Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moven news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. Let's talk banking. We've got a c suite conversation here. We're talking Texas, We're talking banking. We do that with the Rob Holmes, CEO of Texas Capital Bank, joins us Dan Hoverman Hoverman Hoverman, Thank you very much, sir, ahead of corporate and investment banking Texas Capital Bank. Guys, talk
to us about what is Texas Capital Bank? Who your customer's house business?
Well, that's a lot to unpass.
That's why we want to talk guy.
What is Texas Capital Bank.
It is the first full service financial services for arm to headquartered in Texas.
Nice.
We did a wholesale transformation over the last two and a half years. Most people overuse the word transformation. There is nothing it hasn't been touched in this bank. We redid the tech stack, the operating org structure about twenty five to forty new products and services, depending on how you define them. We did segmentation. We founded an investment bank, both wholesale investment banking and also institutional sales and trading. Both are profitable in the first year, which is pretty great.
We also have a top five mortgage warehouse business in the country, which which allowed us to build frankly, the sales and trading floor off the back of that with mortgage trading TBA and gestation. So we're a wholesale bank built for businesses but also private wealth to people that run and own those businesses. We have national verticals, our corporate bank, industry verticals so FIG, TMT, Energy, diversified.
Healthcare, and healthcare government nonprofit.
So those are those.
Are the Those are the industry verticals that are nationwide, mortgage warehouses, nationwide, season trading obviously, investment banking obviously.
But the core focus and base and scales is Texas. For sure.
We're the number one lender to Texas businesses of any Texas based bank, which is a pretty big deal.
Nice that is a big deal.
It's a big state, man, it is a large state, and they got a lot going on down there. So how important I mean, the oil price must be extremely important to you. And we're watching today West Text Intermedia went up over ninety five.
Dollars a barrel. I guess that's good for the Texas economy.
Well, the great thing about Texa economy is how diversified it is. So oil and gas about nine percent, and everybody talks about oil and gas and fossil fuels and they talk about Texas, but it's also the number one and two when in Solar Provider we produce more alternative energy than California. So it's oil is a big deal, but it's it's not as big as it used to
be as house people think of Texas. So if you look at our ETF, which Dan can talk about, our ETF is comprised of contribution of the subsector to GDP of the market cap, and the five largest holdings in that is Tesla, McKesson, Waste Management, Schwab, and Excellent. Now I can't think of a more diverse economy than that, right exactly.
And economy. Look, the economy is ten percent of the economy of the United States.
You can't say a TF without telling me the ticker.
T XS, t X Texas without the valves.
T X Texas without pretty cool, right, Hey Dan on the corporate investment banking site, what are your clients saying about their outlook here?
I mean, how's business for your clients?
It remains very robust if you look at the way that folks are kind of participating in the economy, at least from the Texas angle. If there's a recession in the United States, there probably won't be a recession in Texas. So if you look at the performance in the TXs itself kind of outperforming the Russell MidCap or the SMP. The more Texan you get, the more the stocks outperform.
So the you know, the outperformance on the index is really driven by kind of how closely tied people are to the Texas economy.
We got introduced him to Matt Winklin. That's a column right there, Yes, exactly, Yes, we have our founder of Bloomberg News. He loves going into state by state, looking at the data and saying that, you know, for example, California is people saying California is San Francisco in trouble. It's not what the data shows. So he'd love to see talking about that kind of data here. So I mean, what's the future, what's the next three to five years for your bank?
Here?
Is it continue to share in Texas? What's the kind of your strategy?
Look, here's the great news. We started two and a half years ago on a wholesale transformation. There was a lot of risk and doing everything at once that is done. There was risk and acceptance of the strategy by clients and by employees and talent check check. The entire platform was built about a month ago. Was the first time we could say the platform was built, the capabilities were there, and the talent was there top to bottom, both both
top down and bottom up. And so what's next for us is just going to lighting clients, onboarding clients as fast as we are today. We onboarded more clients the first quarter than near the quarter the history of the bank. In spite of the first quarter, Vince regional banks were on board are thirty percent more clients the second quarter than the first quarter.
