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 moving news.
I'm the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com Slash podcast. It is earnings. We've got some more bank earnings. We started last Friday kicking them off. We got some more big ones this weekend. We've got some of the regional banks as well. But of course you know you've got some big, big banks this week, so we want to
get to the bottom of it. So we're going to round table this discussion because we can do that at bloombergause we have Bloomberg Intelligence, some of the smartest analysts on Wall Street, Allison and Williams. She covers the big banks and Herman Chan covers the regional banks. Here in the United States. We've got them both here in our Bloomberg Interactive Brokers studio. So Alis, let's start with you. What was the key takeaway from Friday when we had
some of the banks kickoff? JP Morgan being the most notable. Then this week you've got Morgan Stanley, Bank of America, Goldman Sachs kind of what are you starting to see? What do you expect to see from these big banks?
The key takeaway was more resilient, interesting income versus expectations, so holding up a bit better. And I think we had signs of that. The first quarter was strong and it looked like the banks were being conservative with guidance, and so they upped that guidance. So we're going to see if the same hold shoop for a Bank of America.
Part of that is that they're growing credit card loans, which are higher yielding, and if you look at loan growth, that's really been the strong point that benefits big banks like JP, Morgan City Whiles also growing that a little bit. Bank America, we'll see, but Bank of America does have a little bit more exposure to the commercial and industrial side, which is weighing a little bit on Herman's side of things.
I want to bring Herman into this conversation because we're going to have seventeen regional banks reporting this week. It does include Usbank Corp also P and C reporting your first earners results after the collapse of obviously first Public and then SVB when they triggered those industry fears in the spring. What do you think we should be expecting from the regionals?
So the regionals are going to feel the aftershocks of the bank failures in March and April. That really comes in the form of deposit pricing. As deposit pricing continues to increase, we expect the smartests contract, top line revenues to contract because of the higher funding costs. And contrasting to what's happening with Allison's banks, you're not seeing the long growth versus the bigger banks because there's less exposure
to credit cards. There's more exposure to commercial real estate and traditional business lending that and those areas are slowing across the industry.
So Herman on the commercial real estate side, how big of a problem is this going to be for the regional banks around the country over the next you know, quarters, but really a couple of years probably, Yeah.
That's right.
So I would highlight that the real main focus is office commercial real estate. At other areas that were sort of in the in the spotlight, like hotels and other areas like that are performing pretty well. At this point, but office commercial real estate is the big focus. The good thing is that exposures are pretty manageable. We're talking about for the regions that I cover, two to three percent of their entire loan portfolio is situated in office CRE.
That's a fairly small portion. And we also point to the fact that underwriting's pretty conservative, with lone deposit ratios around lond to value ratios around sixty percent, which suggests pretty strong cushion for potential losses down the road. So you could see that you could see losses come, but it'll be pretty manageable over the next several years.
So Allison, whenever we do hear from Goldman and Morgan Stanley, how exactly will this put the investment banking slowdown into more perspective from here?
So, obviously the business is more important for those two banks and some of these more diversified banks that we watch. I keep in mind that Goldman Sachs and Morgan Stanley had really strong fixed income trading last year, especially driven by the commodities front. So when we see some of those declines come in, there might be some some negative headlines, but in general we do think that you know, there there is some support for fixed income trading normalizing in
a historically high level equity trading not so much. That's more negative on the margin for Morgan Stanley because they do are are more skewed to the equity side of things. But more importantly, we'll be looking at fees. You know, Goldman is far and away the m and a revenue leader.
There's all different kinds of rankings and such, but they do tend to earn, you know, multiples of the next competitor in terms of revenue just due to sort of leading positions on certain deals and that that's been a headwind. It's going to be a headwind for the banks. Are they still expecting you know, optimism for twenty twenty four these green shoots that we saw on the equity side of things, Will that help in the quarter? And then you know wealth and as asset management benefiting there from
some of the recent equity prices. How is that translating for those businesses for the big banks?
Hey, Hermin, I know when we were talking to you almost on a daily basis there a few months ago, when we were earlier in the thick of this regional bank you know kind of melt down a little bit for a handful of names you've just kind of highlighted to us. We need to focus on earnings risk for these banks, and that's where the pressure is going to come. Is has the earnings risk been taken out of this group or do you think there's still more downward revisions? Where are we net process?
There's going to be there continues to be some uncertainty in regards to earnings. Really, it's going to be focused on good deposit repricing. I don't think a lot of the regionals have a firm handle on how quickly and how fast and where that potential deposit repricing stops. We're going to see potentially another FED rate hike. That's a
negative for deposit repricing. And look, JP Morgan just said that deposit competition is rising, and if the biggest bank in the United States is the posit competition is rising, then you could expect pressure across the regionals because of that.
And I wanted to follow up on that because the FED has pointed a tougher capital and liquidity rules, especially for the mid sized banks. What do you think that stake there?
Yeah, so there's going to be higher capital ratios. We expect also higher liquidity rules, tougher liquider rules for the regional banks. All that will serve to reduce profitability and
row's return on equities for the regionals. That we're talking about regionals with assets above one hundred billion dollars, So we're talking about a fairly small subgroup of regionals, but you're going to see maybe one hundred two hundred basis points of return just stall off the profitability spectrum across these banks, and that that's gonna be something that the industry is going to need to digest, and you're gonna
see some cost cuts. You could potential see M and A down the road to absorb some of these regulatory pressures and top line pressure. So those are things we're expecting down the road.
Allison, real quick, thirty seconds. Goldman's acxis week. How much pressure is the CEO, mister Solomon under at the moment.
I mean, I think to the extent that things are related to the environment. It's the environment. So I think investors will be watching, you know, how the market share is holding up and how these longer term initiatives holding have been holding up. I mean, there's been a lot of focus over the last couple of years and the consumer effort and sort of the wind down of some of those initiatives. But I would keep in mind that those were in place when he took the helm, and
so you know, it's not necessarily something he created. It's not a reason that investors ever owned the stock, quite frankly, but things like the alternatives business, things like what's happening on the cost side, that is something investors are focusing on.
You know, they're going to be way out of bounds in terms of their costs versus their target because they have some one timers and some impairments, so it's going to be pretty much of a mass when they report, But people are going to be looking for, like what is that core cost trend?
Wrote in on the train today, saw Buddy mine who's an m and a banker. He works at an investment bank that focuses on regional banks. His wife wants him to retire, and he says no, because the next five years he thinks are going to be the most lucrative in his career. He's about sixty years old. He's to be the most lucrative in terms of the fees of his career of the next five years, and he wants to be there, so boom. He thinks there's gonna be a lot of M and A in the space. I said,
that's interesting. So anyway, Allison Williams Herman Chin, they cover all the banks for Bloomberg Intelligence. We appreciate getting them in office.
You're listening to the team. Ken's are Live program Bloomberg Markets weekdays at ten am Easter and can Bloomberg the iHeartRadio app and the Bloomberg Business app or listen on demand wherever you get your podcasts.
Lots of earnings this week, including Netflix after the close on Wednesday. Stock's had a great run.
It's over one hundred percent over the last twelve months.
Yeah, just amazing. It's still down about twenty five percent from its all time high, but it's hitting a fifty two week high today, so finding it's putting again. Keithan Ranganathen joins us here via zoom She covers all things media on a global scale for Bloomberg Intelligence. So let's just start there at Getha. It's the one bright spot I think within the media landscape that's actually doing well from Stock respective what do you expect to hear from our friends in Netflix.
Yeah, so absolutely things are looking pretty bright for Netflix. I mean, with all of the attention now on streaming profitability, this is one streamer that has really got that portion of the equation right. So they have found, you know, this kind of nice formula where they're balancing costs and profitability, and so we're going to obviously see them kind of really post I think good operating income numbers, good margin numbers.
But I think where a lot of the attention is going to come down is to see where their most recent initiatives whether those are bearing fruit. And what we're talking about is an AD based year, which was introduced late last year late last year, but more importantly, their recent password crackdown initiative, and they've kind of implemented this in the US, across the world in over one hundred markets, and you know, some recent data points seem to suggest
that it's actually gone much better than expected. So we might expect them to see to post much better subscriber editions. Right now, consensus points for about just under two million new subscriber ads. But you know, a bait could definitely be expected.
And when you see a stock like this up more than one hundred percent over the past twelve months, and even just looking this year, to Paul's point, over fifty percent year to date. How much does this raise the bar this earning season when it has been on such a tear.
It definitely does raised the bar. I mean, the whole focus right now for all of the media landscape is really on profits, and this is one company that has got it right. I mean, for the longest period of time, they were criticized for you know, huge amounts of cash burn and then this year where you know, they've guided to three and a half billion dollars in free cash flow and you can expect them to even surpass that number. We are thinking closer to four four and a half
billion dollars in free cash flow. And this is coming at a time when other companies are kind of really struggling to find their footing in terms of, you know, getting to that profitability metric. We saw some pretty you know, dismal kind of forecasts out from Bob Ayger and Disney just in terms of you know, the linear TV business and even streaming profitability. There's really no clear cut path. As we have at Netflix, we just don't. We're not
seeing it at any other company. So obviously, economics in this space are very, very challenged right now, but Netflix definitely will set the bar higher, no doubt about it. All Right.
