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On Today's Bloomberg Intelligence Show, we dig inside the big business stories in pacting Wall Street and the global markets. Each and every week we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries our analysts cover worldwide. Today, we'll look at why Tesla is looking to hire nearly eight hundred new employer after its largest round of layoffs. Plus we'll discuss why United Airlines gave disappointing guidance for the
third quarter. But first we look at quarterly earnings from the world's largest money manager Blackrock. Blackrock called in fifty one billion dollars of client cash to its long term investment funds in the second quarter. As a result, the firm hit a record of ten point six trillion dollars of assets. For more, we were joined by Neil Sipes, Bloomberg Intelligence financials analyst. We first asked Neil to comment on this week's news.
I think obviously over the past eighteen months, banks have been much more in the focus asset managers, maybe a little bit of a sleepier name, so to speak. But like you said, Blackrock eclipsing ten and a half trillion. Of course, a lot of that is due to markets. We're up, you know, fifteen twenty percent year to date, but Blackrock sort of that perennial grower in the industry. Organic growth, those flows from institutional retail clients have been
harder to come by. Blackrock, having that breadth and diversity of the platform, has really been able to deliver growth through varying market cycles. We think that's one of their strengths and why they're the leader in the space in terms of size. In terms of the second quarter organic growth a little bit lighter than expected. Part of that due to the fact that we saw some larger institutional clients sort of rebalancing portfolios. That's just sort of natural
in the business, especially when you're at all time highs. Nonetheless, margin really improved again, that's on the heels of stronger markets. Most of the revenue here is asset based fees, so as markets move higher, the top line expands as well. And so really, you know, you highlighted the last thing.
I guess ETF's another strong suit. That's really the bread and butter of black Rock again, and obviously now with some of that private's markets push that we've seen in the past couple months, when do.
They hit the law of large numbers thing?
Yeah, I think that is becoming the more popular question for me to ask.
This question forever, right, and it is still do it?
Yeah? They and they continue to target this five percent organic based feed growth figure. They've been lagging that over the past couple of quarters. Obvious markets, you know, since the beginning of twenty twenty two, we're less conducive. They've been more conducive for the past three quarters or so.
But the question still remains, how do you continue to grow at that five percent clip when You're talking about a ten trillion dollar asset base, and we think BlackRock's diversity when assets are in motion, they can continue to garner share from less diversified, less price competitors.
Stock hasn't done anything this year, kind of up one percent just on the year, lagging the market. What's the investment called here on Blackrow? What are the investors saying?
Yeah? So I think, you know a lot of what's been baked into this year is sort of market growth, which is going to be a benefit to all asset managers in the space. So I think the skepticism of are these gains lasting? What happens obviously in November when we get this eventual FED pivot to cuts, How is that going to impact you know, client allocations, How is
that going to impact the business model? But we do think Blackrock is, you know, a is position to benefit in pretty much all market cycles, and a lot of that long term story is now shifting into that private market's focus with Prequeent acquisition just announced a couple weeks ago and Global Infrastructure Partners in January.
Ask a really dumb question at this point, who are Blackrocks actual competitors, Like, who can actually compete with this company.
Yeah, so there are plenty of competitors. I mean, asset management can be somewhat commoditized in a lot of spaces. You know, there's competitors like a Vanguard. There's competitors like a Schwab, in Vesco, Franklin, Tira. Price, There's plenty of names out there. The question is who's able to compete on price with Blackrock? And that's where scale really becomes paramount here because they can continue to innovate with new products.
If a new competitor comes out with, you know, a new flashy product, Blackrock tends to match that and can sometimes beat it on price. And we know that Blackrock is entrenched with pretty much every institutional client, every retail client, so to speak, and that really gives them the strength of distribution to kind of leverage across its platform.
Our Thanks to Neil SIPs Bloomberg Intelligence financials Analysts, we now look at this week's Bloomberg Business Week cover story about former President Donald Trump. It's titled Trump on Taxes Tariffs. Jerome pal and Moore for the story, BusinessWeek recently sat down with the ex president at mar A Lago for an exclusive interview. They discussed Trump's plans for the US economy and the world if he were to be re elected as president. For more and all this, we were
joined by Bloomberg Business Week editor Brad Stone. We first asked Brad just how hard it was to gather details for this story.
Well, I mean, look, he wanted to talk. We'd actually put queries out to both campaigns. We heard first from former President Trump. You know, this is BusinessWeek, so our mandate is business obviously, economics the world order, and we went there to interrogate him about an economic plan that many economists think is a bit contradictory. I mean, President Trump talks about lowering inflation.
The agenda is.
Higher tariffs, less immigration, you know, which potentially raises wages. He talks a lot about lowering interest rates and then bringing members of the business community into his administration. So this is a topic he wanted to talk about. To put it in context, we talked to him two days before the first presidential debate and about two weeks before
the assassination attempt. But even then, I think, you know, he is writing what he believes, at least in his campaign, believes is a heightened sense of momentum.
So, Brad, there's a lot of areas here in the terms of economics to explore. Talk about taxes. How does he feel about taxes these days? He certainly had some big tax legislation in his first term, that's right.
And one part of his plan is to extend the Trump tax cuts. Another part, which he told us, was to lower the corporate tax rate. He told the Business Roundtable that he wanted to bring it down to twenty percent from twenty one percent for no other reason that he likes big, large numbers. But then he said he would even get it down to fifteen percent if he could.
You know, the challenge here, of course, is they don't delineate any way to pay for this, to make the numbers parcel out and do anything other than raise the federal deficit. And there is really, I think a paucity of specifics here, which is one reason why proxies have kind of tried to fill the void with things like Project twenty twenty five, which then Trump really distanced himself from.
But you know, I think, you know, with the broad brushstrokes we got is Trump wants to lower taxes and extend his tax cuts.
What I also felt was very interesting is the myriad of views in relation to the tech industry. So on the one hand of k lower taxes ya tech industry, he seems to embrace crypto clearly with JD. Vans, there's sort of an embrace of vcs, but big tech is very complicated. How did you parse through that?
There's some contradictions here, Alex. I mean, the first is he's obviously very pro American business, and yet he's he's turned on TikTok and believes that banning TikTok would only empower Mark Zuckerberg Facebook. The second thing is, you know, in the first term, he talked a lot about cryptocurrency and how it might engender fraud. He wasn't wrong about that obviously, but now he's flipped on that as well.
The bottom line here, and the way I interpreted, is that for Trump it's all about personal relationships, and he went and talked a lot about Tim Cook and how smart he thought Tim Cook was, in large part because Tim Cook went to the White House to ask for
relief from the first set of tariffs. You know, he likes it when people come and you know, paid their respects, or at least visibly look to be on what he considers to be Team Trump, and so, you know in terms of crypto and a lot of people in that community are now pro Trump, and you know in terms of TikTok, where he's very popular on TikTok, and of course jeff yass one of the backers of Byte Dance
as a Trump supporter. You can kind of see why these contradictions are sort of bundled into his views on technology.
Tariffs, certainly, it seems to be the topic we've had both sides of the aisle talking about tariffs and tough tariff talk. Mister Trump used tariffs.
Quite liberally, liberally.
How do you think about tariffs these days?
It's interesting, Paul. You know, I have not spent much time thinking about President William McKinley, the twenty fifth president. He was from my former state of Ohio, and Trump brought him up repeatedly because here's this nineteenth century president who, before the age of a federal income tax, was raising tariffs and bringing in money. And he said that McKinley is overlooked. Who knows what book club he's part of, but clearly they've been reading histories and he wants to
raise tariffs. He thinks tariffs are underrated. He's talking about a ten percent across the board tariff. He's talking about raising the tariff on Chinese goods to sixty percent or even one hundred percent. And you know, he says they're a great negotiating ployee. He tried that in the first term. And obviously then you know a lot of US companies, particularly tech companies, complained, and they did. They were quite
generous in their carve outs. But this is a a big part of Trumpanomics, and most economists think that companies don't pay those tariffs, they turn around and pass them to customers in the form of higher prices. So there we pressed them on it, and I think there are some unresolved contradictions and tensions there.