We are a top.
Ten agent for leading bank syndications in the country for the first six months. So it's it's just you know, we've done everything. Most of the people on this platform that our leaders have come from much more complex jobs and much more larger companies, and we've all done it a thousand times, we haven't done it with this jersey on. So we got to do it with this jersey on
and just build what we have. And we're really, really, really excited about doing that, and the client response has been overwhelming.
Hey, Dan, you go into pitch business to on a piece of corporate banking, investment banking business. How often are you competing against some of our neighbors here in New York City. Who's your competitor really day to day?
Yeah, there's really only two types of competitors when you think about it. So we're either competing against other Texas banks, and the sales point there is that we're full service and nobody else that's headquartered in Texas is. And so at some point, unless you bank with us, you're going to outgrow your relationship. If you want to have a relationship where you never need to go move your accounts,
you never need to make a new friendship with an RM. Frankly, it's going to be tough to find folks that are more maniacally focused on delivering great client experience, then you should bank with us, or we're competing with one of the banks that are in New York and at some point our job really is just to make them fungible. We work well with every New York bank. We know a lot of us have a history of working.
You work with all the New York banks, even those that have a say in social issues.
A client have any banned them from Texas.
It's it's you know, we're all about clients in here yesterday.
So yeah, he's with.
Us this week.
Okay, with us today? Oh excellent, Okay, have a dinner with him and I.
So what I would say is it is it is highly unusual for a person running a business or that owns a business that wants to defer the decision making about his or her business to San Francisco, New York or Charlotte so they can get the same products and.
Services and be locally covered.
That's their preference, and we we have a we have a high amount of confidence we can do that.
But what's what's recruiting talent? Like I mean, obviously it's a very hot place to move right. Everybody wants to be. We hear about Austin all the time. I love Dallas, Paul San Antonio.
Recruiting talent, got some good schools. Texas Okay.
So Texas had is the only state in the country with living Tier one universities. We had started a junior program, first junior program ever at this bank, like everything else first of this bank.
The first year we had sixty spots. We had eight hundred applications.
Second year of sixty spots, two thousand applications, third year sixty spots, about twenty eight hundred.
So junior great senior. Let's just put it this way.
I've had more than two or three CEOs in New York called me and asked me how the hell I hired that person? And so I would say we were able to hire. It's not easy, but people want to be a part of a build, they want to make a difference, and they love living in Texas.
What's the biggest challenge you guys face right now?
The biggest challenge is, you know what, just what I've said earlier, We've got to execute perfectly. Like when we led the largest aged did debt deal in the country two weeks ago for a Texas based on a gas company. Now think about that, the largest SOL led deal in the country.
Bank Capital did London. It was a capital markets deal. Okay, we don't own any of it.
Okay.
It was globally.
Distributed with the best investors in the world and we did it great.
But it is our first time.
I mean, if you go talk to the CEO and the board, the client, they love it. And by the way, a money center bank pitched it, pitched a different structure and spit the bit so which is causes harm to that client. So they gave him the wrong advice and they failed. Two mouths later, we got it done.
All right, good stuff. I'm glad you guys spared the time to come in and see us. Really appreciate that.
Thank you.
We always like talking to some of those folks out there getting it done on the ground. Rob Holmes, CEO of Texas Capital Bank, as well as Dave Hoverman, head of Corporate and Investment Banking Texas Capital Bank, based in the Big Deep.
You're listening to the Team ken'shur Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or listen on demand wherever you get your podcast.
Let's switch over back to these markets. Here again, the S and P up about four tenths of one percent near an intrut day high, the NASH deck up about three tenths of one percent. Liz Young joins us. She's head of investment Strategies at SOFI. Hey, Liz, when you talk to your clients, When I think of a SOFI client, I think of more of a younger client and maybe have a longer perspective in these markets. A is at the case and B what are you telling them these days?
Yeah, thanks for having me so. Generally speaking, our investors, or the investors on our platform do skew younger. About sixty five percent of them are between the ages of twenty and forty, so compared to the average investor or the average II networth investor, they are younger. However, we do have quite a few that are over the age of forty as well, so it kind of runs the age gamut. I would say, you know, most most of
our investors do have a longer time horizon. There can be a challenge in convincing them of that, though, and we've got a market and in an environment today that really just forces all of us to focus on the short term, and we hang on every data point, every word from the FED, and it does make us more short term in nature when we're thinking about our investing decisions. And just the individual investor of today is a trader. I mean, they really do enjoy trading individual stocks, and
I think that that's an important distinction to make. But there are a lot of investors.
I mean, well, a retail investor trading stocks just a recipe for losing money.
No, it's it's a recipe for learning. And you know, it's not necessarily that you would lose money.
Today stocks as well, like it's in the tune of losing two hundred grand in the first year.
What a great I.
Mean, I do think that it's a wonderful thing that there are so many individual investors today interested in getting engaged in their investment horizons and getting engaged in the process. I think really the risk is more that if the information that you're given is headline worthy, you're probably going to end up concentrated in a certain handful of names, or in the names that are just the big ones,
and that's not necessarily creating a diversified portfolio. And there's also this fallacy of familiarity, so investing in companies that you're only familiar with, rather than making sure that you're diversifying out across sector, across asset class, across investment type,
even in vehicle. So I think it's perfectly fine to invest in individual stocks here and there, but I wouldn't make it necessarily the core of your portfolio, and you want to make sure that you still own a decent number of individual stocks.
List, how do your clients use ETFs? I mean, ETFs has just been a phenomenal growth story within financial services really over the last decade plus. You know, my day was mutual funds. Now it's all ETFs. How are they used by your customers.
They're very widely used by our customers, and they're very widely used by individual investors everywhere, largely because, number one, they give you an opportunity to hold a lot of securities for a much lower cost than many of the mutual funds of the past did. So there's better opportunity there,
and there's great diversification opportunity in them. I think ETFs are now that they're such a big part of the market, it is important to still do your research on them though, and there are a number of different options in each space, even as you get to more niche parts of the market. So, for example, let's say you want to buy a dividend ETF, you want to do the research and make sure that you're buying a dividend ETF, that is, holding companies with
sustainable dividends or growing dividends rather than just currently high dividends. Right, So there's still different things that you need to do to make sure that you're not completely passively investing. But I think ETFs are a great tool for investors of all wealth categories to use for exposure to the market.
Do you see people piling into investors piling into, you know, treasuries or places where you can get safe return for the first time in a generation.
I don't know if piling in is the right way to think about that, but I think that over the last year or so, many people have moved into treasuries more than they ever expected to, and it has been a tough It's been a tough trade lately as we've seen a sell off in treasuries, particularly on the longer
end of the curve. But this is also an environment where many investors have not seen yields like this on treasuries ever in their investing lifespan, So it's offering you to get paid to wait, and I don't think that that's a bad idea. I do think that there are plenty of people who have also used money market funds to do that. But there's still a decent amount of
appetite for equities. I mean, the S and P is only down about seven percent since at local high in July, and that's not even in correction territory yet, so there's obviously still plenty of money in the equity market.
What's your market call here, Liz, What are you telling your customers.
I've been pretty cautious all year, obviously wrongfully so in the beginning of the year. I continue to be cautious. And right now, what we're seeing in the market, which I wrote about in my blog today, is some quiet weakness. There's been a pullback, but quietly weakening from a momentum perspective.
So if you look at things like the fifty day moving average of the S and P recently rolling over and moving downward, you look at the number of SMP members trading above their two hundred day moving average, that percentage is now down to forty percent, and that's dropped pretty sharply in the last couple months now, not near crisis levels, not near really deep levels of a pullback. Usually you get that number somewhere in the eleven percent
range when things are really bad, but dropped. And then you look at things like the relative strength indexes, which usually indicate whether things are oversold yet, and that tells investors, Okay, we've had a pullback, was it enough? Is it time for a bounce? And the Relative Strength Index the RSI reading on stocks shows that things have gotten a bit worse but are not washed out yet. So I do think that there's probably more risk to the downside here, especially as yields keep rising.