So that's about the extent of the good news in your space Netflix. The rest of it's are kind of a little bit dire. Let's start with paramount Mission Impossible, Tom Cruise fifty six million bucks over the weekend. I think that was below consensus here. Kind of what's the takeaway. Is it just a you know, title specific issue, or is this maybe ring a little bit more broader as it relates to what people where people want to go in terms of theaters and things like that.
Yeah, it's been a little bit of a roller coaster, Paul, in terms of box office performance. So I think in general the tone has been pretty positive for about you know, just generally we've kind of seen that comeback in terms of box office attendance, but some of the more you know, recent titles, they haven't necessarily performed as well as you know, industry experts we're hoping for, whether it's you know, the Indiana Jones movie, whether it was Elemental from Disney and
now more recently. You know, kind of this this mission impossible, but I think you know, overall, the tone still continues to be pretty positive. I mean, if you're comparing box office numbers to pre pandemic, yes we're still down about twenty to twenty five percent, but I think you know, things you know should generally pick up. That said again, the question being are we ever going to see it go back to pre pandemic levels? Probably not. I mean
we have multiple things right now affecting the industry. You know, we have a strike that's going on. We have all of these companies that are kind of paring down in terms of their content spending. Disney even came out and said that they're actually taking down their studio spending. So if you kind of put all of those together, that doesn't necessarily bode extremely well for you know, the health of the box office.
What about when it comes to this Barbie movie that's coming out soon, have to ask about that and your thoughts on it. It almost feels like it was already widely distributed because we've been talking about it for so many months.
I mean, I'm super excited for it, watch it. I know we have that whole you know Barbenheimer with you know, the Oppenheimer movie also coming out, So there's obviously a lot of buzz. You know, it's huge promotions at CinemaCon when I attended that earlier in April, you know, we had all the A listers kind of come out and promote the movie. So obviously a lot of buzz, and I think it should do really really well for Warner.
All right, so let's go to Bob Biger. He had a pretty extensive interview last week where he broke a lot of new ground. I thought the biggest headline was there's really no sacred cows at ESPN here. I mean he was talking about, you know, maybe doing something with the networks including ESPN, maybe spinning them off, you know, partnering up with a third party. Wow, what do you think they want to do with their linear TV business including ESPN.
Yeah, there's just too much focus, Paul, as you know, on on the linear TV business as and if you've looked at some of the more recent court cutting data, it's really really dire. So you know, we used to have video subscriber declines hovering around in the four five six percent range. Those have double right now. So we're seeing about twelve percent declines in the in the video subscriber pase. So obviously it does not bode well at all for the linear networks, the linear network business, and
I think Bob Bieger was exactly referring to that. Having said that, though, I think he's making a little bit of a differentiation between you know, the ESPN assets, which are still very, very valuable to Disney. So they're obviously trying to find some kind of future path with you know, that a big, bigger foray into the director consumer portion
of the of the ESPN business. But they are also saying that, you know, all the rest of the networks, So whether it's a free form, whether it's a Disney channel, whether it's an Effects or a national geographic those are, or even the E or even the AABC broadcast network, all of those are non core assets, and they're really looking to kind of offload those assets. So it's going to be interesting. I mean, obviously the writing is on
the wall, Uh, these assets are in structural decline. The question is, yes, it's a good thing if Disney can actually get rid of those and get some cash back into the business. The question is, who's really going to buy that. I mean, is it going to be private equity, is it going to be another media company? Just there's just no you know, healthy future outlook for those assets. So I think that is really the biggest question right now investors' minds.
And Disney also extended Bobbeiger's contract by neother two years to twenty twenty six. Shocking right now, Paul. I know how closely Paul watches the stock Mickey Mouse, But what does it mean when it comes to giving a long time executive like this more time to implement his turnaround plan and to ultimately find a successor?
Yeah, I think you know that there's there's the positives and the negatives. The positives obviously it's it. It signals a lot of stability for the company, especially when we have such a turbulent kind of a media ecosystem right now. So obviously bar Bieger knows what to do, He's not
going to be shy about doing it. And remember, we already have some kind of you know, management upheaval with the departure of the CFO Christine McCarthy, so kind of not having Barbieger there would have led to kind of two executive searchers at the same time, which would have been a little bit difficult, I think for the company to maneuver. So I think this kind of makes sense. But again it brings again to light the biggest issue for Disney, which has been the succession issue, and that
just continues to be an issue. So yeah, there's a little bit of good and bad. But I think as we kind of navigate this very, very tumultuous time, it's good to have kind of a steady hand with Bob Aiger and I.
Hear from a little Birdie that Walt Disney Company is kind of have an investor meetium, good old fashioned bring everybody down the Disney World or Disneyland in October and Getha, I'm sure we'll be there and reporting back to us. But that's where I'm sure they'd like to make some big, big announcements, so be on the lookout for that. Keetha Rang and Nathan, thanks so much for joining us. Githa is our globalhead of all Media in Research and we
appreciate getting a few minutes of her time. But again, as you know, Getha was just suggesting, it's a tough time to be an investor in the media. Space not there's just so much uncertainty.
There're looking at Disney stock ticker symbol dis It's flat for the year. You look over the past five years, down more than twenty percent in that span.
Yep, exactly. So you know the real as these companies pivot from the traditional distribution of cable systems and satellite systems to this new thing called streaming, there's just a ton of uncertainty about how that will happen in the actual profitability of that business.
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Treasury Secretary Janet Yellen, you join us now from India where you're meeting your counterparts. It's the G twenty Finance Ministers and Central Bank Governor's meeting. And really the cloud around this meeting is the fresh data we got out of China today. Beijing slowing momentum in their growth. City is talking about the growth target being at risk. I'd like to start Treasury Secretary with the fact of whether you think this means there could be an increased chance of a US recession.
Well, you're talking about the slow growth number from China, Is that right, Anne Marie?
Yes, correct, So I think trying.
Has seen slower growth than they expected upon opening up from COVID. Consumer spending has been relatively weak. It looks like consumers are more focused on building back their savings buffers, and so growth has been slow in As you know, youth unemployment is quite high there. So I think the Chinese are concerned about sluggish growth in their economy.
But what does this mean for US growth and global growth overall? Is the soft landing in the United States? So your base case scenario.
Well, many countries do depend on strong Chinese growth to promote growth in their own economies, particularly countries in Asia, and slow growth in China can have some negative spillovers. For the United States, growth is slowed, but our labor market continues to be quite strong. I don't expect a recession. I think that we're on a good path to bringing inflation down. The most recent inflation data, we're quite encouraging
that we're making progress on getting inflation down. But as I'd hoped and expected, that would occur in the context of a strong labor market, and we continue to see that the labor market's the fact the labor market's been so strong has encouraged more primage people to enter the labor force into work, and that's helped take a bit of the heat out of the labor market. The fact that growth overall has slowed after we enjoyed a rapid recovery, that's normal, but it's also led to some reduction in
the desire of firms to hire. Still lots of job openings, but wage growth is moderating and inflation is subsiding. So I think we're in a good path on the United States.
Okay, so it sounds like soft landing is your base case, and you don't think we're going to see a recession. Yesterday, when you were speaking to reporters, you talked about this de escalation with China, and you rolled out lifting tariffs as part of this de escalation with Beijing.
So what is on the table?
So you know, several years have gone by in which we've had COVID lockdowns, especially in China and very limited contact between senior fish in the United States and China. And we now have a new economic team in China that we need to establish relationships with. We need to get our relationship back in a more stable place, put a floor under it, and try to promote better understanding between our countries. So I recently made a trip met with a number of senior Chinese officials, including the new
economic team. There, we had very cantid discussions. Each side raised a series of concerns. Chinese certainly mentioned their concern with the tariffs that we have in place, but we had constructive conversations, deepened our understanding and of the economic situation and of our concerns, were able to address them and agree that there are a broad range of global challenges, particularly debt and climate change, that affect the entire global economy that we need to work on jointly, and I'm
hopeful we'll be able to do that more successfully. On tariffs, you know, we put tariffs in place on China because we had underlying concerns about unfair trade practices, particularly those affecting intellectual property and technology transfer, and those concerns really have not been addressed. We're undergoing a four year required review of tariffs, and of course China also retaliated putting
tariffs in place on us. We have to see what comes out of the four year review, but I would emphasize that really the underlying concerns we have have not yet been addressed, and we need to work on that going forward.
But when you're looking at de escalating, we're trying to figure out what we'll be left on the table, because what it feels right now is the administration is actually just amping up when it comes to potential tit for tat with Beijing. There is the outbound Executive Order that potentially we could see as soon as the end of July or this summer. Could that be a place pulling a punch from the outbound Executive order, maybe making that a little bit more toned down.
Could that be a place you could de escalate with Beijing.
Well, first of all, I want to say that what we're doing is not tit for tet. What we're doing is putting in place controls. They're designed to protect US national security and in some cases to address fundamental human rights abuses, and we do intend to protect our national security we have export controls that play an important role
in accomplishing that. And what I try to explain to our Chinese counterparts is that our desire is to make these US policies clearly national security focused, transparent and narrow, that we're not attempting to stifle economic progress in China that we have and want to continue to have deep economic ties. After all, this year, our trade has reached almost seven hundred billion dollars. National security concern economic.
Madame, Secretary of the National Security concerns are so important. Jake Sullivan called for this outbound of executive order two years ago.
Why is it taking the administration so long?
So we are looking carefully at outbound investment controls, and they would serve as a complement to the export controls that we have in place to make sure that we have covered all the channels by which technologies can be transferred to China that we think pose national security concerns. I explained to my Chinese counterparts that if we go
forward with these, they would indeed be narrowly targeted. They would focus on a few sectors, in particular semiconductors, quantum computing, and artificial intelligence, that they would contain a combination of notification requirements and in very narrowly scoped portions of these
sectors prohibitions. But these would not be broad controls that would affect US investment broadly in China or in my opinion, have a fundamental impact on affecting the investment climate for China, So these would be national security focused.
It sounds like it's already done.
Is the administration have it finished and is just waiting for a good time to release it.
We want to make sure if we do this, that we get it right, and we've been working on the details. If we do go ahead, and there is a good chance that we will, that we would put out along with the executive Order and notice of proposed rulemaking, so that the public would have a chance to comment on these proposed controls and we would receive a wide range of public input before finalizing anything that we do.
Madame Secretary, you obviously have a lot on your plate when it comes to re engaging with China and your discussions there.
Just off this trip from Beijing, I'm curious how.
Difficult the dialogue is going to continue to be After the revelations about the Chinese hacking of your colleague, Secretary Gina Ramundo.
So, I do have concerns about hacking of US government officials or at individuals or companies, and I know the United States has expressed those concerns. But we intend to continue to deepen our discussions with China to increase our engagement. It's especially important to explain what our motivation is to avoid misunderstandings that can lead to necessary, unnecessary and dangerous escalation.
President Chi and President Biden agreed in Bali that senior officials, including those in economics, should interact more regularly, and I think an outcome of my trip there was that we will have deeper, ongoing engagement at all levels.
When did you learn about the China email hacking.
I'm curious if you had a chance to maybe bring this up on your trip to Beijing.
I believe I did not know about that in Beijing. Wasn't one of the things that we discussed.
I also want to ask about what's happening on the ground, something that I know is very important to you, and this comes to debt relief of these developing countries. There has been this push from the US administration to use the Zambia principle for other countries like Ghana, but that's not getting the broad support it needs in India. On the ground amongst other G twenty finance ministers is China the hold up here?
Well, we designed the G twenty designed something called the Common Framework, which is a set of two principles and processes to deal with unsustainable debt situations. And we would like to see countries that apply to use the Common Framework get rapid relief from their debt that they need in order to grow and be able to attract investment and undertake IMF programs that can help to stabilize their economies.
And the few.
Cases that have applied to use the Common Framework, including Zambia, have taken far too long. The process has been onerous and it's taken a very long time to get debt relief. We are pleased that China has become China, after all, is a major creditor of these countries. We have been anxious to see China move more quickly and take a more constructive attitude participate painting in these debt relief talks,
and getting agreement on Zambia was an important step. China has also been helpful in Ghana, the case of Ghana and Sri Lanka, and I'm hopeful that we'll be able going forward to make more rapid progress. I should emphasize that the debt issue is one that concerns the entire g twinning and we are united in wanting to see this framework work more effectively, and it is a priority for India as well.
All Right.
That was Bloomberg's Washington correspondent and Marie Horder sitting down with Treasury Secretary Jennet Yelling for an exclusive interview from the G twenty summit India, talking about all things at China and the global economy. We want to follow that up with a discussion with Endocurrent. He's a global economy reporter of Bloomberg News. So and fascinating discussion Anry Hordern had this morning with Secretary Yelling here.
I mean, the.
Messaging seems to be that the US government's trying to work with the Chinese government, but there was just a lot of challenges out there. What did you take away from this discussion?
Maybe some mixed messaging I think coming from the administration, because obviously we know there's been a very hawkish rhetoric it's all about US strategic rivalry with China. But we had this morning mister Ellen making those making those comments in the interview that he just played, saying, for example, the US would go ahead with those investment restrictions on China, but she doesn't really see it having an overall harmful effect.
It's fairly targeted, precision kind of policy, and obviously that will stoked about over you know what exact China strategy is administration pursuing. Are they trying to get things on an even keel and and sort of riachual conciliation or are they pushing ahead with sort of the Holkish side of things. So I think there's grands for debate there
around there's some of the signals coming from that. She also spoke though about what the Chinese economy is singing for the rest of the global economy, and she made some remarks during the G twenty about how China slow down is definitely going to slow down trading partners in the Asia region, but probably won't be enough to spill over to the US and drag the US economy into
interior session itself. So, as I say, covering a lot of ground, but maybe mixed signals from the Treasury Secretary on the China policy.
Something that struck me in Paul was when Yellen was talking about youth unemployment being so high in China. Do you know exactly what drives that dynamic.
Yeah, it's up over twenty percent. Now, again, on paper, that's a record, but the data doesn't actually go back that far, and it goes back to twenty eighteen. There are a few different things a play in China. There's been a record amount of graduates coming on the market. I think it's eleven nine million this year, so they're obviously all going to be looking for work. There's a lot of there's been a lot of change in China's
economy recent years. That big regulatory crackdown on the tech sector, for example, took away some of the low hanging fruit when they come to see young graduates getting work. That's been cited as one factor, and of course then you have this broader slow down. This was meant to be the year of recovery in China's economy post the COVID zero policy. Services and consumption we are meant to drive this big ifiz in demand. Well, it looks like that's
kind of peeling around. It's been at disappointing recovery. Lots of economists now downgrading their forecast for Chinese economy, some people even in the warning that the China's government will miss the growth target of around five percent is here. So you would have to say the pressure on ute employment is part of the mix of the broader economic slow down there too.
So and how broad and how deep you think the economic slowdown is likely to be in China. I know it's tough to get reliable data and you know, but the concern is that could have impact on the global economy.
Yeah, so this was meant to be the year that China would spill over to the rest of the world, as we were just talking about Chinese tourists would go everywhere and spend money, and Chinese students and of course Chinese demand for imports from bull commodities, everything else. But it hasn't really played out like that. And to your point, then, on the ground, all indications are the official data saying
there has been a material slow down there. It's disappointing to the point now where economists are saying two things, China is at risk of deflation. Certainly start contrast to the US is there, and also that they may miss the official growth target of around five percent That was considered to be a conservative growth target when it was said that the government could pretty easily meet it, but now that's in danger. So of course it's difficult to
tell what's going on in China. It's such a huge economy, and there are questions around transparency of data, but consistently showing that the real estate sectors and the slump, the consumer reband story isn't there. The industrial side of things is picking up a bit of the moment, but exports remain in adulgrum. So by all accounts, China's economy is certainly slowing down, and it's a question of by how much.
All right, ed, I thank you so much. We appreciate that. As always end occurrent, he is just given us kind of an overview kind of what we're seeing here on the US and China to try to rea set some economic discussions here between the two countries.
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Jasmint and Paul Sweeney here in the Bloomberg Interactive Broker Studio and for our next segment, we're going to talk about sort of scanning for stocks here with Julie Gorty, who's senior vice president for sustainable Investing at Impacts Asset Management, joining us on zoom to discuss how this record heat is affecting physical assets and which sectors and companies are most at risk. Julie, thank you so much for joining us. Take a step back and tell us about Impacts and what you do.
Sure Impacts is an investor with about we have about fifty billion dollars in assets under management. We're based in London, but we have offices in North America and Asia, so we're a global investment firm and what we invest in is the transition to a sustainable economy. So everything that we do is aimed at investing in the things that have the long term value drivers of sustainability.
So give us examples of kind of some of the areas that you've invested in.
So we're investing in the food and ag sector and things that are crops that will be more resilient to heat and to drought. In climate change, we invest in solutions that will mitigate greenhouse gas emissions obviously wind and solar, but also things like pumps, pipes, filtration, much more efficient heating back, air conditioning, and space conditioning. We invest in things that are water saving and that actually help to purify the water, and things that avoid having to use
things that allow you to use water in situe. Right, if you have to pump your water fifty miles from a reservoir and then back to the wastewater treatment plant, well water weighs about nine pounds a gallon and it takes a lot of energy to pump it. So anything you can do to retreat your water and we use it in situ is going to save you both in terms of water and climate. So ideas like that, chemicals that are less polluting, and stuff like that in.
Relation to these physical assets. What is physical climate risk so important in particular when you want to look at more industries in this stock market too.
Yeah, So when we think about climate risk, in the past, we've tended to think about the big emitter, so energy stocks and utilities and things like that, but everybody is vulnerable to physical risk. You can be a non emitter, but if you're on a coastline that's vulnerable to a hurricane, you can still get effected by climate change. And increasingly that's happened. We've seen disruptions in air travel. We've seen
outdoor work become much more dangerous. There are people, there's a high rising mortality rate, and it absolutely affects productivity of both p people and other organisms that have to work outside in high heat. You see vulnerability of whole economies. Local economies do things like hurricanes and severe weather, coastal storms, sea level rise, all that stuff can have a major
economic impact. Right now, it's having impacts that are running in the hundreds of billions of dollars of insured losses annually. And that's just the insured losses, so double that if you want to, or you know, could be even higher if we count uninsured losses. And that's going nowhere. But up as long as our emissions are rising, physical risk is rising can affect anybody.
You talked about energy, What other specific sectors, industry groups do you think the stock market is most vulnerable to when you're talking about physical climate risk?
Okay, so agriculture obviously anything in the food value chain. There are also a lot of electric rids that are vulnerable. That's not energy production, but it's sort of getting the energy to households. We've seen rolling blackouts and California. You know, we saw the Texas grid freeze basically go out because of that. But you know, we can all can also
affect transportation. So we saw, you know, like if it gets hot enough, the asphalt buckles and rails expand, so things like air travel get disrupted by the storms as well as just by what's happening on the asphalt in airports. So anyone who ships their goods, you know, it could be vulnerable to disruptions and transportation. We were just having a call this morning with a really big semiconductor company
that ships most of their stuff by air. So air disruptions can matter a great deal to the semiconductor supply chain. Do you want to know what that disruption looks like? Look at what happened during COVID, So, Julie, it.
Just feels like, you know, climate change has become such a political issue here in US. I don't know how it is around the world. Here in other parts of the world. Do you encounter that with your investing with companies you look at with your discussions of all the stakehold out there, and if so, how do you deal with it.
So the backlash in the US, primarily, I would say, is primarily political. When we talk to firms about it, when we talk to them about physical risks or transition risks, they get it. Whatever the political discourse is, it doesn't affect the facts. Really, it can affect policy, but the fact that physical risk is happening is going to happen, whether people believe it or not. So they get it.
When we talk to the firms in the s and P. Five hundred about physical risk, the firms that had thought about it understood that it was the impacts could be severe, unexpected. Making decisions in a crisis, like if you have a hotel full of passengers stranded in the Bahamas by a hurricane, you have to do something to get them out if you're the hotel company, so otherwise they're never going to stay at one of your hotels again. So our discussions
with companies are usually pretty productive. They understand the importance of climate risk, they understand the importance of doing something about it. And so do our shareholders.
What do companies need to disclose when it comes to these key assets and where the value chain dependencies end up being located.
What a good question, That's exactly what we ask them. So the first thing we need to know is investors, what we're pricing is where the puck is going, not where it is right, So we need to know what assets are going to be vulnerable to physical risks, and since physical risk, how much physical risk you face and what type depends on where you are. The first thing we need to know is where are your assets? It's a where are your manufacturing plants? Where are your big
distribution centers, what courts do your primary shipping? Does your primary shipping go through? Where are your key supply chain dependency? So I'll just give you a quick example. Biggest semiconductor manufacturer in the world is TSMC. A couple of years ago, the drought in Taiwan was so severe that they almost had to close down their planet. It takes a lot of water to make semtors. Very little which ends up in the semiconductor, but it takes a lot to make one.
The government was considering even seating clouds to try to make it rain. Luckily the drought ended first, but that could have been really a disaster for them. So the first thing we need to know is where are you you know, and where are the keynodes in your supply chain so that we can assess your vulnerability. We can run the climate models, and we do, but we need to know whether what they're going to affect in terms of companies' assets and dependencies. The next thing we need
to know is what you're doing about it. So do you recognize what these risks are, and if so, what measures have you taken to avoid being vulnerable during an event a hurricane, of flood, of wildfire, a drought and outage in the grid, something like that. Then if we have that kind of information, then we can, you know, do our own magic and figure out what the how to price that risk. But we don't even have physical location information right now.
That's kind of where I wanted to go, Julie, And we can about thirty seconds left data we're bloomberg here where Data company? Is there adequate data for you to really do your job and assess the risk.
Now?
And we can get information on where the risks are and we know some of the company location, so we can do assessments, but in order to do a really good job, we'd need to have much better data on location and on companies management and recognition of physicalness and how they're adapted.
Julie, thanks so much for joining us. Fascinating discussion and growing field. Of course, Julie Gorte, Senior Vice president for Sustainable Investing Impacts asset Management, kind of going to a risk here as part of that, I guess a broader EESG is discussion, which again is Julia was just mentioning has become highly politicized here in the US, much more so than in other parts of the world, and making you folks that are focusing on that their job a little bit more difficult.
You're listening to the tape kens our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg, 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.
All right, let's talk about the business of sports, and this is a good one. The Fenway Sports Group, you know them, they own the Boston Red.
Sox, Pittsburgh Penguins.
Pittsburgh Penguins, and then Liverpool Football Club plus some other businesses. And I'm a Yankee fan full disclosure, but Yankee fans have a lot of respect for Boston. We know how good they are because we have to play them like seventeen times every year. Let's talk about the business there. Julie Swinehart joins us. She's a CFO and EVP of Fenway Sports Groups. Joins us via zoom. Julie, thanks so much for joining us.
Share.
I want to talk to you about the real businesses sports, and the part of it that I know well is the regional sports networks that support some of these regional sports like Major League Baseball, like NHL hockey. The regional sports network business is in a world of hurt. The biggest one just filed for bankruptcy. Revenues are down jamatic because everybody's cutting the cord. How do you guys deal with it at the new England Sports Network and how are you kind of dealing with those changes?
Well, thanks for the question. First and foremost, thanks for having me today. It's great to speak with both of you. Regional sports networks are in a time of change, I'd say for sure right now, New England Sports Network. You know, our ownership team supported them and you know, really encourage them to get ahead of try to get ahead of
what's happening as you described in the marketplace. So we were I believe, the first to market with a direct to consumer product which launched just about twelve months ago. And so that's one way that Nessen is trying to
stay ahead and stay relevant and successful. And I think there's been a lot of early wins with DTC, a lot of learning as well, but more to come there and I think that's one way that we can try to combat some of the headwinds out there that are that are just part of the landscape.
So what does it take to fund a winning sports team? Where does the revenue come from?
Uh?
Well, I don't I don't know how NERD do you want me to get with revenue renues? But you know, coming in and I've been here just about a year, Uh, there's been a lot of learning, but a lot of aha moments for me. And there's more similarities across the different teams in terms of the revenue structure than I
guess what I would have originally expected. But uh, there's the obvious, you know, media revenue sources, there's sponsorship, partnership, advertising revenue, depending on which entity we're speaking about, and then also game day or match day sales, so fans coming to the venues and spending money on concessions and whatnot. So but each of the teams have a little bit of a different makeup across the revenue. And really what keeps it all going is, as I think is probably
pretty intuitive, is the excitement around winning. And we are here to win championships. And I think we've done and strated, you know, with John Henry and Tom Werner and Mike Gordon and what they've built here a really winning track record that allows us to do all those things.
Talk to us about the Liverpool Football Club at the English Premier League. It's such a global business, a global brand, a global game. Talk to us about kind of your experience owning this. I think you guys have owned this club for almost a decade.
Now, yeah, a little over a decade, and you know, I think the investment over time, you know, we take I should start with we take a long view on all of our investments and a very intentional approach in terms of trying to elevate and make make the teams
more successful, make them better. Liverpool does have a global reach and they're one of our many important assets, so it comes with just the right amount of support from from the FSG entity, always listening to the supporters and the fans and trying to get input there from what
they're looking for, what's important to them. And I'm learning, especially with that team, the fan base is really integral like it is for all of our teams, but in a little bit of a different way over there, and we've demonstrated again a lot of success and we're always trying to think of ways to keep that going, whether
it be with players or data or nutrition. It's those micro advantages and sports in any of these sports teams that we own that really can be what really makes the difference between a mediocre team and a championship team.
Paul, I knew with your experience as an analysts you're really focused when it comes to those media contracts on when it comes to local and national right.
Yeah, absolutely, I mean I think the one of the big issues actually one of the things it's interesting Julie, I mean, I'm just looking at your the assets you guys do have here. Is there room for growth in other sports? Which you think about the NBA or maybe take a huge leap and think about the NFL. How do you is there other sports that you guys are looking at.
I think we're definitely in growth mode. We did only recently, pretty recently acquire the majority of the Pittsburgh Penguins, so we're still, you know, on onboarding and bringing them into the family. Although it's been a it's been a nice transition, I think for everyone involved there. So you know, our I think you know, our aspirations are limitless, whether it be a major league such as those of you described,
or something new and different like tomorrow Golf League. We recently announced that we are owners of the second team in that sixth i think initially six team league. So we've got the Boston New England team in our in our FSG family as that league is getting started and building out, and that's a really exciting opportunity to So they're not all going to be those large scale opportunities, but hopefully in time will continue to grow in in bigger ways as well.
All Right, So for all the Red Sox fans out there, the Red Sox are tied I believe with the Yankees as of today for last place in the American League. State is the most competitive division in all of Major League Baseballutely, what do you guys do here? It's mid July. What do you guys do here? You come up to the trade deadline? How aggressive is the Red Sox can be? Are they can be buyers or sellers?
Here?
Ah?
Question of the morning. I can't share a whole lot there, but I will say there's a lot of excitement around how the team's been performing, especially as of late, and I think the second half of the season. Time will tell, but I hold a lot of optimism for the Red Sox.
All Right, So Fenway, real quick, thirty seconds. I love Fenway. It's iconic. Everybody loves Fenway. Any changes coming to Fenway.
There's always something going on, whether it be a new I think we just we had pickleball here recently. There's
concerts coming up, some things like that are new. But also we recently received some key approvals for some real estate expansion around the park, so we're partnering with WS Development here in Boston to overtime add about two million square feed of mixed use to really just continue to elevate Funway Park, make it even more welcoming to more people and very focused on pedestrians, and we're really excited that that project seems to be moving along great.
Julie Swineheart, thanks so much for joining us. Juliu Swinheart's CFO and executive vice president for the Fenway Sports groups the Dreaded Red Sox.
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 on Fall Sweeney.
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