What's also interesting, I was reading a JP Morgan note about commodities and what the Trump administration would do to commodities. Obviously that's my beat, but what they made the point is it really depends on the sequencing. So if you go to corporate taxes first, tariffs come later. Like the sequencing of how all of this works will really depend then on what the market reaction is. Did you get any sense of that in terms.
Of how we would do it, I didn't. But I mean, one thing that impressed us, or is impressed upon us, is that in twenty sixteen he was unprepared to win, and he surrounded himself with people, maybe a bit impulsively, and he says that he would do it differently this time, that he knows who's loyal and who's not, and he's experienced,
and he knows everybody time. And it just seemed to us, you know, that he is prepared to move quickly in what order I don't know, but particularly if he controls both houses in Congress, that they have an agenda that they're pretty much willing to implement. A blitz Creed.
Speed Jamie Diamond as Secretary of Treasury thirty seconds spread.
Yeah, yeah, what did he call him an overrated globalist once? Look, he's courting the business community. I you know, who knows if Diamond would do that, particularly considering how former members of Trump's administration often ended up being treated somewhat badly or breaking with him. But yeah, I mean, I think Trump wants to go and it's very important to him that business leaders like him. I mean that comes through in the interview and so he's doing this but to court them as well.
Thanks to Bloomerg Business Week editor Brad Stone. Coming up, we'll take a deep dive into how various industries would be impacted by a Donald Trump or Joe Biden presidency. In November, you're listening to Bloomberg Intelligence on Bloomberg Radio, so providing in depth research and data on two thousand companies in one hundred and thirty industries. You can access Bloomberg Intelligence via Bigo on the terminal. I'm Paul Sweeney. This is Bloomberg.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple card Playing and broud Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We move next to politics. The direction of government policy and the world's largest economy is at stake when the US Alexa president. In November, Bloomberg Intelligence took a deep dive into how various industries would be impacted with either Joe Biden or Donald Trump in office. For more on this research, we were joined by Nathan Dean, Bloomberg Intelligence Senior Policy analyst. We first asked Nathan to break down his findings.
What we did is we started with the report by looking at what are the key sectors to watch, and we really had five of them. The first one was investment banks. If President Biden wins, you know, you could see somewhere between seven to ten eight percent increase in capital requirements. If President Trump wins, that could be off the table. We looked at electric vehicles. You know, the tax credits for the electric vehicles could be at risk
during a tax reform debate next year. Like you mentioned, in terms of tax global manufacturers, President Trump has called for a fifteen percent corporate tax rate. Representative Steve Scalise said he's going to make the tax cuts for individuals permanent, so tax reform and the impact of manufacturing. And the other two were Healthcarecter that twenty five billion dollar subsidies that's really for seventeen and United Health. And then finally
it was big tech. Because whether you get President Biden or President Trump, more likely than not you're going to get a very skeptical Washington towards big tech, certainly both in Congress and also on the enforcement side.
Nate, then the question then becomes what can he and this has been the question throughout his four years. Also what can he do on his own? And what would he need a Republican Congress for?
Yeah, So you know, I think one of the biggest questions we get from clients is what does the executive order landscape look like if President Trump wins? And I'd say about ninety percent of the time, an executive order is a fancy way of the president picking up the phone and saying to his staff, I expect you to do X, Y and Z. But there's a difference there. The difference is for trade, tariffs and foreign relations. The power of the presidency is a lot more powerful when
it comes to that. So when President Trump uses words like nasty calling the European Union, you know, that's something that investors have to pay attention to.
Now.
When it comes to tariffs, the President can certainly go out there and say I want to do this, but then it's going to be up for Congress and the business community and so forth. But todentially try and influence the White House to either get to the appropriate amount or try in some cases stop it from even happening.
So are there certain industries that you know, I think about the healthcare industry. I'm trying to think about regulated industries, and healthcare is certainly one of them. And you mentioned the subsidies. But the Republicans and the Democrats think differently about the economics of health care.
Yeah, it does. And this is rarely where the process comes in the play, because that's subsidies. That twenty five billion dollars subsidies is Obamacare subsidies, and that requires an Act of Congress. And I think you don't need to be a Washington expert to know that gridlock is going to continue no matter who wins the presidency. So look for subdued actions from Congress when it comes to healthcare. Now,
the difference is on the regulatory side. On the regulatory side, and this is where you look at the FDA and
a lot of the actions they've been doing. You can bypass democratic opposition and just implement your own policies, but it takes time, and so I would say just general rule of thumb for a lot of the healthcare issues that are going out at the agencies after President Trump if he wins, where the input is new regulatory leadership, at that point, you probably have another eighteen months and twenty four month window for any regulatory change, So for
the healthcare industry, there's a lot of time to prepare for any changes. You'll know exactly what's going to happen well before it does.
Going back to the ev point, it feels like solar evs, stuff like hydrogen from the IRA, like those are the stuff maybe potentially on the chopping block potentially where the President Trump win. But then the Musk thing is weird because Elon Musk has definitely become a big supporter of President Trump donating to super packs, and I'm wondering if that relationship will change the calculus to how President Trump sees electric vehicles.
Absolutely, you hit it right on the head and we even say this in the report. There's a difference between headline risk and reality. So if you look at the electric vehicles, you can look at statements that President Trump and other Republicans have said saying they do not like these electric vehicle tax credits out there and so forth. But then you balance it with the Elon Musk and even taking it to grander scale on the Inflation Reduction Act. A lot of the benefits of the IRA are going
to gop led states. So what you have to do here is a take the statement. Okay, if President Trump says I want to do away with the electric vehicle tax credit, how am I going to do that? Most likely, I'll do that as part of tax reform and via the reconciliation, which means I probably won't have any Democrats going on board with me, so I need all Republicans
on board at that point. If Elon Musk starts whispering saying, hey, we like these tax credits for the EB world, then that change may not even be a high priority anymore. So I would just say that for a lot of the statements, you have to remember short term risk versus
long term risk. And as we see with every single election, politicians of both parties love to go out there and say I'm going to do X, Y and Z, but then when they get into power, it's XYZ minus a whole bunch of other stuff because I'm going to be a little bit more moderate now.
And Nathan, how about for our good friends on Wall Street M and A bankers and lawyers. Under this administration, the regulator has been pretty tough, and it's been pretty tough to get big M and A deals approved, presumably that would be more Wall Street friendly M and A friendly with a Republican administration, it.
Really depends on the leadership that President Trump, again, if he were to win, would put in place at the FTC and the DOJ. Because you have one side, you have the Republican business friendly view, the stereotypical Republican business friendly view. If you get somebody like Jamie Diamond, and
I'm just picking on the banking execs. If you get somebody from Wall Street, like a Gary Cohne individual that was in his last administration, then you could just reasonably say that M and A activity will get a little bit easier. But if you get somebody that comes from the economic populist side of the party. For example, Senator Vance, the vice presidential candidate, spoke in favor of the FDAC chair will Lim and Kahn and said that she was
one of Biden's best picks. And so if President Trump comes out and picks an economic populist for the heads of the FTC and the DOJ, M and A made very difficult for the next few years. It really just depends who's going to get that nod, and that would come right after inauguration to President Trump wins our.
Thanks to Nathan Dean Bloomberg Intelligence senior policy analysts. We move next to the EV space and Tesla this way, if you heard, the ev maker is looking to hire nearly eight hundred new employees. This comes nearly three months after CEO Elon Musk ordered the largest round of layoffs in the company's history. From her on this and the state of the EV industry, we were joined by Craig Trudell bloom For a Global Autos editor first ask for more context on this week's news.
