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.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. All right, so let's start with you on a rog Microsoft.
I don't know.
I thought it was a good quarter. I'm you know, if there's dips, you know, five or a PM, I'd be buying the dips here. What did you take away from Microsoft? Stocks had a rip this year.
I think that's what it is. It's had to rip, and people are just digesting the news. I think it was a good quota, as you said, But people, I think had unrealistic expectations that the AI Will Cloades, is going to blad out the cloud number, which I think will happen over the next twelve to twenty four months, but it's not immediate. It's just going to take some time.
Well, in terms of things that are going to take some time, I feel like that also applies to the AI play with Alphabet Google. What are you thinking, Mendep when it comes to whether that AI chatter is going to translate into actual money for Alphabet.
Well, so the good thing for Alphabet was yesterday the expectations were somewhat muted around search and YouTube, and what they showed was this business is as resilient as it can be, even in an environment where at pricing is still facing some headwinds. But I think what Alphabet showed yesterday is one they are able to keep the engagement, so concerns around chat GPT eating their lunch were overblown. And then on the cloud side, it was a pretty
strong number. Twenty eight percent growth, thirty two billion dollar run rate for cloud. That's pretty impressive. And now cloud business is not a drag on profitability as it was last year. So I think Netnet, I mean they're kind of optimizing the cost side of the equation. Ruth Pett
actually was elevated into the president role. And look, I think once you start to see a bound cyclical rebound in AD spending, you will see double digit EPs growth in this name and they can compound for the next four.
Or five years.
All right, So let me ask us either both of you guys, I want to hear from Matt Miller tells me chat GPT bing is like awesome and that Google doesn't have a chance. What do you guys think about that?
Well, last night they showed the search revenue grew a robust five percent.
So okay, when I was covering Google, if they put a five percent print up, we take them out to the woodshed. Now you're telling me it's robust.
And YouTube premium that was the real standout. So YouTube ad revenue grew four point five percent, Premium, which is incorporated in their other segment, grew twenty four percent. Compare that to a Netflix and Spotify. I mean they are having all sorts of issues which earned raising prices. In the case of YouTube, this is like YouTube premium is almost an eight to ten billion dollar revenue business growing
high teens. So they are taking share of when it comes to streaming, and it's a higher margin business than Netflix because this is all usually generated content.
Full disclosure, Bloomberg Markets is on YouTube, all right, So, honor, what does Microsoft say about chat GPT bing? Is it a thing?
So for Microsoft, search revenue declining and going to be weak next quarter? And LinkedIn, which is based on advertising declining and going to be weak next quarter.
So Google really and Snap had some weak numbers too.
So social media ad pricing continues to be weak. We'll find out from Meta if that is the case, or Snap is uh, you know, a standout in terms of the weakness. But I think Search we know has the highest ry when it comes to ad spend, and in the case of Google, clearly the ad pricing was much stronger than others.
So is there a potential read through of the ad Snap numbers on advertising to Meta or is Meta such a BMT that you can't reach.
I'm in the camp that Meta's ad pricing numbers will also be bad. Meta is doing well in terms of cost cutting and they obviously are the scale player when it comes to social media, but this will still be a weak ad pricing environment for Meta as well. I think Reels maybe a bright spot, given they have talked so much about you know, competing with TikTok and threads. I mean, we'll find out more about it. I think they're going to pair back on their reality labs ambitions.
The whole Meta Worse thing that was a big drag last year, but it's still when you compare Meta Story. It's a combination of four of their most prominent apps, and the Blue app, which is about forty billion rund rate in our view, is still declining and that is a tough way to fill. When it comes to the top line.
Meta stock up one hundred and forty eight percent year to date. Wow up another one and a half percent today. Go figure? All right on rob you talk, I know you and Mandeep and the tech team have put together this seminal report on AI.
How do I find it?
On the Bloomberg terminal?
You can go to iet Internet dashboard and.