Are you concerned about the government shut down as an investor? I mean, we're all worried that the pandaicam could be turned off, But does it matter to the markets.
The markets don't seem overly concerned with it, yet I do think it matters to the markets.
This is a.
Story, though, that keeps repeating itself through market cycles. It seems like we're talking about a government shutdown every six months to a year, and it's no longer a newer, surprising headline or worry for us to climb as market participants. And what I think we've been conditioned to believe is that, yeah, things might get a little dicey into the eleventh hour,
but eventually they figure it out. So I think the bigger risk here is that there is a shutdown that lasts a longer period of time, and it occurs during a time when we're hanging on all of that data, and what if some of the data is not available as we expect it, even just for a few days. So I do think there's a risk in the market because of that. I think, you know, we're not in a place where we want more uncertainty, that's for sure. So I don't think it's necessarily a good thing to
have on the horizon. But so far markets don't seem that spooked by it you have.
I mean, you did mention in your blog, which I'm pretty sure on the money.
Right if I look at sofi dot com, so.
You point out that the VICS has been marching steadily higher. It's not alarming yet, right, but it is starting to creep up and look more and more interesting it Right now, it's trading at seventeen to nine, right.
Well, it's funny. I mean, as investors lately, we've been conditioned to expect AVIC somewhere between thirteen and fourteen, which as we know, is historically low. So having it at seventeen eighteen, it's been above eighteen for a few days. Having it in those that level seems high compared to what we've been experiencing on average. It's not really that high, and the mental threshold is usually twenty, So as long as it's below twenty, things are still typically considered subdued
or you know, not necessarily unsafe or terribly volatile. But it's worth noting that it has marched up four points or so in a pretty short period of time. And that goes along with some of the other things that I mentioned earlier in the interview, with you know, number of stocks above the two hundred day falling, the RSI, number of stocks that are showing over sold rising. So there's there's clearly some breakdown and some weakening happening under
the surface in the market. Again, none of this is at alarming levels, but it's happening enough that it's starting to feel like paper cuts and it's a nagging pain that I don't think we should gloss over.
All right, Liz, thanks so much for joining us. As always, Liz Young, head of Investment Strategies at SOFAR, giving us her market call.
Here, you're listening to the tape catch are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Let's continue our discussion on the ecosystem ESG the green outlook. If you will, we can do that with doctor Lise Castillo Nilis. She is with the firm Ramball and she joins us via zoom. Hey, Lise, can you just tell us let's start off real quick. What does Ramball do? What are you guys doing over there?
Yeah, thanks for inviting me. Ramble is a consulting company and engineering company as well, and we do a lot of environmental health sciences and other types of sciences.
So what does that I mean?
Do you like measure the hole in the ozone or what kind of sciences are we talking about.
So we do a lot of different things, but I personally work heavily on biodiversity and ecosystem services. So we help our clients meet their sustainability goals in a variety of different ways and help them increase biodiversity on their sites, and you know, form the goals that will help them reach these reach the points they want to get to.
And so what is the kind of the business case for this? When you go talk to your clients, how do you frame it? How do they think about it?
Well, the business case is that, unfortunately, nature isn't an unlimited resource, even though our financial markets have treated it that way in the past. For example, of polony disappear, most humans are going to starve because seventy five percent of our crops rely on pollinators. So I mean the business cases that are businesses in our societies depend upon natural resources and when those resources disappear, businesses are affected.
So this is we can already see this happening with the increase in extreme weather events and the resulting increase in insurance premium.
So who but who are your I mean, I think we all agree with you there, yep. I think about the bees a lot for example, But what can we do about it? I mean, who are for example, your clients. Are they small and medium sized businesses? Bigger businesses? Do they have a lot of land?
Is it? You know?
Can they plant things? Can they? I don't know, hunt, what's what's the idea?
Well, the idea is that, I mean, all businesses can contribute whatever their size. My clients are small businesses to very large businesses. The larger ones do tend to own a lot of land, and some of that land has been contaminated in the past, often from historical you know, historical events before people knew that they were doing this contamination before there were logs to control it, and they're trying to clean that up and they're trying to improve
biodversity on those sites. In other cases, there are clients that just want to contribute more and want to build their image and you know, their social license and so then they want to increase nature on their properties as well. But you don't have to have large properties to do that, right, You can do that in your small building too.
How do you, I mean, do you make a distinction between nature and climate change and climate action?
Nature and climate are really intertwined Basically, there's pretty good agreement that we're not going to reach our climate goals unless we're also striving for nature goals. So plants and alga they pull, they pull greenhouse gases out of the air. And if we're just trying to douse greenhouse gases without you know, increasing the area of habitat for these species, then we're not going to really have great success.
So what are the types of companies that you think are doing a good job, not by industry, but just kind of what kind of success stories do you find and maybe what are some of the frustrations that you have when you go out and talk to different types of companies.
I mean the successes that I find a typically it's individuals within companies that are just really motivated and are really being a force for change within their company to make like the small decisions that add up over time, and you know, as they're having successful projects, then others
in their company are seeing that and getting on the bandwagon. So, for example, companies that are using nature based solutions instead of standard environmental solutions, and that often comes down to individual project managers making those decisions.
How much of a concern is greenwashing you know, I I think, you know, we have the same concerns, and so I will, you know, do what I can to recycle, for example, or to buy recycled materials.
But I don't ever know, uh, you.
Know, what's happening once I put my cans in the aluminum bin and my paper in the in that box. You know, it's kind of hard to see what happens when it moves down the line.
Yeah, I mean there's some concern for greenwashing. There are frameworks out now, like the TNFD which just opened let's just just launch last week. That's a task force Nature Related Financial Disclosures. These kind of frameworks can help companies really systematically look at what their dependencies and their impacts are to nature and to report those in really clear ways. And so the you know, the uptake of this kind of disclosure method, it's going to help a lot with greenwashing.
That's kind of where I wanted to go here here Bloomberg. At least we're big on data, and I know there's been when I talk to investors that and maybe invest in an ethical way focusing on ESG just broadly defined. One of their concerns is they just don't have as much data as they would like. The disclosure is not consistent across companies and industries. It differs even from the US versus non US. Where are we just in terms of kind of getting companies to think about, you know, good disclosure.
Well, some disclosure is required now, especially in Europe there are the Corporate Sustainability Reporting Directive is going to be requiring disclosures. And that's not just for European companies, that's also for any well large companies typically that have a presence in Europe, so that is going to be required soon. There are also these voluntary disclosing measures like TNFD or science based Targets for nature that companies are taking up.
I mean, I think basically this is just getting to that investors want to know what the risks are that their investments are actually you know, taking into consideration what their dependencies are in nature, and they're preparing for that so that investors are not making a bad investment, but they're taking a big risk.
You mentioned that we won't meet our I guess temperature goals if we don't have the kind of biodiversity that's necessary in our ecosystems. Are you confident that we're making real progress here.
I mean I think we are making real progress. I don't think we're making enough progress unfortunately.
All right, list thanks so much for joining us. This is a big, big issue for a lot of companies and a lot of investors and for the markets in general.
Doctor LESE.
Castillo Neilis. She's a biodiversity and ecosystems senior manager at Ramboll trying to work with companies to I guess a lot of things, but just kind of interact better with nature, reduced the carbon footprint.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com, the iHeartRadio app and the Bloomberg Business at or listening on demand wherever you get your podcasts.
Let's check in with a player out there in the business. David Rainey. He's a portfolio manager at Hennessy Focus Funds. He's been in the business a while, but of course the absolute highlight of his resume is his MBA from the Fucal School of Business at Duke University, part of the great Class of nineteen ninety one. David Rainey, how are you doing, my friend?
Good to talk to you, Paul David.
Let's step back here a little bit here, what's your market call here? There's a lot of crosswinds for investors to deal with, a lot of headwinds. Quite quite frankly, how are you guys just kind of viewing this market here?
Well, you know, we're long term oriented investors and we've always taken a business owner's perspective and invest in in public equities. And you know, we approach every investment, whether it's in the founder on our watch list, as if we're going to own indefinitely. I mean, clearly, what has the market all shook up today and over the past year or two is inflation, the rise and rates and what's that doing to low and moderate income Americans? And is doing a lot, and so we're sensitive to that.
We don't think we have a lot of exposure to businesses and products and services companies that have a ton of low and moderate income exposure, but we're aware of it. And you know, traditionally that's the class of Americans that tend to take it on the chin more so than others. And so you know, but if I step back and I have excuse me, a little bit of gray hair.
I look back at it said funds rate fifteen twenty twenty five, thirty years ago two three four percent, and I look at a tenure treasury and it would have had a four or five or six handle as well. And so what's going on with the eel curve. The level and the shape of the curve isn't surprising. As we normalize, I guess we're kind of back to the new normal and that's what the market's waking up to.
So when you think about long term investing, I would think that management quality really getting a good handle on management their ability to redeploy capital, grow the business generator returns. That would be top top of the list of the things you look at. How do you assess management quality?
Yeah, but we actually take a criteria driven approach. We have key five key criteria and you hit it on the head. Management is one of those five. We look at the business model, its ability to generate attractive returns on the invested capital. We look at management and you can't screen for management quality. This isn't something that pops up on a screen and tells you to take a
better look that. We look for managers that are good at running the business day to day and investing the businesses free cash flow back into it to grow the firm's economic value. We also look at the reinvestment opportunities that are out there. We look at valuation, and then finally tail risk. Wh's the likelihood that this compounder gets upset because of the balance sheet issue, fat or fashion,
this type of thing. But you're absolutely right. If you're going to own a stock for more than a quarter or two, management is one of the key considerations to make before you put money at risk.
I look at some of the names that you guys own, and a couple jump out of me, most notably because they're both in the from Richmond, Virginia, place very near and dear to my heart. Here, let's start with Carmacks, because that's in the news here today. Talk to us about what you heard from Carmacks and how that may impact your thesis of this name.
Well, I mean again, you kind of step back and you look at what happened with COVID. I mean, there was a time when CarMax was trading I think back in February or March of twenty twenty at very distress levels, almost as if there was an existential threat in the business was going to evaporate. Fast forward to today, they've
made enormous progress with their omni channel initiative. They're the country's largest used car dealer or retailer retailer and its differentiated business model is based on providing better customer a better customer experience by having a large selection of high quality row mileage cars across a nationwide network and no
haggle prizes. And what we've seen during our holding period in Carmacks we voted for over a decade, is that they've steadily taken market share because of their better customer experience.
And so we think that they're doing all the things today as the market as they're kind of bumping along at the bottom, so to speak, at growing a better customer experience, particularly through omnichannel, which is the ability to seamlessly connect what happens at a store with what a customer wants to do online and bringing that all together. And so, you know, CarMax is a name that we think we'll recover nicely as used car sales pick up. Typically in the US in any given year, about forty
million used cars are sold. We're probably bumping around at about thirty five million this year because of the pull forward over COVID, and we think that as CarMax works its way out of this macro environment, that there's two to four dollars of hidden earnings power in the stock. So I think consensus about three dollars three dollars and twenty cents this year. There's another two to four dollars as the market recovers and they see very good incrementals on the growing sales.
Thirty seconds Dave Real Quick, Markell Corporation, another Richmond company.
Yeah, rich and Days. Property Casualty specially property casualty insurance company with important holdings and public equities and control positions in private businesses. Many people talk about it in terms of Berkshire halfway describe it as a baby Berkshire. We're
very excited about Markel's opportunity going forward. Well, property casualty insurance is a h single digit return on equity business, but they have consistently generated low double digit to mid teams because of their equity positions in both the public markets and now a growing private portfolio. So we're very very excited.
It's kind of got a Berkshire kind of stock. Price fifteen hundred bucks a share. Very interesting. David Rainey, thanks so much for joining us. Dave Rainy, he's a portfolio manager at Hennessy Focus Fun. I'll see you hopefully down at Duke.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer.
I'm Matt Miller.
I'm on Twitter at Matt Miller nineteen seventy three.
And I'm fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio