Fed Alarms at SVB Began More Than Year Ago

stress go right now? And I think there's a lot of questions out there. We know at least four banks have curbs on trades with Credit Suite. We got this from Reuter's First Republicans Bank, that thirty billion cash injection not calming down investors. And then you've got a most read and Bloomberg exclusive story right now on the alarms at the San Francisco FED that went off months ago.

When it comes to Silicon Valley Bank, you know from this morning that SVB Financial did file Chapter eleven bankruptcy in year. So let's get an update and where we are and how we got here, because it's all important. Joining us right now is Bloomberg News finance reporter hand to eleven along with Herman chand he's senior Alice for US regional banks with our Bloomberg Intelligence team. So investors

continue to sell bank stocks, including First Republic. And I'd want to start with you, where are we what's the assessment of kind of where we are in the banking sector right now? Yeah, Well that's the that's the question that investors are trying to figure out themselves, right Are these banks that we've seen, you know, having issues and the ones that were seized by regulators? Are those the problem ers at a warning sign of just you know,

more to come. And that's the question. I mean, we've seen these just massive stock moves over the past couple of days that really speak to you know, investors kind of trying to figure that out themselves. In Herman, we are seeing shares of First Republic down a lot again today even after yesterday, with what happened with these big institutions coming in to try to rescue it. And you have a no doubt to day specifically about First Republic.

Why hasn't that thirty billion dollars rescue basically quelled investors fears? Right now? Sure, that's right, there's a couple of issues with both the thirty billion dollars deposit. It's only for one hundred twenty days, so it's shortly viewed as a short term bridge to a long term solution. And what

that solution is it remains to be seen. But I can tell you that First Republics update after the market closed yesterday was frankly a bit eye opening because in particular that they noted that they had borrowed up to one hundred and nine billion dollars from the Federal Reserve, and you compare that to only the thirty billion that's coming in from JP Morgan, Bank of America and others in the largest US banks, it just shows that there's a lot of the positive outflow that they still need

the stem or they need to find some sort of strategic resolution that could appease regulators and really put the safety of their depositors and their customers eddies. Yeah, banks not apples to apples. First Republic is certainly one thing Silicon Valley Bank, you know, Hannah, it's amazing. It was what one we could ago yesterday that the shares of Silicon Valleys Holding Company, if you will just plummeted. They

came tumbling down. You and the team a Bloomberg exclusive about what FED bank regulators, San Francisco Fed regulators new months ago tell us about it. Yeah, what a crazy week it's spent. Right, So, Silicon Valley Bank, it's supervision within the Federal Reserve system was done through the San Francisco FED branch, and that FED branch has a program for supervising what it calls community in regional banks, the

smaller banks, and then one for the large banks. And the large thing supervisors are typically you know, the more the more senior team there. They're dealing with the bigger, mark complex banks. So remember Silicon Valley five years ago was just a fraction of the size that it ultimately was. Um you know at the time of its failure last week, Yeah, it really is. It really ballooned. Yeah, So it ballooned

in size over the past couple of years. To start UM twenty twenty two, the bank was moved from the smaller of the community regional bank supervision group to the larger one. And you know, as that transition happened, those more senior examiners started firing off a series of warnings.

These are confidential warnings that are part of the regulatory process, and they can you know, set up for for more um serious and public things like consent orders which we've seen you know those and complic consequences like even in the most extreme case cappin growth. UM. But so these these so called MRIs and MRIs are kind of the

first step in that process. UM. And the FED that that new more seam your team fired off warnings about operations in technology and then also late last year flagged interest rate risks, which is ultimately, you know, the massive problem that contributed very heavily to the bank failure that we saw last week. Well, and I want to come on in on this because the interest rate risk is

something that we're all trying to figure out. It feels like a lot of banks have this exposure potentially, well as Frickie was a big outlier because you had mentioned they had grown and ballooned their balance sheet, and that ballooning happened largely within their deposit franchise, and so they didn't have enough lending opportunities to absorb all those deposits, so they parked all this cash from the deposits into

the securities portfolio when rates were really low. So as rates roves, the value of those securities decline, and ultimately they were sitting on a fifteen billion dollar loss paper loss position, which was really the reason why a lot of the investment community lost confidence with the bank after the announcement that they were going to raise capital and sell some of these securities. As First Republic others same exposure, not too much. So SPB was an at wire with

the size of their portfolio. Signature was a bit of a different breed because they had crypto exposure and there was there was they were running down those crypto related deposits and got sucked into the vortex of the SVB fallout. First Republic doesn't have that same sort of issue. It's more the issue with First Republic was Signature and SVB

is that they all have very chunky deposits. So when you have a large commercial or highnet worth relationship exit, that has a big effect on your ultimate deposit balances. So if you have a lot of those chunky deposit sleeves and that that does create a hole in your balance shot kind of So I want you to come back in here. So as we start, as you guys reported out and you're exclusive, you know what, officials certainly

there were things on their radar. I mean, how are you thinking about, you know, what's the follow through or what's the next especially as this comes out there. I guess my point is regulators were where that there was stuff going on. So was it that the systems weren't in place, people weren't listening? Where did it break down? Yeah, So that's a fantastic question and definitely something that will

be learning more about in the coming weeks. The FET itself has promised to investigate its own supervision of Silicon Valley Bank and publish the results by May first, so I will be very excited to read that one it hits report on. In the meantime, Carol and I were actually just talking about as far as going into this weekend, just thinking about what transpired last weekend. Where are we at heading into the weekend, Herman, as far as should

we be prepared for potentially other headlines to come through. Well, I'll be on my Bloomberg term at seven o'clock on Sunday just waiting for something to pop up. So I'm anticipating something. I don't know if we should expect it, but we just should be vigilant in terms of something coming out of First Republic or from the regulators. So that's something to watch well. And what's interesting, you know, Hannah, just to bring you back in here, I mean, I'm

looking at your story. I mean, the San Francisco FED had this program right for overseeing regional institutions, so they were on it. Yes, Um, that's true. But the large institutions, I mean we're talking like the you know, in the biggest example like Wells Fargo for example. So those are much larger, much more complex than some of the smaller banks, which is why the more the more senior people are

the ones in the in the large fing gerups. So definitely, you know, in my understanding of it from talking sources and whatnot and my own research, it was a different level of scrutiny once Cilicon Valleybank moved into the new group, Okay, so that they were certainly getting looked at. And I would say, Silicon Valley, what's actually going to go through the annual stress test starting next year if they were around?

So they just grew so fast that I think they're like Lakanna was saying that it took some time for the regulators to come together and realize what sort of institution SBB really was. I just feel like in some ways, and I feel like we've seen this movie before a little bit, and that things just are kind of moving so fast and regulators can't keep up. Herman Wade in on what he's watching out for. What are you watching out for us we go into a weekend. Yeah, you know,

that's a great question. And I'll note it's only three sixteen pms, so a lot a lot could evolve between now and then. I mean, I'm watching all the things that we've talked about on this call. Um, you know, what happens with the other firms that people have been talking about, and whether there's any news on the front of what happens to I guess the corpses of Silicon Valley and Signature. Yeah, and let's not forget credit spieces

holding weekend meetings, just as it's scenarios. Again, not all apples to apples, but it's just you kind of start to layer these things on top of each other. And this is why we are seeing stress, certainly within the banking sector and banking stocks in particular. Hey, guys, thank you so much different angles to the story, so we

really appreciate you both weighing in. Hannah Levitt is financial porter at Bloomberg News and our interactive Nope, she was on the phone forgive me in our interactive broker studios. Herman Chan he has been a go to for us throughout the week and I know he will be next week as well. Senior analyst for regional banks in the United States at our Bloomberg Intelligence Team. Herman, thank you so much, really appreciate it. You're listening to the Bloomberg

Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion Radio app, and the Bloomberg Business app, or watch us live on YouTube. Well. Earlier this month, Octa reported earnings that sended stock storring some thirteen percent and gave an upbeat first quarter revenue forecast. Like many tech companies, though it is finding a focus on efficiency, it is paying off for the company. The stock by the way, up

more than twenty percent year to date. So let's get to lots of questions for our next guest. Todd McKinnon is the CEO and founder of Octa. It's a fourteen year old software maker known for authentication services, count Sono, Assume, Hpe, and open Ai among its customers and lucky for us Todd's and our Blueberg Interactive broker studio. So nice to have you here. I do have a million questions that

we're to cram into eight minutes. First of all, Silicon Valley Bank, tell us about the relationship you guys have had with them and how you see this situation. Silicon Dollars Bank is a key part of the tech ecosystem. It's for many companies ought to included. It was the first bank we had as a company. We raised our financing and we put it in there and started running the business. And over the years the relationship. Would you put more than two hundred and fifty thousand dollars on deposit?

For sure? I mean our first our first seed round was a million dollars and the next round was ten million dollars and it went in all yeah in Silicon Valley Bank. Sorry yeah. And so over the years what happens is you grow and you in the big diversification point I think for a lot of companies is when they go international it's really you have to have a big diverse set of banking partners to pay internationally, to accept payments internationally. So that was the point of diversification.

But for a company that's early in its life cycle, it's it was really a it's a serious issue for a company that has operationals. So a lifeline for you guys are crucial, right, Yeah, well we've evolved passing yeah in the early days, but once you get to a certain size and scale like we are, you're pretty diverse.

But it did bring back memories if when we were Octa was founded in the right after the financial crisis fourteen years old, started in two thousand and nine, so it really brought back some memories of banks failing and you know, being that early stage of a company where you're trying to survive and trying to get product market fit. And the last thing you want to deal with as a small startup is you're something you trusted as being really something that could never go away, is to have

a serious question about it. If it would be around Todd no Silicon Valley Bank, what does it mean then for entrepreneurs, like, what's what Todd McKinnon today do well? Entrepreneurs are by definition pretty adaptive and different. Todd McKinnon, Yeah, exactly exactly. They're pretty adaptive and they're good at navigating changes and uncertainty. If you wanted a stable, static environment,

you'd never be an an entrepreneur. So I think other folks will step in to fill the wood, and I'm very optimistic in the opportunistic future of both the world in general and also Silicon Valley specifically. What are your overall thoughts of this collapse as it's been playing out. I just think it's fast. You know, I'm not I'm running a six thousand person, you know, five hundred million

dollars plus a quarter enterprise software company. So the last thing I'm worried about is financial stability of the banking system. So you hear stories about it on Wednesday and on Thursday, all of your friends are talking about what they're going to do with their company finances and the treasury and

are they moving money around. So it happened incredibly fast, and it's a little unsettling for I think every company's Do you think about your early days of a startup and what that means for other startups When you think about potential customers. You may have partners, how you're gonna We still use still Silicon Valley in parts of our business, relatively small parts now for us, Like I said, we're lucky enough to be able to diversify away and use

our other banking partners. So it takes work by the team, but we're able to power through it. Why did you decide to still have certain parts work with SPB. It's just part of it's just a history of having that relationship. You integrate things, you wire up payment sites, and you have payroll relationships, and it just keeps going and going

and going. I guess what gives you confidence. Are there particular segments, like what exposure is it to there that you think it's a bit more shielded and wouldn't be happening like these other people that had to go through these kind of deposit type nightmares. Well, I think it depends on the company, and I think to draw two broad categories. There's one companies that are single threaded with one banking partner, right, and there's companies that are big

enough and diverse enough to have mini banking partners. And so I think it's really this is real an impact for the first category, which is small companies really just trying to find product market fit and aren't diversified in what they So I want to talk all right, So you put reported earnings before all of this started to happen, so investors liked what they heard. They set the stock soaring. Tell us a little bit about what you're seeing in

terms of the business environment. You know, you have customers that we all know, we know the names. What does it feel like right now out there? It's what we do is very important for a lot of different areas of a company and initiatives that a company that a company is working on. And we're lucky enough to be not only mission critical for our customers, but also mission critical any economic environment. So simple example is if you're

part of our portfolio workforce. Identity helps companies adopt new technology and make their workforce more efficient and give them the best tools and give them flexible, be flexible with different working environments. So in an economic time of uncertainty or macro conditions are not clear, or what's happening with the banking system, you want flexibility and you want efficiency, and you can do that with a good identity system.

You can do that with access to the best technologies is which what identity does, and that's just part of our business. Another big part of our business is customer identity, so helping we're lucky enough to work with open ai to be the identity to be the log in for chat GBT. So no matter what's happening, no matter what there are in terms of economic concerns, the march of

technology goes on and there's innovation. There's amazing breakthroughs like chat GBT, and so that's driving part of our business and that specific example. So we're broadly diversified across different types of businesses. Is that half and half that split, it's the split in our two businesses between workforce identity and customer identity right now is sixty forty sixty percent of the revenue is from workforce. But we think over time we're building this broad company that can address all

of these identity use cases. We want to move that toward fifty fifty and have both of them be growing quickly. I'd say in general, I mean, I just think about what it takes every day to get into our systems and just increasingly I'm okay with it. I don't care how many layers, whether it's in getting into my own bank on my phone like bring it on. So I do feel like you're in kind of this sweet spot. In terms of a business, you mentioned chat GPT. What has changed in the dynamics of that side of the

business since that Microsoft ten billion dollar investment in open Ai. Well, for our business customer identity, it's, like I mentioned, it's forty percent of our revenue. And the key thing to remember about this business is it's it's kind of a new market workforce identity. There's been traditional players you've you've purchased your identity technology from maybe in the past, from an IBM or an Oracle or companies like that, and so we are the cloud version or the modern architecture,

the flexible modern architecture for that. On the customer identity side, it's more of a new market. It's this world where developers are innovating, they're building all these new solutions. Chat GPT is one example, but this is happening in every industry, the media industry, the financial services industry, the every industry

technology of course, manufacturing. They're trying to retail, they're trying to get more closer to the customer, and to do that, they have to build websites and build mobile apps and

deliver a better customer experience. And inevitably they have to provide a log in to a user, and they have to make sure that they make it easy for the user to log in and then make it easy for the customer to map that customer, to map that user to different backend systems and market to them and progress that relationship and track data an additional way for track data for sure, for for depending on what the business is, you know, it varies, but they want to have a

great customer relationship and that's a really an identity problem. And so that's done by a developer, and our business in the merging customer at any segment is really good for developers. It's super easy to use. The open air example is a good one because two years ago when they started using our products, the reason they did is because it's really easy for that developer to use. They

didn't know it was going to become chat GBT. But by having a great developer experience and getting in there early, you can provide value in the early days and then as it grows in scales. All Right, got to ask you glass half full, glass half empty right now, real quickly in terms of the outlook, I am a glass half full guy. Is it just because you are? Because you feel confident about the data points that are coming

down in the news. I think there's a lot. I mean, I think in times of turbulence and times of change, the companies that can provide stability to the employees, to their customers and provide a path through things to a better a better tomorrow are the ones that are going to thrive. So that's what we stay focused on. Well, I's thinking about, you know, Metta and Mark Zuckerberg, your efficiency, It's making people in terms of where they spend, certainly companies.

I really think about it a lot. This was so much fun. I'm so appreciated. Come back soon. Thanks for having me. It's great to be here. Todd McKinnon. He's co founder and chief executive officer of Octa, Joining us here in our Bloomberg Interactive Broker Studio. You're listening to the Bloomberg Business Week podcast. Catch us Long weekday afternoons from three to six Eastern on Bloomberg Radio, the Bloomberg

Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty. Gotta say, after a week like this one, it is nice to get a walk outside. Check out the sky as a blue. Yeah, they're a little bit hazy here in New York City, but I'm thinking about that well. I gotta say, earlier this week, we want to get a little bit of a check on the retail space, in consumer space. We did get

a check on retail sales earlier this week. You might recall when we reported on US retail sales falling last month after surge in the prior month in January, suggesting consumer spending it's holding up. Yep, we got that, but it is getting challenged by continued high inflation, which is something we know the Fed will be addressing Jess next week. So our next guest has a great vantage point when it comes to consumers back with us. Ken Hicks, chairman,

president and CEO of Academy Sports and Outdoors. The nearly five billion dollar market cap sporting goods company stock up roughly twenty percent so far here in twenty twenty three, and hit a record high yesterday following it's quarterly update, he joins us on the phone in Katie, Texas. Ken, good to have you back with us. How are you great? Great? Thank you for having me Carrol. Well, tell us a little bit about how things are going, and I want to if I can, before we kind of drool down

into your business. Let's start macro. We've got this week. It feels unnerving. Although you look at some stocks and they certainly outperformed, we're focused on the bank sector. What impact is any of this, if at all, having on you guys. Well, I think it's one more pressure on the consumer, and while it may not be a pressure that they personally feel, it's one that makes them aware and more conservative about, you know, what they do with

their money. And that's always a challenge when the customer is a little larious. So you see customers then pulling back a little bit. Now. Well, a couple of things that we're seeing. One is that they're more looking for more value and so we're seeing our private label businesses and when we do have a clearance or promotion, we're

seeing that do well. And the other thing is we're seeing the consumers are focusing their buying on things that you know, they really enjoy and that's quite frankly helps us because you know, we sell fun and the Lord knows the world needs more fun, and that's that's good

for us. And people are being more discriminatory about where they spend their discretionary money can and that's interesting specifically about discretionary because that's been the whole debate, especially looking at how the equity market is performing, and also what that means for the economy. If consumers are spending more toward either discretionary or stables. What exactly are you seeing with your products sports? Have you seen any specific shifts

towards either side of that recently? Yeah, some of the categories that had big pushes during COVID, like fishing, exercise equipment, have slowed down. They're well above where they were before the pandemic, but they have dropped off. But where we're seeing people, you know, getting out and buying are team sports. So the kids, the families are still enjoying games, patio and barbecuing. They're out there trying to enjoy their backyard,

maybe they've got a staycation. And apparel and footwear, those are some classifications where people are really focusing and they're running ahead of last year. Yep, I need some new

footwear because my puppy's been chewing everything. Having said that, Ken, one thing, I'm curious how nimble are you guys in your supply chain and your inventories to that as you've seen the shift from what was going on in the pandemic to what is going on today, how able are you and how quickly to meet that latest demand by

the consumer. The good news is the supply chain is pretty much back to running normally, and we are actually pretty nimble and we learned a lot during during COVID and how we were able to operate, speed up the inventory, move things around, and you know, we're in uh, we are in good shape. And I think overall retail is in better shape now because the supply chain is back to normal. Does that mean pricing pressures are back to normal? And are you raining in Are there prices you raised

during the pandemic as you had to toe your margins? Yeah, we've been very, very thoughtful. We're a value retailer and so we've we've had to be really careful. Prices have gone up the cost of raw material as cotton, steel, things like that to go into our product, labor, and so what we've done is we've really focused on those key price points. For example, we've got a ninety nine dollars adult bike, a fifty nine kids bike, four dollar

folding share. Those are all big categories for us. We're holding those price points and we're working a little bit shorter than we would have historically, but we want to make sure we have that value and we're being thoughtful of where we do take our price increases so that we don't hurt that consumer who's looking for value. Ken I'm from Texas, so I've definitely been inside those stores

many different times. And it was curious as far as when you're talking about these supply chain issues obviously inflation, can you still keep the pace up to open new stores with everything that has been happening. Yeah, we are. You know, when you open a store, you're opening up

for twenty or thirty years. And there's an expression about you don't pass cars on a dry track, you pass them on a wet track, and so if there's a wet track, this is a wet track, and so now's the time to open so that when the economy comes back, we're well positioned and ready to go as opposed to losing the time and when it does come back, and so the good news is our business throws off a lot of cash. We were able to support all these

with operations were profitable. One of the things that we reported and why our stock reacted favorably yesterday when we reported our earnings were up. Even with sales that were down more than what we would have liked, our earnings were still up eleven percent and we had a record earnings per share for the year. So you're opening, you're going to continue to open news stores? Are you slowing though the paste down at all with them because of

the volatility we've been seeing. No, we really aren't. We In fact, if we could open more, we could. But one of the challenges right now is the building stores is a challenge. Getting the sites, the labor that the you know, all the fixtures is taking a little bit longer than historically had But we really don't see at this point. We're doing it. We're doing it in a conservative manner. Anyway. We're not going out willy nilly. We opened nine stores last year this year will open thirteen

to fifteen. We've got up our going out with our new annual plan, our new five year plan later this month, and we'll talk about how many we'll be opening over the next five years. But you know, we're positioning ourselves for the long term. Is the real estate space cheaper, there's space as you want to rent out. It depends, you know, it depends on the market. Now where we're looking are in some of the better markets, so some of the prices have gone up. But it's it's it's

the real estate business. Isn't like it was five years ago where things were a lot cheaper. And are you still having to pay up for workers? Yeah, we have taken our salary up, our salaries up for the stores and for our distribution centers. We have not had a problem getting people because we offer a very competitive wage and it's it's a fun place to work, plus you get a discount on good stuff. I was curious about what you think that says about the direction of economy

if you're not having a hard time getting workers. It's part of the Fed's challenge right now that you know, they think they're trying to slow the economy down, and the economy is not not slowing to have that much. You know, you just commented earlier about you know what what consumer? You know the consumers say ails are still still growing and you know that's continuing. Yeah, I wouldn't want to be the FED right now, right, you're watching

that FED meeting quickly, just got about twenty seconds. Yes, we pay attention to what they do very closely, all right. Ken, always go to get a gut check with you and really appreciate it. Kenn Hicks. He's chairman, president and chief executive officer at Academy Sports and Outdoors. Joining us on the phone from Katie, Texas. You're listening to the Bloomberg

Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the Ion Radio app, and the Bloomberg Business App, or watch us live on YouTube. Well, I gotta say another great economic indicator I always feel is anything and everything to do with transportation and the moving of things around in our

global economy. So with that in mind, FedEx has certainly been on our radar today, the stock jumping the most and I think about nine months a two day rally of roughly fifteen percent ag an upgrade yesterday ahead of earnings and then on that quarterly update, the company boosting its profit outlook and more So, let's get to it. We've got a round table. Blueberg Markets correspondent Kreta Gupta joining us via zoom in New York City, and this

has been on her radar. She's been like, hey, guys, don't forget FedEx for the last twenty four or so hours. And then also with us as Anthony de Ryder, he's senior analysts covering the company over at Third Bridge. He's on the phone in New York City as well. Krety, let's kick it off with you. You did give us a heads up. I feel like twenty four thirty hours ago or so ahead of FedEx FedEx big rally in the name. Tell us about the quarter and why the

stocks shot up so much. Yeah, Carol, to your point, I've been really annoying about it because this is a really big deal. I think a lot of the spotlight has been on obviously the banking crisis, but look at the core of the issue is this idea of inflation. I think FedEx is such a great story to kind of talk about it. We think of FedEx as this bell weather stock. If shipping activity in the United States and around the world slows, that must mean the economy

is too well this time around. Look, we know that consumers have been spending just a little bit less. The economy is slowing, perhaps not to the extent of panic, but slowing nonetheless, and that really showed up in FedEx's quarter. Here. The estimates going into those numbers after the bell yesterday was that they were going to see a pretty substantial volume decline and therefore profit decline, and that's exactly what they saw. A volume decline about six percent across the board,

and then a revenue miss. And ordinarily, when you see those kind of stats, you would think, well, the stock should drop, right, the investors should kind of punish the company for missing their earnings. But it was their cost cutting measures that rescued the stock. The idea that they are going to be cutting headcount by twenty five thousand people by May, and that's on top of the ten percent headcount because they were already going to cut that

they had announced in February. Now it's really important to put them into context because FedEx has about one hundred and ninety one thousand employees. That's a lot of whackers, a lot of whiskers. Yeah, that plus no buybacks, so yeah, pools cost cutting, right, Anthony, I want to bring you into the conversation because as we know, FedEx has been cutting costs already and we did get news in December

about that additional one billion dollars in costs. And so there are smart in productive cost cuts, right, and then there are cuts that aren't necessarily going to mean anything. Help us out here make sense of it? Ya sure, thanks for having me guys. So you know everyone's focused on those cost cuts over in labor. I think you know.

The people we speak to say, look, this is a short term P and L boost and it makes sense, right, you cut costs over in labor, and that helps out the P and L. But one thing that they point out is what is the students the company long term when it comes to attrition and productive labor going out the door following that labor that's just been cut, right. I mean FedEx is a place where they bleed purple. And you know there's this big culture of people come first,

especially under mister Smith before rog. So now you're doing the opposite and people are from what I've heard from what we've heard is there's now this fear, this sphere that eats into the productivity outlook, which could hit FedEx moving forward. And then you know, outside of labor, we've got to think about. Look, they're talking about a billion in permanent cost cuts this year and then four billion under drive next fiscal period. Where are those costs going

to come from? Because based on what we're hearing, a lot of that implementation is going to be really difficult because where do you find those costs that we can actually take out about sacrificing something else? Creedy, I'm curious about what it comes to air fleet, what's happening with that? Do we lose Creedy? All right, we're gonna go back to Anthony. Hey, Anthony, though Creedy was kind of actually even nudging us about, like, you know, a smart thing to look at it is the air fleet. So what

are we seeing, Anthony when it comes to FedEx's air fleet. Absolutely? So that's actually the big one. You know, our network says that if you're gonna look for where to get your biggest cut, your biggest bang for buck with FedEx, it's going to come from your our fleet. I mean, you permanently cut a plane out of the fleet. You're saving yourself up to tens of millions and annual recurring

off x right. And you know, I think that makes sense given what we saw from FedEx yesterday and they're called. They talked about how this year they're going to try and phase out or at least begin the process of phasing out their MD elevens and taking this delivery of these more efficient, better unit economics seven six sevens and triple sevens. Now, can you actually do that? And you know what we're hearing is that's really hard because you

have things like minimum flying hours for the pilots. They're not going to be happy if you're basically taking out capacity and trying to take away their minimum flying hours. And secondly, you put at threat the air slots, the landing rights, right, and that's a long term potential loss. And I guess one place you're you're gonna see FedEx ideally not do that is Transpacific. That route is way

too important for them. So where else can they do it? Well, Anthony, I gotta jump in here and ask about the strategy that FedEx has used. And we know that they have this massive warnings. I think take the whole market last ball in September, I believe. But at the same time, when they're competing with the likes of UPS or DHL. For example, FedEx didn't hike their prices when UPS and DHL did. They really invested in the head count. Do you think that's coming back to haunt them a little

bit here? Well, I guess so, because you're starting to see that all these people X was reversing that capacity increase on the labor side, right, which obviously when you go wishy washy with how you're treating your labor and your head count, that doesn't send a great signal to the market. It sort of implies some sort of strategic missdirection. And also, I mean you're seeing now that with this twenty twenty three GRII of six point nine percent, which

was matched by UPS. By the way, now they're trying to hold onto yield as volumes come down. How successful it will they be with that? Because we know, for example, that FedEx is not as strong as UPS and the SMB segment. That's part of UPS's sort of first off, I guess better not bigger and now better in Boulder strategies to focus on that higher returning customer segment. If FedEx isn't there, it means that they don't have the

same quality of revenue. And if they're not getting that same I guess quality of revenue, and what that means for margins, It means they have to take I guess capacity out of the system, and as we pointed out just now, that's really difficult to do. Pretty I wanted to go back to you because, as you know, in September, FedEx did issue that profit warning due to declining packaging

volumes around the world. What changed since then absolutely nothing. Actually, look, they are still getting package volumes across the board are sing declines, and their express unit and their ground unit, even their free unit. They've made that very very clear. I think the issue here more is why is FedEx no longer being seen as a kind of global bell weather? And I think the answer to that is, Look, it didn't necessarily take the market or have any effect on

the market. I don't think it's just because the spotlight today was on the kind of the banking crisis. I think it was because FedEx is dealing with a lot of the same issues that a lot of other companies are dealing with. It's the inflationary COT at the end of the day, and that's kind of skewing the results when it comes to just how much profit and activity FedEx is seeing. Yeah, and maybe perhaps telling despite FedEx's rally, you know, ups down about six tents of a percent.

So Anthony, just saving last words for you, got about thirty seconds. What are these companies telling us about the outlook? Yeah? Look, the role for FedEx is a bell Weather. I almost take it the other way. I mean, we're hearing that you've got to look at Ocean Frame what's happening there to figure out what's going on the FedEx and their volume outlook, which, by the way, we're thinking mid's high

single digits draw. I think you've got to people have to be dialing into this April fifth call on Drive just to see how long. I guess how much legs this run has with regards to cost cutting, you know, volume outlook what it is, it's going to have to come from costs, And as I pointed out, there's a big question mark there. Can they take more out of costs, especially against this declining volume outlook? Yeah, I'm running a

business just on cutting costs. I mean, I'm just thinking again an MBA like that's on how you do right? But interesting and we shall see. All right. Gonna leave with there, Anthony to writer, senior analysts over at Third Bridge and our own Credi Group to markets correspondent Bloomberg with that great heads up on FedEx. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six East there on Bloomberg Radio, the

Bloomberg Business app and YouTube. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty. I don't know about you all, but I'm thinking about big time after this week, heading home from my pizza and wine. Are you ready to go? I know I am safe to say. The pandemic aide so many of us leading big time when it came to food in our homes. Much of that has stuck around um and this really relates to our

next guest. Let's get to it with Amanda Hessler. She's founder and co CEO of Food fifty two. The company describes itself as a next generation cooking and a home company. It was one of Fast Company's most Innovative Companies for twenty twenty two. Amanda and author and former food editor over the New York Times. She joins us via zoom in Brooklyn, New York. Amanda really psyched to talk with you. Hey, tell us about your company, exactly what you all are doing. Sure, hi,

and thank you so much for having me. So Food fifty two we started back in two thousand and nine, actually in the middle of over a recession. So these moments are feeling very familiar. And you know, we wanted to create this world that connected all the all the parts of your life that food touched, which we felt

like was really vast. It was like food has a you know, impact on how you live in your home, the you know, the furniture you buy, the you know, where you shop for your groceries, where you travel, how you entertain and spend time with friends. And we wanted to, you know, create a company that supported people in this

area of their life. And um, you know, we've we've grown the business, you know, brick by brick over the years, and you know, we've really expanded across the home and that's why we call ourselves now a cooking and home company, all right. So online social platform. You've got kitchens like help infrastructure or yes, I know, well it's it's it's

complex these days, right. So we actually are about to open a new office in the Brooklyn Navy Yard where we'll have something like eight or ten kitchens where will be testing recipes, doing videos, creating photography. We also develop products there will you know, photograph all of our products there. Um, but we also have a whole network of creators are written not only around the nation but around the world.

Old who you know, create videos for us, um uh, recipes for us, articles and uh just in in in our effort to really you know, cover this you know, really big landscape of food. So you have So we're on TikTok and we're on you know, Pinterest and Instagram and YouTube. You know, yes, yes and yes right Like like any modern media company, you know, we're everywhere, you know, we meet our audience where they are. Well, are you a media company? Are you a food company? Are you

a retailer? We are a I mean this is why we say we are a you know, a cooking and home company because um, yes we have met. We are partly a media company, but we are also very much a commerce company. Uh, you know, commerce is the you know, vast majority of our revenue. But you know, the sort of business model is you know, matters too kind of like you know, under the hood us and investors. But you know what what matters most of us is how

we're serving consumers. Right, And we feel like, actually that's that's what we where we have innovated because in the past companies have tended to be either a media company or a retailer. Um where in the in the category of food and home, Like, you need both of those together, right, you need inspiration and ideas and information and then the products that help you live better. And so we are just essentially integrating all of that into one company. Okay,

So I know you have a subscription based model. Walk us through exactly how this works if I wanted to do this. How does this process work? So we're not we like, you don't have to subscribe to be a member of our site. We do have we're community driven, so anyone can become a member of our site and you can you know, receive our emails and you know, you can become you know, a VIP member and um, but you don't you don't have to pay to be a subscriber. Okay, so then how do you guys make money?

Forgive us. I think we had some information that you guys had a subscriber model to your business. Sure so, and that's you know, it's actually something that you know, we we think we talk about a lot and something that we may work toward, um, but we're not We're not there yet. You know. The way we make money is we have brand We have brand partnerships, which is kind of more traditional advertising, and we sell we make

and sell products. UM. So we sell everything from you know, blenders to table linens to uh, you know, plates, to tools to um you know, candles, laundry goods, storage and organization and actually you know, so that's food fifty two. We also own two other companies. One is called Schoolhouse, which is a us A home furnishing company. It's known for its lighting and hardware, and and Dance, which is a heritage home brand that is focused on tabletop and cookware.

Something I was curious about is coming out of the pandemic. Obviously the pandemic, people were cooking from home. Then everybody was eager to go out and eat at restaurants. But then things got very expensive due to inflation. How has that affected your business and are you seeing more people

coming back in because of high prices. Yeah, we definitely are seeing um, you know through you know, seeing a desire for content about like you know, how to eat on a on a budget and how to you know, And there had already been a movement towards like reducing food waste in people's kitchens, and I think people are now much more aware of that, right because you know, every stock of salary counts because it's you know it's more expensive, or every egg and the cart and counts

and so um. You know, We've always as a company, I think when you're in the food space, first of all, it's you're constantly, um, kind of adapting to you know,

the seasons. There's different foods in different seasons. There's lots of holidays through the year that you're cooking differently for and so that's been kind of part of our DNA is kind of reacting to what's what people are thinking about and anticipating what they will be thinking about in the near future and then serving them and so you know, I I would just say it's gotten magnified over recent years.

You know when the when the pan MC first hit, it really was this moment where you know, in many ways, it validated our mission that we're like, we are here to support people right and help them eat better and live better. And it was something we could literally, like really tangibly do at this moment when so many people needed help. Amanda, one last question, because we're running out of time, I've only got about thirty seconds. What are you seeing any trends that consumers are getting a little

bit more cautious in this environment? And just quickly, I would just say that you know, people, yes, are definitely aware that their grocery bill is going way up. They want food to go further, They want to be they need help, you know, knowing where they should be shopping, what they should what they could be, looking for alternatives to more expensive ingredients. How do they bring you know, if they are not eating out as much, how do they bring that experience home? And that's really what we're

here to do. Well, really cool stuff and hopefully we can check back with you again in the future. Amanda Hesser, foundering co CEO of Food fifty two, joining sva Zoom from Brooklyn. You can check out more on their website just us search on food fifty two. But I do feel like this merging of food home, right, Like this kind of one stop shopping makes sense, right, and especially because we thought that would have been over when people coming out of the pandemic, but apparently not care some

of it still continuing. All right, this is Bloomberg. I'm run a journal the radio. Yeah, but you let me drive. Oh no, no, no no, no, honey, please, I'll do the riding gravels. I want to drive. It's good question. This is the drive to the globe, coming well up, jogging

down on Bloomberg Radio. All right, everybody, just about seventeen and a half minutes left today's trading session, and stocks just off their loads of the session, as you just heard watching that treasury trade, because bonds are up and yells are down on this Friday after quite a volatile week. So let's get to it with George Schultze. He's founder and CEO of Sulty Asset Management, on the phone from Harrison,

New York. He's a distressed and special situations investor, which is why we knew he was a good person to talk to right now when it comes to the market environment, George, good to have you here with Jess and myself. Market volatility, bank stress concerns. We've had three banks collapse in the past week or two. We've got credit suites. They're having meetings over the weekend about kind of what's next. How distressing is this situation as an investor in your view? Well,

Carol and Jess, thanks for having me bank. It's great

to be here and happy to saynt Patrick's day to you. Yeah, this is this harkens back to two thousand and eight, seeing you know, one bank after the next drop, and they also have to have the same problem, which is they were long long dated treasury and with interest rates climbing so much last year, you know, all these books are worth twenty to forty percent less and so no matter what you do with a couple of banks, you know, you really have a balance sheet problem that is kind

of systemic, frankly, and so you know, that's why we're seeing all this trouble. We're seeing it not just with regional banks. We're seeing it with even credit suites on the other side of the world. And you know, a lot of the big banks have exposure to this issue as well. But I think generally they did a better job of hedging it. So we'll see how this all plays out. I suspect will be more drama over the weekend. Maybe maybe First Republic will merge with somebody over the weekend.

But but you know, it's really just day by day. And do you really think this is exactly like two thousand and eight, because many of said it's not two thousand and eight, Well it rhymes with two thousand and eight, not exactly like it. You know, back then we had a real estate crisis, you have, we had a lot of counterparty risk, there were a lot of facets. So yeah, I just want to be careful here as we cover this. We know, you know, the banking sector has certainly been understressed,

But do you really think it's like two thousand and eight? Again, I think it rhymes with two thousand and eight, except this time the problem is treasury, the whole thing that are worth a lot less. Last time it was the real estate market, you know, it was worth a lot less. And then they're of course derivative. You know that's behind us now. But it's a different kind of problem, and

it really rhymes with two thousand and eight. We'll see how it all plays out, though, and I think the next couple of days will be exciting for a bank investors. You know, look at these stocks going up and down like crazy, you know, and then one, you know, one bank after the next ultimately is going out of business. So it's really kind of shocking, I think, for particularly

for equity investors. Can you set the scene for us and take it back either the last month or so, what sort of warning signs did you begin to notice, if at all, leading up to this past week with all of this unfolding. So I think it's pretty evident, and I think it's been pretty evident to investors in bank companies that their books were under water. You know. What was a bit of a surprise is how rapidly

some of these regional ones just disappeared. For instance, you know, Silicon Valley Bank trading at two hundred and sixty seven dollars a share, next day trading at one hundred and five at the close, and then just never opening again. That was shocking, I think to most people. And you know, I wish I had known before um, But you know, I think if you did your fundamental analysis, if you

looked at the balance sheets and read the footnotes. You know, it could be pretty evident, you know, a long time ago that they were underwater, and so it's just a question of, you know, how are they going to manage this and do to have liquidity? So throw on top of that excessive leverage and deposits that weren't on weren't ensured, and you know, you've created sort of a powder keg here with a run of the bank. Um. But I don't think the regulatory and commercial measurements so far, you know,

have really solved the problem yet. I think there's still you know, a couple more shoes to drop, I would say, so, is there have you in the last week made a trade based on what's happening right now? Yeah, we have a number of trades. Um. We've actually sold off a root meaning long positions that we had in banks from you know, the two thousand and eight credit crisis. But but actually some very interesting new shorts with some of these companies from these regional banks. Is the first Republic

among that short? Yeah, I think it's I'd rather not name the specific companies, but I do think on the long side, you know, there's a there's certainly a trade to do with precious metals also. I mean, you know, with all this uncertainty, you know, maybe you're not at the point of extreme counterparty risk, but you know there's

certainly a flight to quality. UM. I question whether this time around the flights of quality and treasuries really makes sense because that's sort of ground zero for the problem. But I do think precious metals makes sense. Um. It's kind of surprising to see bitcoin rally, you know, but it's another it's acting as another safe haven asset right now. Um. Even though last year when FTX fails, we kind of had the Leman moment for crypta, but it's interesting to

see that rally as well. Right now. Are you seeing more money coming in from investors in the past week just given this type of situation into where well into when you're talking about like the distress debt As far as do you see investors want to come in if there are those concerns and they want to change those types of trades and maybe go toward that corner of

the market specifically, Yeah, it's certainly. I think it's certainly going to become a much more popular area for investors because you know there will be and there are opportunities to buy things at very attractive prices because the sellers are four sellers, and you know, the situation is highly uncertain right now with litigation and regulation and you know,

it changing environment. And I think that's why you've seen you know, first of all, you've seen deposits lead you know, the shaky banks, but you've seen some pretty astute investors come in and try to buy the pieces, even as the deposits or some of these banks before some of

the latest regulatory measurements were now. But yeah, I think for distressed securities investor with a nimble approach, for instance, sexual c asset management, with an ability to go long and short, I think this environment makes a lot of sense right now. And it's good, you know, perhaps diversification alternative for any portfolio. Hey, George, just got about forty five seconds left here. What about commercial real estate which

has certainly been on a decline this year? If I look at the MSCI US reet index, certainly topping out like in early February, but we've seen quite a move to the downside. Are there distressed opportunities that you're investing into there? And again, just got now about forty seconds. Yeah, so we're not investing long in that in that market.

But it terrifies me actually because it's one of the markets that you know, we'll see an impact from this, and you know, not just because money is getting higher and the economy is likely to slow down because of all these bank problems, but also just uh, you know, the secular change with more and more people working remotely. So that's that's the sector that certainly against the more US as well. Is it another shoot to drop five seconds? I think it is a good question, Carol. I think

it is. Yeah, it certainly fits the mold. All right, listen, so appreciate your time. I know it's been a hectic week. In another hectic day, but appreciate getting your perspective into gainst. George, be well, take care, have a good weekend. George Schultze, founder and chief executive officer at Chelsea Asset Management, on the phone from Harrison, New York. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else

you get your podcast. Listen live weekday afternoons from three to six Eastern on Bloomberg dot Com, the iHeartRadio app, Tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Journal of them