That's where it is. Okay, So that is a seminar report. If you want to know what AI is and whether it's a scam or a croc or whether it's real like Dani's from Webrosecurities says, you can go there and check it out. So BI space, I n ET you find that report there anorak. When you talk to institutional investors, how are they playing? First of all, how do they view AI? Is it a seminal event in tech? And if so, how do they play it?
I mean from our side, in the software side, it is the cloud providers that can really benefit from this because you have to build those applications in the fastest processing environment, and that can only be on the cloud. Right now, Microsoft has an advantage because of its open EI relationship. We think Amazon will catch up over the next six to twelve months. We think Google's already there with their products. These three companies will benefit more than anybody else on the software.
Well, I know that you know this, but I love the funny quotes from Earning's calls. I'm just going to repeat it for our audience, the AWS CEO said yesterday, kind of taking a shot at Microsoft. It's interesting that somebody who's not running their own models, like Microsoft, which outsource to open AI, would argue that they've got such deep expertise in this area. What do you make of a comment like that.
See, but for the first time, Amazon's feeling the heat. They haven't felt that in like what last ten, twelve, fifteen years.
They now have a petition.
They have a massive competition now with Microsoft because they are coming up with products on a monthly basis. The pace at which they are coming up with add ons to their code products such as off is get Love. I mean, it's just it's just remarkable how that's happening. So, I mean they have to be feeling pressure at this point. I think there's a little bit of that. I think Amazon Web Service is going to be weak next quarter next week when they report, and let's see what he says.
Then all right, men, deep the ride sharing biz. What are we going to hear from the Ubers and the lift of the world. And again I am agnostic between the two. Whatever's got the lowest price, That's how I go.
I mean, so far, the story is Uber is taking market share. Lift has lowered prices to reclaim that share. But we know this is a scale business and there is a big focus on profitability this year. So clearly Uber is in a much better situation. The delivery side, I think will continue to be a drag on their overall free cash flow and the CFO transition. I think that was the other big news with Uber, so something that I think investors want to know more about.
Will those third party partnerships be a tailwind for them heading into earnings for it with Domino's.
Yeah, yeah, I think, Look, if everyone realizes that they have the traffic when it comes to you know, people looking for a meal or ride Uber is the go to place. It's a verb, and so every big chain right now is looking to partner with them just to be on the platform. Dominos is still doing their own delivery, so they're not bank and so that is what was interesting. They're just using them as a customer acquisition channel for people who are ordering online.
I just don't get it.
Over the last five years, Uber's compound and a return, it's been about flat okay, lift compoundent and your return over the last five years negative thirty percent is all because of Uber Eats, which I don't do, by the way. I think there's the charges they put on for like a twenty dollars PiZZ is ridiculous.
But it's a tough business. I mean, three sided marketplace. It's a low gross margin business. You just can't change the margin profile of the business. And on top of it, it's so hard to maintain a supply. I mean, the supply is constantly turning.
And in New York you've got Curb as well, which is the cheapest by far. It's the taxi hailing app. So I know that's a very niche market.
But walk around the corner and get a slice. I mean what's the big deal? On a rock ran and man Deep Singh senior tech analysts, they lead our technology research covered how many analysts do you guys have around the world and all that stuff, like twenty in the tech team and the tech team we got twenty people doing nothing but the tech space based in the US, based in London, based in Hong Kong and other parts of Asia. So we got the tech space covered. Check it out. Man Deep Singh on a rock run a
senior analysts. We're kind of running that business for us, and we appreciate that.
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 app, or listen on demand wherever you get your podcasts.
All right, I n go, it gets you the Bloomberg Index browser. I look at the Bloomberg US agg total return value UNHEEDGED. It's up two percent this year, so the bond people are doing a little bit better than the last year, which was the disaster. And I look at the Bloomberg US Corporate high Yield total return that's up six point five percent, so again some nice returns into fixed income businesses this year after a dismal twenty twenty two. Had you play it well? One of the
ways is through you can do some ETFs kids. Johanna Gayegos joins us. She's a co founder of bond Blocks that is an ETF biz that focuses on the fix income business. Joanna joins us here in our Bloomberg Interactive Broker studio. So, Joanna, where are you seeing kind of opportunities in fixed income this year after again a very tough twenty twenty two for that that sector.
Yeah, I think in context of twenty twenty two and the returns here today you just mentioned, like those are returns of broad indexes in fixed income AG and obviously high yields and investment grade, and what we're trying, I really want investors to do and encourage them to do.
And I think what bond Blocks is all about is look across the full spectrum of fixed income opportunities to cross asset classes, and in particular look a little further down the credit spectrum all the way up into high yield.
And that's because there's a lot of difference across the credit space in sectors and in ratings categories, and right now with yields the way they have progressed and they're going to continue to progress for the rest of twenty twenty three, and the resilience we've seen in these corporations balance sheets. You know, you're being compensated very well for
taking on this risk. You have a lot of income to cushion any potential downturns, and you know you you should consider going even you know, as far down, you know, the high starting with triple starting with triple reinvestment grade down to triple C and high yield.
You really need to take a look.
At those spaces because I think there's a lot of strength there and you know, you know, so far through all of this twenty twenty three, I don't think investors are paying too much attention.
Thenization And how are you thinking about longer duration and the calculation in terms of how much positioning to do around longer duration?
Yeah, so I think the important thing for longer durations, if you're taking very long duration, you're thinking that something is going to turn with the economy, and that you know you're positioning yourself for that event.
The way we see duration is that it's a.
Really important, precise tool that you should be managing, and you should be careful of how it is existing in your portfolio because it represents all the interest rate risk in your portfolio. So the way we think about it is across a whole spectrum of duration. So we would recommend that people along this.
Path start adjusting their duration as we get more and more information.
I mean, what people have been doing in our duration products to date is they've been you know, buying the short side of the curve and you know, reducing their duration as much as possible. I think they've really been doing that as a cash alternative, though not really taking an investment view. And so you know, here we are. Our view is that it's unlikely that there's going to be a recession in twenty twenty three, but we have the tools that allow you to express that view.
So where are you seeing your clients or where you're seeing the funds flows across your products?
Right now?
Where are people because I mean you could go to a piece of two your paper and get four point nine percent just sitting in a two your treasury. Where are you seeing kind of some of the fun flows.
Yeah, so we're still we're seeing a lot of flows in the shorter.
End because people are still positioning themselves with those risk free yields.
I mean, again, I encouraging our investors to look further out on either duration spectrum or the credit on the credit spectrum. But we've also started to see couple trades across the treasury curve and the belly of the curve five seven and a few long trades. So there's a
there's there's some there's some notion. There's still you know, overall in ETFs, Treasury ETFs, government ETFs are still you know close except for July, we're sixty percent of flows in ETF in ETF fixing and flow, so people aren't really stepping into that risk yet.
What's what what's in your high yield ETF products? What are what's typically in that ETF.
Yeah, So what's different again back to comparing us to a broad based index, whether it's investment grade or high yield or even the AG, is that we've cut up the exposures in high yield in particular into ratings categories and also sector category. And what you know is really fascinating is like you can really play some of.
These views that you guys talk about every day, like.
If you want, you know, the most balance sheet strength that or with the lowest default risk right now, that would be the XBB product, right, so it's the first, you know, the first frawway into high yield.
That's the first the highest level of.
Rating in high yield.
If you really think that.
The infant session isn't coming and you're gonna avoid it in twenty twenty three, which is what I think, Yeah, you should consider looking at the triple C product. It's yielding a lot, the default rate isn't above normal averages, and you know, if you even just it's not about like going all in, but it's about maybe adding some of that exposure into your portfolio just to improve your results.
Another you've talked about it in the previous session of it, like consumer cyclicals and high yield is the best performing sector in high yield. So it's telling you obvious that's the strength of consumer.
But in our energy.
Sector, product is also a way to play a really strong balance sheet and high quality because of what's developing you know, through through through the markets. There so the dispersion amongst the sectors and just the seven sectors.
That we have is over five hundred basis points.
The best performing is close to nine percent, which is consumer cyclicals. The worst performing is technology and telecom, and it's it's it's.
Just about three or four percent, So five.
Hundred basis point difference. There's a lot of opportunity that you know, people should be considering as we still see this resilience and you know, we're getting closer and closer than a twenty twenty three.
Yeah, this consumer resilience ticker is so interesting. I have it up on my terminal right now. It looks like you are having a great year in that space. What are what are kind of the specifics that go into that, because I'm I'm fascinated and kind of the continued strength of the consumer. So I'm curious about the calculation.
Yeah, it's the same type of categorization you see in equity sector products. It's it's a group of issuers in that sector, consumer cyclicals. And so what it represents is all of all of the debt in our high yield products are representing those firms ability to cover their interest, their their their balance sheets, their revenues, and how well they're paying their debt. And so you know, as the default rates are again maintain for like historical.
Averages this year, spreads are actually.
Tightening across the category, and high yield not widening. So there's a lot to like consider that. You know, whatever category it is. If you're an energy producer, if you're an energy company, that's what's in our energy sector. So you're benefiting from the You're benefiting from the characteristics of those sectors, plus the characteristics of individual issuers and the resilience and the health of the fundamentals that are there.
All right.
We always love talking to Joanna and Joanna Go Diego's co founder of bond Blocks. They do the ETF thing, but they do the ETF thing with that fixing comes focused, so we don't talk about that maybe as much as you sure, So it's great checking in with Joanna occasionally.
You're listening to the tape Cat's 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 Go right to our next guest, Alex Chaloff. That is a jailer for Cheliff Showoff, Sholoff, shooff. Okay, I'm on that.
Put your shawl on, you take your shawl off.
There we go boom.
I like a smart guy, because where did he get his mba usc best university in the world.
We go right on, right on, man, I like it.
I like it, Alex she We've got a duke guy in the room.
CIO of Bernstein Private Wealth. That's a good name on this street, Bernstein, Alex. We got a fed day today. We make a big deal of it here at Bloomberg. What are you looking for here? What are you telling your clients here? As it relates to our Frederick Reserve and it's impact on the market.
No surprises this afternoon they raised twenty five Palll is extremely hawkish in his comments. Market doesn't like it, but that's reality. And then we move on. It's all about September twenty.
And as you know, J. Powell has to be hawkish and he's going to be. But sometimes you get a tiny slip up in his comments and he reveals a little dubbishness. Are you anticipating that?
I think the last few meetings he has, we haven't seen the slip up or intentional or otherwise. Our view is that he is very deliberate in his language. It's like a free lunch. There's no cost to him being hawkish. It doesn't cost, it doesn't grow the balance sheet, it doesn't change the economy. He can do it. And if all the harm is is that he moves rist acids down, that's okay. So I think he's he'll be very disciplined, very intentional in his language.
Well, I mean, the risk I see out there is he's going to push this economy through recession. Who wants that. I've taken recession off the table personally, but he could push it right into Recessionho wants that he could. But our house view is that off landing is highly likely. It's largely on the back or almost entirely on the back today of the strength and the labor market which will flow through to the consumer. You know, you have an unemployment rate which for all intents and purposes is
effectively zero. Anyone that wants a job can find a job. You've got twenty five to fifty four year olds eighty.
One percent employed. That's a thirty year high. You've got wage growth finally tipping back to positive. So our view is that the strength and labor is strong enough to push us through. And look, if this is it, if this is a hike some hawkish dialogue and then a pause, or we get the same thing in September, we're through. So we are very close to the end of this, so we're optimistic about it.
What's your timeline on a soft landing.
It's going to be over, they'll tell you when it's over. Okay, right, It's going to be one of these things where in a year they'll say, oh, guess what, we were zero point one or maybe even had one quarter of negative GDP, but that's it. But it'll be a two thousand and end of twenty event where they talk about twenty three and Q one twenty four.
Do you think there's a potential then of us getting to that soft landing but the consumer still feeling like inflation is just as bad as it has been.
I think that's a reality. The good news is that household balance sheets continue to be strong, and you get some wage growth that continues to grow on itself. I think the compounding effect will make things easier. You've already seen some pullback in some of the blowout areas of inflation. Used cars has come to airline prices have come down, so they've been isolated, but they're starting to happen. So
our view is that inflation isn't going away. It's not going to zero overnight, and it's not as if we'll be in a deflationary period. So you're not going to go fly Los Angeles to New York for one hundred and ninety nine bucks anymore. That's just the reality. But as far as year over year changes, those will be certainly less extreme.
All right.
So given that kind of backtrop, what are you telling your Burnsteain private wealth management clients to do here? How much risk are you putting on the table for them?
There's two main themes that we're focused on. One is extend duration. Don't be afraid of the bond.
More duration.
You got iteration, Okay, it's cash, you've been nice, I'm get two year cash. In short term. We had a thing. Okay, it was okay, okay, but now we've got to move on. It's not you, it's me. So we're breaking up with cash and money markets and looking at extending duration. I think you're going to clip the coupon while you wait for the FED to be done. If we get an equity market sell off, and everyone who thinks soft landing
is wrong, guess what. Bonds are way more protective than something in money markets in short and next year our view, when they start cutting, you'll pick up price appreciation. So we might be early, but I'm okay. I'd rather be early than wait here, and I think we're just on time, by the way. That's theme one. Theme two is private markets take advantage of the dislocation that's occurred in the
private markets and start to put money to work. That's probably a three year theme, but it's happening right now. Some really interesting opportunities in privates.
So how do you get how do you do that? How do you play the private markets?
I think you're paid, especially in real estate. I think you want to say this is interesting, but this is probably a Q one twenty four start date, So continue to watch, maybe for a selective deal here or there. It's interesting, but on a wholesale fashion, I wait till next year. Private debt very interesting today. There's a lot of different ways that you can access that market with fresh capital, both for original originations, new originations as well
as secondary purchases. That's a big juicy part of the market. And then I think in private equity it's just start to dip your toe and engage in other people's mistakes over the next two to three years. So whether you do that through primaries they're taking advantage of a reset and evaluation market, whether you do that through secondaries that are buying other people's mistakes and taking advantage of some real motivation to sell. Like, there's a number of different ways you can play it.
Are you still seeing a lot of dry powder out there?
Huge? Huge? I mean, the only thing that I would say is you're starting to see institutional LPs that took off twenty twenty three because their portfolios were upside down with liquid versus illiquid. They've signaled to the market, we're probably going to take twenty four off as well. So big institutions walking away from the market, you still have sovereign wealth guys they've they're not stopping at all and
in fact not turning that dial up. But then the ultra high net worth, you know, the Bernstein client is looking at allocating to private markets, in a greater degree to a greater degree than they have in the past. So I think you'll have that balance. It'll be a different it'll be a mix shift of who's the owner, but yes, lots of dry powder.
How about the hedge fund allocation? What are you guys suggesting for your clients in terms of hedge funds?
It really depends on what you're trying to accomplish. I think hedge funds as a blanket category people have had to revisit, and for good reason. Returns there were disappointing in twenty fifteen, sixteen twenty and eighteen nineteen. Some of them weren't protective during COVID. But for someone that has a big equity exposure where they don't want to give that up, but they want something to neutralize it, that's where hedge funds play a role.
And I have to ask my favorite question here at Bloomberg the AI play. Are you getting any questions about it? Are you hearing a lot more skepticism because of the wealth level of your clients.
I think our clients are, so the answer is yes, people are asking about AI. Bernstein has done tremendous research on the topic and have published on it and a number of different venues. But the questions our clients are asking more about the productivity. The change in the labor market will just destroy jobs in the next ten years. Will my grandchild graduating college in twenty twenty five, are
they gonna have a job. That's where people are focused on, And our view is these things take a long time to play out. Will likely have some productivity gains that will be additive to the overall economy, but there's some things that just can't be replaced. So I tell them what I tell my own kids, my teenagers. Find something to do that a robot can't do, and if you focus on that, you're going to be okay.
Thin'd be okay. What are some of the things you're suggesting your clients stay away from at this point.
I think, you know, commodities are tricky, You've just got to be careful there. I don't know if that's a stay away from. I think that's an area. I think the shorter term, as I said, we're breaking up with short term fixed income, So I don't think there's, you know, some bomb that's going to go off in the treasury market, and the zero to two's but you know that you're gonna give up. You're gonna wake up in three years and regret having owned anything in short duration through this cycle.
Other than that, it's it's this is look, this has been a wild market. It's like the rally. That's like a non rally, and so it doesn't feel maybe to everyone that it is a rally. But you know, we called the bottom in October. We wrote a note to our clients in October of last year to say, the next bowl market has begun, and it has.
Do you think the market's a little too far over at skis here? With again, the market's moved up, you know, thirty percent off of that low.
I think you're spot on, especially with what's going to happen with earnings. You know, you had a negative earnings in fourth quarter, a negative earnings in first quarter. Our expectation. I think we're right on the market of a negative eight percent earning. So this is the real you know, nuclear winter in the earning cycle for the S and P. And if you look at where the SMP levels are, you know where we were before this morning five percent
away from an all time high. That there's a disconnect there. So yeah, we're you know, people talk about the magnificent seven. Yep, we talk about the forgotten four ninety three. And that's where the interesting opportunity could be. In the next chapter, where.
Are you seeing the most opportunity within the smaller caps that's being ignored right now?
Small caps are really interesting. I mean, the growth part of that market has exploded, having a terrific year. The more value, which is really bank small cap value on a look through basis are basically financials, and we know what's happened there over the spring and the stress around bank failures. So I think small cap as an overall allocation still makes sense. It should be a smaller part of the portfolio, but I'd rather play that as an asset class than try to find a name or two.
You can be active, and we are in the small cap space, but I don't think you want to be concentrated in any way, shape or form.
Just thirty seconds left energy kind of people. I don't think you can really agree on what to do with the energy trade. Are you guys still long energy? Because it had an't good run over the last several years.
We've been selective in LPG and frankly had the right name. So feel really good about our exposure. But you know, long term, a lot of questions around the energy platform and the infrastructure, the cost of debt. It's heavily levered as a space, so just be cautious, all right.
Alex Shallaff, thanks so much for joining us. Alex Shalloff, he's a CIO of Bernstein Wealth, our private wealth.
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 app, or listen on demand wherever you get your podcasts.
Bank news continues to hit the tape. We had some earnings out, we had some buyback information out. Let's bring in Alison Williams. She's a senior analyst for Bloomberg to tel Intelligence covering all the global banks and al so, let's start with Deutsche Bank. They had some earnings today. What's the takeaway for the German lender.
I think the takeaway was that core trends are pretty good, similar to what we saw at the US banks. That net interest income is holding up better than expected. So obviously we're different rate regimes, but that is the key
positive and especially true for Deutsche Bank. You know, trading, which is the biggest part of their business, fell ten percent, so that doesn't sound heroic, but it's better than the fifteen to twenty percent view that they've had in June, and they have an outlook that that should be improving in the second half. But their corporate bank and private bank, which are there more stable recurring revenue businesses, also doing better, increasing their share of the overall top line. So investors
like that core cost cutting coming in line. They're delivering on their efficiencies. Investors like that. What investors don't like, I would presume was a negative for me at least, is the fact that their non recurring costs coming in higher. So we're structuring legal costs that we've heard a lot about and severance, so this is something that we've seen at most of the US banks. City and Morgan Stanley had relatively bigger charges, but we know that there's job cuts.
The severance costs come today but should help the second half profit. And then finally buybacks, which they had actually announced last night, so it's a smaller it's a four hundred and fifty million buy back. It's about two percent of their market cap. That that's no way in comparison to you look at Wells Fargo, who also had an announcement last night thirty billion program eighteen percent of the market cap, although that will be over some period of time.
I want to transition stateside and talk about PacWest, which was up by thirty percent earlier today now up by twenty seven percent on that news that it'll be sold off to Bank of California. Talk us through that deal and why the market is responding so positively to both of those names.
I mean, I think, you know, to some extent, just getting some resolution to some of the issues that we saw in March. And PacWest was, you know, certainly one of the banks that investors have been watching, and I would say that you know, the fact that that deal will get done, and the fact that across the industry broadly, we're seeing deposits stablise, the cost of deposit pricing going up in the quarter, but generally the outlook more favorable is giving a lift to all the banks.
Allison, you talk to us men mentioned the Wells Fargo buyback thirty billion dollars eighteen percent of the outstanding. That is that is size. Of course, what does that say about the regulator's view of the big US banks? You know now that they're allowing them to return some capital to shareholders.
So I think Wells Fargo is a little bit of an exception. Uh, you know, certainly the regulators are allowing them you know today, but tomorrow we do get these Basil three endgame rules, and so that's going to be sort of another kink in terms of raising capital requirements for these banks, for Wells Fargo in particular, because they do have such sizeable excess they and again it's a thirty billion, but it's not necessarily today, so it's over
a specific timeframe. But the Basil three endgame rooms are are thought to be a little bit more punitive on the trading side of things. That's a smaller business for Wells Fargo.
And moving to back to the regionals again, are you anticipating that the regional bank rally that we're seeing today because of the PacWest move is not something that's going to be a little bit short lived or are we seeing more success to come for some of those regional names.
Well, I think, you know, going back to my comments on you know, the deposit stabilization and just sort of moving past the issue in March, right, So that that was really where the dramatic underperformance came from these banks.
First was the fear, and then was just the recognition that, you know, beyond the fear of deposit flight at a few specific banks, there was this broad fear about the cost of deposits rising those deposit outflows, that migration is expected to continue, but not certainly not at the fear full place that we saw at March. We saw that things were much more stable in the second quarter, and then you know, the outlook from the banks is that
that you know, will continue to look better. Of course, part of that is predicated on rate cuts from the FED that are built into the curve in the coming quarters, so monetary policy will continue to.
Play a role.
Allison, talk to us about this Basil three rules that you referenced, pretending like we know nothing about what they are, so tell us what they are and why they're important for the big banks.
So first, it's just the name endgame. I mean, can we finally just get the final set of rules that we'll be dealing with. You know, the Basil three imputent implementation has been you know, the guidelines and the rules. This has been going on since the financial crisis, so well over a decade in terms of regulators aim to make the banks safer. And so this last set of rules, which is really the US regulators you know, view on implementation. It'll be good to get the final set of rules.
I would say that our regulatory and policy experts n BI, we are expecting, uh, you know, that there will be increased requirements across the biggest banks. Regulators have sort of broadcasts that that could add like a two percentage point increase to their capital ratios. This will be the proposal that we get tomorrow. It might not become finalized until perhaps a year from now, and then there'll be a
cuple blow of yours basing period. So the banks it certainly have enough you know, money that they're generating in terms of internal capital to meet these guidelines over any such time period. But obviously it's it's a negative because it'll lower returns. That's how investors look at the profitability of these banks. But you know the other side of that is that they are safer and more sound, and so perhaps that could help the multiples.
All right, Alison, Thanks as always for joining us and giving us your analysis and expertise on the global banking space. Alison Williams, senior Global Banks analysts for Bloomberg Intelligence, joining us on the phone there again. Wells Fargo big stock buy back thirty billion dollars. That's good news for Wells
Fargo shareholders. Deutsche Bank putting up some numbers as alis and said, we're, you know, generally pretty solid in a tough environment for a bank that's had its challenges over the years.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
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