a steeping and we have a steeping
28:47
Speaker 1: yield curve. Isn't that good for you? So stepien and
28:50
Speaker 1: yield curve is good. But it does take a while
28:52
Speaker 1: to to sort of feed through. And I think one
28:56
Speaker 1: of the things that we're gonna be watching um at
28:58
Speaker 1: the at the US Bank is loan growth and that
29:02
Speaker 1: interest margin expansion because we think there's gonna be some slowing.
29:05
Speaker 1: Our overdraft fees going to be weak because consumers have
29:09
Speaker 1: been so responsible in terms of watching what they spend.
29:14
Speaker 1: I think because banks have been pressured to cut eliminate.
29:17
Speaker 1: I will never understand this. Why do they when that
29:21
Speaker 1: her go to issues? Yeah, but you know what, you
29:23
Speaker 1: only get charged and overgraph fee if you spend more
29:26
Speaker 1: money than you have in your account. Just don't do
29:29
Speaker 1: that right, rightly. That part of fiscal responsibility that everyone
29:33
Speaker 1: should learn it is opt in service, right, you have
29:36
Speaker 1: to opt in for that service. So so it is
29:39
Speaker 1: interesting that the continued scrutiny there. But um but fees week,
29:44
Speaker 1: as we said, um, loan growth slowing, and I think
29:48
Speaker 1: that's something that we've been worried about, right, Like everyone's
29:51
Speaker 1: excited about rates going up because it's good for the margin,
29:53
Speaker 1: but you need people to borrow, and as rates are
29:56
Speaker 1: going up, are gonna we haven't had any of your
29:59
Speaker 1: your big banks that you however, nobody's pre announced yet,
30:01
Speaker 1: have they No one's pre announced, And I think that
30:05
Speaker 1: a lot of the as they said, a lot of
30:07
Speaker 1: the bad news, as we now always relates to the outlook,
30:09
Speaker 1: right Like we're not we're not so worried about the
30:12
Speaker 1: last three months, but we're worried about what's ahead. So
30:16
Speaker 1: what what are the trends in loan growth? What does
30:18
Speaker 1: that tell us about next year? And then provisions that's
30:21
Speaker 1: still a wild card, right, So in terms of the
30:24
Speaker 1: economy and in terms of the accounting at these banks,
30:27
Speaker 1: banks have to look ahead, reserve over the life of
30:29
Speaker 1: the loans UM and so there are some accounting and
30:32
Speaker 1: assumptions there, and as the assumptions get tougher, UM will
30:37
Speaker 1: there be some provisions. The exciting thing this earnings go
30:41
Speaker 1: around is we have four big banks kicking off next Friday,
30:46
Speaker 1: so we'll have all the answers, if you will, sort
30:48
Speaker 1: of in one day. UM. Fixed income trading, the rate
30:52
Speaker 1: side of things is going to be very strong. So
30:54
Speaker 1: that's positive for for people like JP Morgan and City
30:56
Speaker 1: when they kick off the results equity trading UM, it's
31:00
Speaker 1: probably gonna be down from the prior year. UM and
31:03
Speaker 1: again we'll be looking to see those investment banking pipelines.
31:07
Speaker 1: Is there any potential to execute uh that you know
31:11
Speaker 1: some of that pipeline going into your end. That's really
31:13
Speaker 1: going to depend on the market. So you don't cover credit,
31:16
Speaker 1: sweee credit? You do? Okay? So what's the deal here?
31:21
Speaker 1: Have they just had uh? Have they just had a
31:24
Speaker 1: lack of faith in UM market partners? Well, I'll say
31:29
Speaker 1: two things with the recent price action. First, when a
31:33
Speaker 1: bank comes out and says they're evaluating their strategy, and
31:37
Speaker 1: that strategy may or may not include a capital raise,
31:39
Speaker 1: that's that's never going to be good for the stock.
31:41
Speaker 1: Stocks hate uncertainty, and especially if that uncertainty, um, you know,
31:46
Speaker 1: could relate to dilution, it's going to be hard for
31:49
Speaker 1: those shares to study. And then when you have markets
31:53
Speaker 1: like we've had, right, So Credit Sweets was very volatile
31:56
Speaker 1: on Monday. It was not a strong market, so that's
32:00
Speaker 1: obviously a contributor. Banks in general are under pressure. There's
32:03
Speaker 1: a lot of uncertainty about banks. European banks are under pressure.
32:07
Speaker 1: But they've had to reneg on deals they've made with clients, right.
32:10
Speaker 1: Apparently they lend out stock to clients, agreed to do
32:14
Speaker 1: it contractually obligated, and then they realized they can't get
32:18
Speaker 1: that stock from other market participants, so they've had to cancel. Well,
32:22
Speaker 1: I'm you know, Bloomberg News has reported that I'm you know,
32:26
Speaker 1: less familiar with those intimate details inside the bank, but
32:29
Speaker 1: I would say that, you know, the the bigger picture
32:33
Speaker 1: for Credit suitees is risk management, right, So that's really
32:37
Speaker 1: what killed them last year. They had all these they
32:40
Speaker 1: had all these hits. Um, they made some steps potentially
32:43
Speaker 1: not aggressive enough. You know, sometimes hindsight, if the market
32:48
Speaker 1: had been a great market this year, maybe maybe things
32:51
Speaker 1: would have been different, but they're not. They need to
32:54
Speaker 1: make deeper cuts. They've made changes at the top UM
32:59
Speaker 1: and and you know, I guess that the tough thing
33:02
Speaker 1: is gonna be what are they going to say to
33:04
Speaker 1: instill confidence? Because whatever plan they come out with, that's
33:07
Speaker 1: also gonna take time and patient capital capital. Alison Williams,
33:12
Speaker 1: thank you so much for joining us. Alison Williams, Senior
33:15
Speaker 1: banks analysts for Bloomberg Intelligence. One of the biggest I
33:21
Speaker 1: think themes in investment in the last decade plus has
33:23
Speaker 1: been E s G, Environmental, social, and governance. It's attracted
33:28
Speaker 1: a lot of assets for investors that are looking to,
33:30
Speaker 1: you know, focus on those issues in their investing. But
33:33
Speaker 1: I think it's getting a little some pushback recently. UM
33:36
Speaker 1: Bloomberg has a story out on that. We welcome Priscilla,
33:40
Speaker 1: reporter for Bloomberg News. She's in our London office. Priscilla,
33:44
Speaker 1: talk to us about kind of the work you guys
33:46
Speaker 1: have been doing looking at this E s G investment picture,
33:49
Speaker 1: It seems like it may not be delivering some of
33:52
Speaker 1: some of the benefits that it that some of the
33:54
Speaker 1: early folks were talking about. What did you find, Hey,
33:59
Speaker 1: good turnoon here from London. Thank you for having me so. Uh.
34:03
Speaker 1: This story that we have out that is also in
34:05
Speaker 1: the Markets magazine that it is going to come out
34:07
Speaker 1: next week. Um. It's also the result of an investigation
34:11
Speaker 1: that we did for six months. We looked into companies
34:14
Speaker 1: that issue sustainability linked bonds in particular. So sustainability linked
34:18
Speaker 1: bonds are different from green social and sustainable bonds because
34:24
Speaker 1: when I'll do like a short explanation, when a company
34:27
Speaker 1: comes to the market and they issue a label bond
34:30
Speaker 1: like green Social sustainable, the money that they take from
34:33
Speaker 1: investors for that bond needs to be allocated for a
34:36
Speaker 1: specific project. With this sustainability linked bonds, the story is
34:41
Speaker 1: slightly different. So you take the money from investors, you
34:43
Speaker 1: can use that money for whatever you want as long
34:46
Speaker 1: as you and you tie this this bond to a
34:50
Speaker 1: bigger like corporate climate goals, so you can take this
34:55
Speaker 1: money as long as you achieve other goals at a
34:58
Speaker 1: company level. And it turns out out then when looking
35:01
Speaker 1: at those bonds that boomed in Europe over the past
35:03
Speaker 1: two to three years, uh, most of those goals they
35:07
Speaker 1: were irrelevant, they were weak, or they were already achieved
35:10
Speaker 1: so the companies they weren't like they were achieving goals
35:14
Speaker 1: that were already achieved. So yeah, so the penalties like
35:19
Speaker 1: they weren't. Uh, the industry itself wasn't living up to
35:24
Speaker 1: its potential. I mean, of course, why would you put
35:27
Speaker 1: yourself as a company in a position where you're forced
35:29
Speaker 1: to pay millions of dollars and penalties. I mean, if
35:32
Speaker 1: you have a whole bunch of investors who are willing
35:35
Speaker 1: to give you money for cheap because they think you're
35:37
Speaker 1: going to do something special, and then, um, you said,
35:40
Speaker 1: super easy goals for yourself, low hurdles that you clear
35:43
Speaker 1: with no problem, that's like a win win for the company,
35:46
Speaker 1: right exactly, that an absolute win win. In those bones,
35:50
Speaker 1: they were super subscribed by investors, especially in an environment
35:54
Speaker 1: of low interest rates like that we had in the
35:57
Speaker 1: past two years. That's the part I don't get. So
35:59
Speaker 1: why why this is the part I don't get. Um,
36:03
Speaker 1: I understand why Chanel uh did the deal. I don't
36:08
Speaker 1: understand why the deal was oversubscribed. I mean, who wants
36:12
Speaker 1: to give them a better rate for pretending to be green? Well,
36:17
Speaker 1: so investors did. At the time. The bond was super
36:21
Speaker 1: subscribed by investors. So when in an in an environment
36:25
Speaker 1: where interest rates are so low, everything that comes to
36:28
Speaker 1: the market is super subscribed, right. And also when you
36:32
Speaker 1: have a new portfolio, a bond that is labeled, it
36:35
Speaker 1: gives the impression that you're doing good. So this bond
36:38
Speaker 1: is fulfilling, uh, sort of like E s G investment mandate.
36:46
Speaker 1: But there's so much going on, so many bonds coming
36:49
Speaker 1: to the market, that maybe investors are credit analysts. They
36:53
Speaker 1: didn't dig down into the numbers to look at this. So, Priscilla,
36:57
Speaker 1: is there any sense that you know, investors are like
37:00
Speaker 1: latching onto this idea that hey, maybe this isn't such
37:04
Speaker 1: a great deal. Is there any pushback from the investment community. Yes,
37:08
Speaker 1: So lately we've we've started seeing the headlines coming. We've
37:12
Speaker 1: seen investors like moving Toro prize that they said like
37:16
Speaker 1: criticizing those products, saying that they are not living up
37:19
Speaker 1: to their expectations. That companies are doing this and they
37:23
Speaker 1: took massive advantage of those conditions to bring those zeals.
37:27
Speaker 1: So those criticism is there and it is becoming more
37:31
Speaker 1: and more evident. Did um central banks participate in these deals?
37:36
Speaker 1: Because I remember at the time the e C B
37:38
Speaker 1: was all green as well as was the EU. Yes,
37:42
Speaker 1: so the European Central Bank. So the market really started
37:47
Speaker 1: off in Europe at the end of two thousand nineteen,
37:50
Speaker 1: but we had like one to three deals. The first
37:52
Speaker 1: one was a bound for ann L, the Italian utility company,
37:55
Speaker 1: which is by the way, one of the biggest issuer
37:57
Speaker 1: of this product. Um. So the market started in but
38:02
Speaker 1: it really kicked off in two thousand twenty one, and
38:04
Speaker 1: that's because the ECB started buying those bonds, so sustainability
38:08
Speaker 1: linked bones started being eligible as collateral for the European
38:12
Speaker 1: Central Bank from then and since then, because the central
38:15
Speaker 1: Bank was able to participate in those sales, they boomed.
38:18
Speaker 1: It's amazing. It's almost like, I mean, a conspiracy theorist
38:23
Speaker 1: would say that the board that Chanel knows some people
38:26
Speaker 1: on the e C being convinced them to do this
38:28
Speaker 1: to get them easier financing. Um. But I guess those
38:32
Speaker 1: days are gone, right. The pool of investors, you right,
38:35
Speaker 1: has shrunk and central banks clearly are pulling back. Yes,
38:39
Speaker 1: that's right. And now there's also more and more attention
38:42
Speaker 1: into those deals and people are looking at the documentation
38:46
Speaker 1: because the market now has evolved. We have because it
38:50
Speaker 1: was new right in two thousand ninety, not only a
38:53
Speaker 1: lot of people knew what they are what they were
38:55
Speaker 1: looking at. So now there's more base, there's more point
38:59
Speaker 1: of comparison, so you can go into the material and
39:02
Speaker 1: to the documentation of such bonds and actually see what
39:06
Speaker 1: they're all about. And investigators are looking into it even
39:10
Speaker 1: beyond you, right, I mean, uh, courts. Well, Uh, that's
39:17
Speaker 1: what we hope, that's what we hope. So far, the
39:20
Speaker 1: regulators haven't gone down in Europe to the route of
39:23
Speaker 1: looking at the ambitiousness of the goals, but we could
39:28
Speaker 1: only hope that is more and more deals come to
39:30
Speaker 1: the market and investors are more of the work, we
39:33
Speaker 1: start seeing that they're not achieving the goals are actually
39:37
Speaker 1: relevant to climate and to climate change into addressing the
39:42
Speaker 1: the proposed goals, I was gonna say go ahead now,
39:50
Speaker 1: out of like all the deals that we've that we've analyzed,
39:54
Speaker 1: there's not a single bond that pays more than one
39:56
Speaker 1: percent penalty if they failed to achieve, So this is
39:59
Speaker 1: not relevant for a company at all. Yeah, that makes sense.
40:01
Speaker 1: Interesting stuff. Priscillassato Roca, reporter for Bloomberg News, talking about
40:05
Speaker 1: the e s G Investing son I think getting some
40:08
Speaker 1: pushback on maybe some of the initial promises that were
40:12
Speaker 1: made by folks in the E s G community. Thanks
40:17
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe
40:21
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast
40:25
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at
40:28
Speaker 1: Matt Miller three. Put on false Sweeney I'm on Twitter
40:32
Speaker 1: at pt Sweeney before the podcast. You can always catch
40:35
Speaker 1: us worldwide at Bloomberg Radio.