Banks, Kroger, and Retail Sales (Podcast)

broker studio Busy Danny earnings fun. Particularly for the big banks, we had a mix of some of the yeah, what I kind of consider the pure investment banks like Morgan Stanley and some of the more maybe mainstream banks, commercial banks, Corporate Bank, City Wells Fargo. We have Allison Williams here in our studios here giving us a sense of kind of what's going down here. So it's been a really choppy year, Allison. From a capital markets perspective, that's a problem.

I would think, I don't know, um, but we have a you know, we've got interest rates going up and that means net interest margin. That's a good thing. So when you put it all together, what did you see so far in some of the earning today. So to your point, net interest income very strong in fact, um, you know, we sort of had a sense that it was going to come in better than expected, came in even better than that, and banks are guiding up for

the near term. But as we know, a lot of the thoughts are turning towards three and um, there there was higher than expected provisions related to we think banks getting more conservative on the economic outlook. UM. Of course that that remains fluid. On the capital market side of things, fixed income trading the highlight of the quarter that was expected, but again coming in a little bit better. Equities trading

week fees, as we know, very very weak. But what we're seeing in and you're seeing it in the stocks today, um, main Street is really the business that's outperforming for this quarter, and you're seeing that lift um for companies like well it's Fargo, even though they took two billion dollars charge related to some hysterical historical issues. Now raises a lot of questions about how long net interest income can stay

elevated and how long the consumer can stay resilient. When we are continuing to hear from FED officials even this morning, that interest rates are staying higher for longer. I think that is the question, um just in terms of things are much better if this quarter they look really good for next quarter, but um again provisions are rising. That really relates to the expectations for next year because the current trends actually are coming in more positive than expected.

And then in terms of higher rates, great for the margin right now, but at what point does that start to more dramatically slow loan growth and at what point, due to pause the costs start to rise more meaningfully, which will cut into that. It's October and Allison that time year. This is just bread into me. Even though I haven't worked on the street for fifteen years, I'm already thinking bonus time. What are the big investment banks?

What's the world on the street about, given it's been such a bad year or tough year for the for the markets, what's the expectation for compensation this year? So? Uh, you know, last year was a huge year for fees and trading. We saw compensation um rise accordingly we saw coming into the year, I would say, very intense pressure in terms of pay um. But we are hearing more about lower compensation um. And if you look at sort of Golden Jackson Morgan Stanley. Their compensation is the most

hyped to capital markets. It looks like the declines are similar to revenue. UM. We're also going to be looking to see what banks are doing on headcount. UM. We're seeing growth in the quarter that relates to campus hires. As you know, UM tends to grow in the third quarter. UM. Morgan Stanley was just speaking on their call and said, you know, they're they're not looking at any dramatic cuts yet, but obviously these are things they're going to be looking

at in the fourth quarter. You know, this is something Paul Sweeney looks at real closely, from someone to take a rug out from under him, whether the workers that do stick around, depending on how headcount works out, whether they're going to be coming back into the office. So I think that you know, we've seen mixed trends, so banks like JP Morgan and Goldman Sachs taking a harder line on things, and then some other banks sort of using that as a way to compete in providing more flexibility.

As we know, think things remain a little bit influx, and I think we're all curious to see what the backdrop starts to look like going into UM. But I would also say it's a tougher revenue environment. And my guess is when you're thinking about things like compensation cuts and staff changes, people are probably going to want to be in the office more often and you know, again hopefully on the road. If you're a banker trying to get more business, Hey Elson, on a global scale, is

there can these European banks? Can they ever be competitive? I mean really competitive? I think Deutsche Bank, Anna Barkley's, the Swiss banks, it just seems like they just they will never have the scale unless the rules change over the in terms of cross border m and A that they can compete with the big banks in US. Yeah, I think, And I think part of it is, you know, we're sort of a decade long now of sort of a virtuous cycle for the US banks and you know

the opposite for the Europeans. U S banks got issues behind them. Sooner they moved past the legatory, regulatory and legal issues, sooner they had a good economy. They had they had a period of higher rates before they came down and now coming back again, and that all allowed them to make these long term investments. So like you're

looking at JP Morgan. You know, they're equity trading. Last last quarter is more than anybody, and that was a business that you know, as you know, cash equities was was sort of the laggard for them, and now they're there, whereas on the Europeans it's it's sort of been the opposite. Um, they've struggled with revenue, they haven't had the money to invest, they've done restructuring after restructuring, credits. We know has some

big risk management issues. Um. So it does seem like, you know, it's one of those things on paper, would make sense for a couple of these to get together. Um, but there's also issues, right, everyone wants to be the buyer. No one wants to be the seller exactly. And it's political, it's cultural, I know, but it just you see how the market shares are going, you just gotta say, boy, at some point they're just going to be competed almost out of business and made so almost irrelevant. Its crazy

to see how that's evolved, all right. Alison Williams, senior banking analysts for a Bloomberg Intelligence, also co director of Research for the America's for Bloomberg Intelligence in the pandemic of our go to voices for really scientific based analysis of the virus, of the you know, the treatments and of the vaccines with Sam Fazelli, head of European Research

and pharmaceutical analysts for Bloomberg and Intelligence. Now that we've essentially for most people in the world have kind of put this in the review mirror, we can actually let him get back to doing what he does, just extend the emergency over at the White House. I saw that. Yeah, so it depends on how you view what I guess. But Sam, you know, there is another booster out in the marketplace and I'm getting it in a couple of weeks, Um, what's your view of I guess these periodic boosters h

for COVID nineteen the hilt. So the issue is that we've never really done this before, right, Everything about this pandemic has been clearly one of the first time I've been through this kind of thing us in a hundred years. So it's difficult to be a hundred percent sure about anything, and I think that's one of the things that I

think has surprised people about the science. But in this particular case, people are being asked to take it by Vail and Booster that's more properly fully tested in in folks as regardless efficacy, And the thing that I've been saying all along, I'm a little bit worried pushing this to the broad population. Let's put a science folks that are perhaps as old as me or have got some

issues with the immunity, etcetera. Certainly for those folks, but to push it out broader, and we don't even know how well it does against the current variants that are all sorts of flavors of record. Now, I think it's gonna as a risk that it would cause us even more lots of confidence in vaccines in general if it doesn't work so well. That's what I'm worried about. Well, Sam, we did just get some guidance from Fiser just this week that the by Valent vaccine that's targeted on the

CRON shows strong results in boosting neutralizing antibodies. I mean that has to count for something, doesn't it? Uh Normally, Nat and I would say yes, But did you see a single number in that did we point take in? No? No, But it was against to be a five of variants. What are we dealing with? Nine? New York before six b Q one one simple five happens number when you talk to these PhD types, Nathan, that's what happens. But we are all about the numbers. There was a lot

of numbers just now saying it's all about numbers. I know, I know that's the backbone of Bloomberg intelligence research and that that data. All right, let's talk about the stock um Fiser. I look at the f A function, which is financial analysis. I look at kind of the revenue trends. All right, So in they had forty two billion of revenue and then boom, it doubled in eighty one billion, and it's looking to add another or I guess go to about a hundred billion this year consensus, but then

it drops down to like seventy nine of revenue. How does the stock perform with that kind of crazy changes in revenue? And yes, it was all COVID nineteen related or mostly, but how does the stock perform? How do investors look at the stock like visor U during this COVID in post COVID period. Yeah, I know, you know.

The first thing I want to say is hots off to them for really absolutely so hard and I think to get this faccine out because it has made a huge difference to the way that people are reacted to this virus data side. As you know, investors tend to look forward, and when you look forward, it's very difficult to know where this boost campaigns and how many more of these shots were gonna need. If you take away you know, the COVID vaccine had more things than the

rest of fightser together. So that's what I think investors are a little bit not worried about. But what's the company going to do with this massive windfall? Can it converted into more nuggets to drive that long term growth? And that's what everyone's hanging on to see. If you look at the stock price, you see that it hasn't really performed that particularly well over the past six months.

And that's why, well to some extent, Fighter might want there to be annual boosters so they can keep getting these shots into people. It wouldn't that help a little bit if if they got a annual booster campaign going. Yeah, I think even one of the competitors would like its bi annually every every every six months. That the company may want that, but the question is to people need it.

I think if you think about people over the age of sixty seventy, those who are not able to keep the immune system in in ship shape to fight the virus, and also those who are unfortunately in you know, come

wise or com mobilities of wish. There are a lot of people may require a shot every six months, every twelve months, but the broader folks over the age of twelve, you know, those who are fifty, forty thirty, do they really needed And I think that this boost the campaign is going to potentially show us that that we we are. It's a difficult battle to trans stop infections with this accent.

All right, Sam, let's step back a little bit. You've been covering the pharma and the biotech industries for decades. As we step away a little bit from focus on COVID. Are your industries biotech farmer? You know, are they going? Is there anything we can learn from this m r N a technology that might help with I don't know, cancer, Alzheimer's, some of the other big issues that you know, the

health care industries focused on. Yes, So, Paul, Only two days ago, I think Madonna had an update about a deal that deal, the pact that they have with LURK of the US in using m orny as a vaccine against counter and the theory is great because you can try and dice to divert the immune system, push the immune system to recognize special markers on cancer cells that you introduce using the m R an a technology that's great.

Fingers crossed. It will show some strong benefits. A lot more detail needed, so at least in that front, I think you've seen some of that. Pushing it out to neuro neuropsychiatric diseases, etcetera. All of those things need to be proven. Well. One thing we've learned during the pandemic, science can really deliver if it's let a lot, if

it's left alone to do his job well. And I think this was exactly what we've seen with regards to the m R and a technology which many people didn't believe in, but enough people did to finance it and get it to help us get through this problem. Sam, you're and and I know you're in France. Give us just third thirty seconds. How are people in France thinking about the pandemic? Is it completely in the rear view mirror or is it still kind of front and center? Yeah? No,

I mean everybody knows it's there. We have some friends who were supposed to go and help us this weekend to be moving house, and they both got COVID. They're sitting at home. But people don't think about it like that anymore. Life is absolutely back to normal here. No different to New York, no different to London. Okay, moved on, all right? Good stuff. Sam Fazli, Yes, and he's uh. He lives in France. He works in London. Occasionally he shows up in New York. I have no idea where

this guy is most of the time. Sam, exactly ahead of European research. He's a pharmaceutical analyst, one of the absolute best in the city of London. He's been doing it for decades and he's been a great help to us a Bloomberg Radio television during his pandemic, giving us some you know, real fact based analysis there. He's a

Bloomberg intelligence, so we appreciate getting his thoughts. All right, let's break down this with this big M and a trade here that again, Bloomberg News was broke a couple of days ago. It's been official today. Kroeger Albertson's nearly a billion dollar deal. Jenn bartashes she covers this sector like nobody else on Wall Street. She's a senior equity analyst for Bloomberg Intelligence. Hey, Jen, so we've kind of got the deal. It was again first reported by Bloomberg

a couple days ago, now confirmed. My question is antitrust? Is this going to get approved by the regulators? Good morning, Paul. It's I think the question that's really top of mind. Um. It's clear that Kroger is trying to offset that concern by the structure that they've announced with a spin off company in some stores. But when you look at the actual map of coverage, it's there. There. There are areas where there's not a lot of overlap, but there are

areas where there's significant overlap. And those happened to be in big urban areas like Seattle, like Los Angeles, San Diego, at Texas, in the Houston area. So this is where the concern comes in that the FTC, which has become increasingly critical of big of big mergers, may really push back and some of this. Yeah, a lot of folks on this side of the country might not be as familiar with Albertson's, but it is big out on the West Coast where I spent a little time as a kid,

so I have vague memories of it. What are the struggles for Albertson's out West, Jen, Well, you know Albertson's. Albertson's has done a good job of improving their operations in the last couple of years. UM. But when you're talking about very dense markets where both Albertson's and Kuger operate, UM, there's there's going to have to be, you know, some sort of solution that's that's provided to avoid you know, market share ending up in the hands of just too

few competitors. UM. And we've seen the Biden administration take a bigger stance on this kind of anti trust type thing with the meatpacking industry and other technology industry things like that. So that's that's one of the concerns um. And so you know, the other thing is that there's a long timeline before this deal is meant to close, which is the beginning of four There's a lot that can go wrong in such a long try and frame that could disrupt the current operations and make the success

of the merger ultimately a little bit riskier. Hey, Jen, I you know, I kind of get it. Um you know, bigger's better, scale, all that kind of stuff and a relatively low low margin business. Give us a sensor. Just describe how Walmart has come into this business, the supermar market business, the food business, and how they've disrupted the business.

Where's Walmart? And can this combined co compete with Walmart? Yeah, that's a great question call when you know, if you look at Walmart and you break down their revenue and you look at what the same goods that are sold at a grocery store versus everything a Walmart carries a little of our fifty of their revenue comes from what grocery market grocery stores sell. Um So it is a big It is a big competitor on a national scale.

They hold about of all food retail or grocery market share um so, the combined entity of Kroger and Albertson's together would bring their mark get share up to you about just under So you know they can compete. And obviously scale will help them compete because they can be more competitive on pricing, they can procure goods at a lower cost. But it takes time to achieve that type of synergy. Um And in the meantime, Walmart will not

take their foot off of the accelerator. Um. And so you know, yes, it will improve their ability to compete, but um, they're also going to be tied up with integration efforts, UM, which could delay their ability to continue to expand and remain competitive with Walmart during that time frame. It's not just Walmart. I think the last time we heard about a big grocery deal sort of like this

was when Amazon purchased Whole Foods. I mean, how has the grocery market just more broadly shifted given all the different types of players that are in it now. It's it's been a huge change in the dynamic of the industry in the last couple of years. UM. And you know with with Amazon, you know, purchase of Foods, which is probably the most recent larger transaction out there. UM. Yeah, it really shook the industry up, especially from a technology

perspective and a digital ordering type of perspective. Um. When you're looking at the traditional supermarket players, however, it's been a story about industry consolidation. UH. And we've seen smaller players go out of business or be scooped up. Um. And so what we're seeing in the industry now is we're having gale driven players UM, making it increasingly difficult for smaller regional players or local players to remain successful

and competitive. UM. And that that then also is kind of a long term trend that we expect to see continue with regards to that that consolidation UM. And there are new pressures of having you know, being more technologically savvy and to create you know, higher revenue stream you know, higher margin revenue streams for these businesses as well. So there are a lot of balls to juggle for for these retailers at the moment. All Right, jenn thanks so

much for joining us. You are the experts, so we had to get you on to kind of talk about this deal, big deal billion bankers getting paid, which is the first thing I look at. New competitor potentially for the Walmarts of the world in the supermarket space. I'm still waiting for Piggy Wiggley to come to New Jersey, but we'll see. Jennifer Bartasha's senior equity research annelist for Bloomberg Intelligence, joins us there and again UM consolidation UH

in the supermarket business. And his Nathan was talking about, I mean, you know, I got Amazon coming in with Whole Foods years ago really changed the landscape as well. We had to retail sales this morning. I don't know. The headline, flat month the month, that's a little bit weaker than the prior month, so that's not great. The control group, however, came in a little bit better and expected and better than last month. So let's call it mixed. I guess, but I don't know. What do I know?

Mariy Shure, she knows what's going on. She's a senior equity also Columbia Thread Needle Investments. Before that, she was with some little shop downtown Goldman Sachs University of Pennsylvania, so she's uh, knows what she's talking about here. Mary, What did you take away from some of the retail sales data we we saw this morning? How's the consumer doing well? Thanks so much for having me. My reaction this morning was very similar to yours. More mixed. I

would say two key takeaways for me. Number one, the flat month over month read um really implies negative real or unit demand given what we've seen with inflation, and that is very concerning, especially at a time when the companies have all really relied on pricing to drive sales, and with building inventories, it seems like pricing maybe less of a lever going forward, so the what happens with the unit demand will be even more key to watch. And then the other key takeaway would really just be

the shift towards necessities. We saw categories like food, health, and personal care in general merchandise accelerate slightly month over month, while other discretionary category categories saw slow down, and for me, the real ones I was watching, we're furniture and consumer electronics UM that saw the greatest deceleration month over month. And I think that you know, those categories remain um at risk cutting into the holiday given building inventory and

still slowing demand following following two very strong years. So are you starting then to see cracks in the resiliency that a lot of these bank CEOs you've been hearing from our saying that they still see in the consumer. Yeah, it's such a great question. We've been talking of this internally. You know, the macro is more important than ever, but yet there seems to be an even greater discrepancy between

the macro and the micro in some cases. Um And when I think we absolutely have seen cracks, especially for some of the categories that were strongest over the past few years, like home, consumer electronics, even apparel UM given the building inventory and as I said, weakening pricing power, which has really been the key driver of sales over the past two years UM, and I think that that risk continues as we head into holiday and next year.

You know, a lot of the retailers are talking about bringing inventory more in line with sales as we enter the holiday. But you know, given what we're seeing on a high level in the macro data looking at inventory levels relative to sales, UM, there are still a pretty wide and unfavorable gap there. So it really does kind of call into question what as you said, some of these large bank CEOs are saying in general about the consumer. I mean, as we saw the retail sales, they're still okay.

It's not that they're falling off a cliff, which would suggest that the consumer is still healthy overall. I think we're just seeing, you know, a greater variance in terms of how the consumer is spending their money. Of course, spending more on necessities as we've seen you know, increases in prices of food and energy and gas. You know, and spending less on some of these discretionary categories where

they've really stalked up already over the past two years. Hey, Mari, how how promotional our retailer is going to be this holiday season? Am I going to get some deals when I go to the store? Absolutely? I think you you should definitely expect to see deals better than last year. And the truth is, throughout this entire year, given that inventory was heavy entering this year, we have seen promotions rising in categories again like home and apparel. I think

that continues through the holiday. You saw some retailers, including Amazon, trying to pull forward promotional events into October. I don't think that at works very well given that number one, the companies have been promotional, So I don't think that, you know, the marginal return on the increase on the

incremental promotion is there. And the narrative in the media is that inventory is heavy, so I think consumers are going to be more willing to wait for the deal, and the longer they wait, the more nervous retailers get. And so I think you can definitely expect to see higher promotions than you have over the past year or two. However, a relative to pre pandemic levels. I think that the

retailers will still be net less promotional. All right, Mary, sure, thank you so much for joining us, giving us that rundown again. We had retail sales today kind of a mixed picture. But as we head into that all important holiday season. Mary Shore, Senior equity analyst at Columbia thread Needle, giving us her thoughts here promotions, maybe gets promotions there.

On Nathan's you go out and do your holiday show, feels like Black Fridays to into Black October, right when you have all these early deals coming in and the question is you know stuff gonna be on the shelf when you do go there, when you do click by, that'll be interesting as well. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Pet

On Ball Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio