Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple Coarclay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
This is the way it works, Folks at Bloomberg News. When a story gets a green bee next to it, that's a good thing. That means it's exclusive or as those newsgeeks call it, a scoop, and this is a good one. Wow. Treasury Secretary Scott Bessen and feder Reserve Chair Drome Palce summoned Wall Street leaders to an urgent meeting on concerns that the latest artificial intelligence model from Anthropic we'll usher in an era of greater cyber risk.
Great Our finance team Todd Gillespie, Katanga Gants, Jack Johnson, Hannah Levitt, and shrinanarajen Co wrote that and the editor is with us on this story. Katherine Chiglinsky, US finance team leader for Bloomberg News, What was this meeting and why was it like so urgently called?
I guess well, it's really interesting because obviously, like Besstt and Pale are always meeting with bank CEOs and sort of staying in touch with the financial system. But to have them both sort of in on this meeting in which, yes, they called the bank CEOs, who many of which were in town for sort of a lobbying meeting, they called them in for this urgent meeting. And I think what's really interesting is it really is about this Anthropic Mythos
model and what it really pretends for the industry. And I think that's key. You know, it sounds like obviously Anthropic is trying to be very thoughtful on sort of releasing it to select few companies to sort of be able to test their systems. And I think banks obviously are kind of a key source that we need to needs to make sure that they can sort of batten down the hatches and make sure they're ready for this next era of cyber risk.
How unusual is this, Catherine for bank leaders to be summoned on such short notice over the potential stemic risk of a private company to their industry.
Yeah, well, and I think it's it's interesting because they you know, they'll meet on macro events, they'll meet on larger, broader trends in the industry. I think this is a little bit interesting in that I'm not sure that there's exactly been like an AI prompt before that has spurred them all to come together and come together quickly. You know. AI has been like definitely a risk factor that all the companies are talking about and have been talking about
for many years at this point. But for them to sort of come together and say, listen, this is to get a warning from the Fed and the Treasury that says this is a big risk and you need to be preparing is like a very big statement.
What the banks. Have the banks acknowledged this risk or how have the banks responded to some of these AI risk that may be out there as a release to cybersecurity.
Well, I think honestly, in the past few years banks have really ramped up their cybersecurity protocols. I think AI is a new challenge obviously, because it just it makes it quicker that these these attacks and these risks can evolve. So I do think that you know, banks have been responding already and are already sort of quickly on this.
Like you look at Project class Wing, which is that sort of anthropic lad limited release to certain companies to protect their defenses, and JP Morgan is already on that list, So it's it's clear that they're quickly trying to get involved and to make sure that they can sort of ready their systems as best you possibly can in this
sort of new age. But I do think it's interesting that like this is enough of a you know, as we're sort of questioning, you know, how good really is meet those I think this is a real indicator that regulators are taking it seriously.
Have there been certain banks within that group that are more proactive about mitigating these AI and cybersecurity risks than others? Any kind of standouts in terms of what they're doing.
Well, I think you have all the especially the big Wall Street banks, I think have been ramping up that a lot, and part of it is honestly cyber risk, you know, actual reputation and if you're JP Morgan, the top us bank, you've got a lot to protect. I do think what's going to be really interesting is like how regionals handle this. You know, a smaller bank that maybe doesn't have as much of the flexibility and the capital to sort of support large scales sort of cyber initiatives.
It is going to be really important how the big giants JP Morgan Morgan Stanley City Group addressed this, because I think it'll sort of set the tone for the rest of the industry.
Anthropic. You're reporting shows Anthropic has separately been battling the Trump administration in court that Peddicon had labeled the company Anthropic as a supply a chain risk, a designation that Anthropic has opposed. Here, So the government's definitely looking at this stuff from a lot of different angles, aren't they definitely?
And you know, I think right now, whenever anyone sees Anthropic and the government and you're grown, you're thinking about this sort of political battle that they're in over the Pentagon's designation. And I do think though the fact that Jerome pal was in this meeting, you know, he's obviously trying to be very careful. They don't want to be,
you know, seen as a very political institution. But I think the fact that the Federal Reserve was in this meeting really understates the fact that this is less of a political thing and this is really more of a you know, as a top banking regulator, the FED is concerned about sort of cyber risks and how the industry is doing it, and the FED knows banks well, I mean they have the examiners who are going in routinely
to sort of supervise operations. So yeah, I think a little less of a political bent for this meeting in particular, just really underscores sort of how cyber becomes a top topic for them.
We have bank earnings coming up. We're going to hear from a lot of these executives on earnings calls next week. Do you expect that they'll address this at all?
It would be shocking if they don't, mostly because we're always talking about AI. I feel like every earnings call, you know, everyone wants to know how are you using it? What does it mean for your employees? And I think a natural extension is sort of what are you doing for the risks of cyber especially? You know, you see
with escalating global conflicts like the Iran War. We just had you know, a fintech chime got hacked, So I think, you know, there's some there's definitely an impetus for them to address this next week.
What is the expectation of earnings next week?
Well, a blowout quarter for trading, It's going to be like potentially across all of the five biggest trading desks. We're expecting stock trading to set records and fixed income trading good at most of the banks. I think that'll be up M and A. It's kind of interesting because you would think that geopolitics really put a damper on it, but most of what we've seen so far and what they've been signaling is that it's really held up. So
that'll be interesting. I think another wild card in addition to sort of how they address the AI though, is private credit, Like how do they address it? Investors are very want details on what are their exposures, and so we'll be monitoring that pretty closely.
With us More from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App, Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Let's talk about the consumer. Let's talk about the consumer. What are they buying? And one of the great places to look is sneakers and you look at Nike and you can do that with Punham Boyle Senior US e commerce and retail analyst at Bloomberg Intelligence. There's so many puts and takes for the Nike because, I mean, it's a product everybody knows, it's a global product, but that has pluses and minuses. Put him, what's the Nike story here? I know they've had a lot of challenges with China.
They've had a lot of challenges managing their inventory, tariffs like a lot of other companies. What's the Nike story right now?
Pooham.
Yeah, So Nike is basically going on or a turnaround. There's a lot of things that they need to fix, but there are things that they have fixed. So let's start with the biggest piece of the business, which is North America. In North America, since Ali A. Hill has taken helm, they have made improvements and fact sales have turned positive there and that's a sign that the initiatives put in place, getting the right product back in, working
on speed, clearing out old product, reducing inventory. It's all paying off and we expect that to continue. The challenge, however, has been China. You know, as we know we spoke about this earlier. China is a market that not just Nike, but every at leisure company is eyeing for growth, for long term growth, and in China, Nike has had major hiccups. So the playbook there is to repeat what they did in North America to fix the business. But it's not
going to happen overnight. It is going to take time, and I think it's just about being patient and watching them execute against China as well.
Chinese consumer broadly have just been shifting two more local brands. What will it take for Nike to recapture their appetite boonem.
I think it's building brand heat right. The first thing they have to do is get the right product in So when you look at the product that's being sold in China, it's heavily discounted. In fact, Nike's perceived as an off price label in China, so they need to flip that image. They need to move the discounting because
that's clearly not good. They need to introduce premium product into the Chinese marketplace and then have local ambassadors, local clubs really validate the brand for them, and all that will start with product first and then after and we do think it's possible, but it's just there's so much old inventory there still right now that needs to be discounted. It's going to take I think at least twelve to eighteen months.
If I'm an investor, that's twelve eighteen month timeframe. I'm not sure I'm that interested in it. How's the company trying to position and it's turnaround here to appeal to investors?
I mean, look, people, investors are not being patient and we can see that with the reaction and the shares. Shares are down year to date, and Nike is just reiterating exactly what it's doing, and it's talking about its playbook, gloring inventory, is taking out discounts, getting the right product in. I think the next catalyst for Nike, in my mind, is going to be its analyst Day. It's a day that we've been waiting for for years. They postponed the
last one they announced a few years ago. It'll take place in the fall, and we think that's when Nike will be able to really highlight the success it's had and also show its path forward with new inventory, new product, new collaborations, et cetera.
Punam, how does this war and any disruptions from a higher oil, the risk of inflation and make Nike's turn around even more difficult. What challenges does it pose?
You know, the risks of the war are not specific to Nike. I think it's across the consumer space. Oil prices means higher gas prices. It impacts low income consumers more than it does high income consumers. Thankfully, Nike is a brand that probably leans more towards the mid to high end than the low end, so they do have
some buffer compared to a low end retailer. That said, you know, if things prolong for a long time and inflation continues to take higher, consumers will pull back, and the first place they pull back is undiscretionary goods, and sneakers is a discretionary purchase.
Put them just step back a little bit. What's the competitive landscape for at leisure because there's so many I mean, Nike used to be just to me at least, a dominant brand, but it seems like it's gotten more and more competitive. I'm seeing brands of sneakers around here that I haven't seen before.
You're absolutely right, Nike is still the dominant sneaker player globally. It is the largest footware brand in the world. It remains that, but it has lost here over the last five years to other brands. Some of the brands that you may be referring to include on Hoka, A six new Balance. All these brands and some others have gained traction, especially in the lifestyle and running space. That said, when you look at the size of those brands against Nike,
there's still a wide gap. So we run a sneaker survey twice a year and when we ask consumers, you know, what is the choice of brand when it comes to sneakers, Nike still number one. So when you look at broadly, Nike is still the favorite brand, but when you look into niche markets, you are seeing the rise of some of these other brands, which is obviously why Nike has been losing share.
Put in very quickly, what else stood out to you as some of the key differences in this report compared to prior quarters. Any metrics that caught your attention?
I think I think the biggest metric that caught my attention was the inventory levels. They have been dropping, and that's a really good sign because that just shows us that the efforts that the management team is putting in place is bringing a new product, and the new product results are actually quite impressive. If you look at the sales of their new products, they are up nicely, and that reflects that anything that they're putting their mind on is working.
Stay with us more from Bloomberg Intelligence coming up after this.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
The war in Iran is creating obviously some logistic concerns, particularly in the energy space, but also some of the metals that get that come out of that part of the world, and that's a little bit of an issue for the auto industry. Checking with Steve Man Bloomberg Intelligence, Global Autos and industrials and analysts. Steeve talk to us about the global auto companies and are they facing any challenges by the unrest the war in the Mid East.
Yeah, definitely, they are facing a lot of logistic issues. You know, gasoline prices are high. But we publish a piece of research today focusing on aluminum because aluminum is a critical metal for the auto industry. It's a substitute for steel and it's supposed to be. It's used to make the vehicle a little bit lighter. It's used even more so on evs because you know, they want to you know, reduce the weight of the vehicle so the
driving range is longer and extends the battery life. So evs typically use about seventy five eighty percent more aluminum, around eight hundred pounds per car. Gasoline cars a little bit less. It's about four hundred pounds to five hundred pounds per vehicle. Doesn't seem like it's significant, but it is a big cost for the auto industry.
Steve, how quickly does the spike and aluminum costs feed through to production costs and does that eventually get passed onto the consumer.
Well, Fortunately, the aluminum costs is more of an inflationary, you know, the aluminum supply chain issues that we're seeing. It's more of an inflationary for the automaker, less so of a supply crunch. Now, aluminum coming from the Middle East, it's about fifteen percent coming into into the US, it's about fifteen percent. It's significant. But if you look at the auto industry alone, actually mostly aluminum is actually produced locally in the US, and about half is coming from
from Canada. Now even though it's locally produced, it's under the USMCA realm. But the prices the global press is rising, and that's that's what's causing the inflationary impact on the automakers.
Steve, can you give us an update on tariffs? Where are we with tariffs at the audit industry? Quite frankly, I can't keep track.
Yeah, and the terriffs has a huge impact on aluminum, the fact that it's produced in the US and in Canada. Uh, there's actually no terraf impact. Remember aluminum, there's a there's a tariff of fifty percent on illuminum and steel, but because they fall under the US MSA, the United States, Mexico and Canada Free Trade Agreement, the exchange of metals between the two country is not part of that fifty percent. So look again, it's uh, you know, we we estimate
the per vehicle costs. It's around as much as you know, three hundred and eighty five dollars for for evs, less for for ice vehicles. So again, I think the automakers can actually pass on that cost to the consumer or somehow, you know, do some cost initiatives initiatives to absorb those costs.
Higher costs, Steve, you mentioned that Tesla and electric vehicle makers specifically are you know, most at risk from higher aluminum costs. Are there any automakers that are more insulated from this witch companies?
Yeah, Tesla, Revia and Lucid any any actually, anybody that makes e V uh is gonna face higher costs for those e vs. But because you know, Tesla, Ravin, Lucid A are peer plays, they're gonna face, you know, bigger impact than say the GM and the Ford. Now EV, do do you use a lot of aluminum, like I said earlier, help cut cut cut down costs. There's a lot of aluminum. You'll find a lot of alumin in the batteries. You'll find a lot of aluminium in the motor,
in the motor housing. Uh So the intensity is much greater on on EV's.
So you know why I haven't heard of a lot from recently is elon musk. What's the up to these days? Cvs getting ready for Space X I p O, what's it? What's Tesla?
Yeah, there's a there's a lot of rumbling uh rumors in in for Tesla specifically, obviously he is very busy with SpaceX. There's a lot of headlines around SpaceX I p O SUH. But within Tesla, it seems like, based on social media and other media reports that you know, Elon Musk is actually revisiting in launching a smaller vehicle, and that would be great, especially for emerging markets. We are seeing a lot of sales improvement over in South
Korea and Japan. They're expanding their their network, retail network, they're expanding their service network there. So launching a smaller vehicle will will be will be really helpful. The other thing that the investors are very focused on is the robo taxi. The rollout is a little bit slower than we initially thought, but we are hearing their testing. Uh you know, they're they're putting cyber caps in multiple cities across the US to valid date the vehicle.
This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday ten am to noon 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 terminal