This is very Elon Muskian of Tesla in that it sort of you know, depends on the day of what's going on at this company. So, yes, a few months back on the heels of Tesla selling about twenty percent fewer cars than it did in the fourth quarter, Elon Musk wasn't particularly happy with that quarterly showing he wanted the company to cut headcount by a commensurate amount, so roughly twenty percent, So you know, for context, you know, this is a company that you know, had quite a
few employees at that time. They started the year with a round one hundred and forty thousand, so that would
mean twenty eight thousand people being let go. It's unclear whether they got to that, but it is absolutely clear that, you know, certain parts of the company were decimated, I think most notably the super Charging team that really turned a lot of heads because it was a you know, aspect of this company that has been looked at as you know, such a sort of feather in their cap that they really invested where others didn't and built a
charging that worked, whereas others have have not worked very well, particularly in the US, and so it is kind of shocking to see, you know, such a significant pulling of people followed by a you know, hiring spree of sorts.
So do we know kind of what type of roles they're hiring for. Are they hiring people to bend metal or are they looking to like some software guys for AI and all that, the.
Robotax An or the Superpower people superhero Yeah.
I think we did report even weeks back that some of the Supercharger people who are you know, a part of the team that was really you know cut to a very significant degree, were brought back relatively quickly. Notably, the woman who was running that group, uh you know, has not been brought back, and there were some reports that maybe she you know, kind of tried to protect her team team and was dismissed as a result of that.
So in terms of what parts of the company are hiring, it's it's it's pretty broad, but I would say, you know, the data that our very own care Carlson has crunched. Service is a big aspect, which is maybe no surprise, and that you know, the summer season is a busy one for Tesla. People are out, you know, driving for vacations. It's warm outs, they're running their air conditioners, you know, to the extent that you do need the service an
electric vehicle, that's one of the things that is common. So, you know, one of the interesting aspects of this story is that we did speak with people who were a part of this job cutting, who you know, said that they were surprised that some of the service and salespeople, you know, that that the company you know, clearly needs at a time of you know, busy service work and you know, a company that's struggling to to sell more cars. Uh, you know, we're seeing you know, some people being brought
back there, but it is very widespread. I think notably as well. You know, AI and robotics is definitely you know, an area where everybody's you know, looking at very closely because of you know what this sort of new priority is or emphasis is on the.
Part of Musk, you know, Craig. GM's Mary Barris says the automaker won't sell a million evs next year, So just another story, another data point about kind of maybe where the ultimate demand or lack of demand may be for EV's. What's the latest feeling within the industry about how this thing's going to evolve at what pace.
We've seen a really dramatic pullback on the part of GM and Ford in particular. I feel like, you know, Stillantis, you know, formerly Fiat Chrysler. They were sort of slow in the first place, you know, making this transition and have not necessarily had much to pull back from. But I would not be surprised if they sort of you know, joined the quote unquote party in terms of maybe dialing back sort of the ramp at which they tried to
produce more electric vehicles and sell them. But it is very interesting to see you know, GM and Ford you know, really be sort of welcomed with open arms by the White House. You know, Mary Bara being lauded by Bidens as leading the EV transition. That really ticked off Elon Musk and helps explain why, you know, in the last few days we've learned that he's been planning to spend quite a bit of money on you know, contributing to packs to get to Donald Trump reelected.
That was my thing. Is that the Musk Trump love affair I find to be quite interesting because if we can just game out that the love affair is also so President Trump would be more nice to EV's. Is the huge change that we're expecting with alternative energy and the IRA and a Trump administration maybe not going to happen.
Yeah, it is surprising. I mean, maybe if you're trading Tesla, you sort of reckon that the CEO very publicly endearing himself to the candidate will sort of, you know, come back to benefit him down the line, and maybe some of these threats to do away with electric vehicle tax credits and so forth will fall by the wayside. Elon even went so far, you know, to sort of claim that, you know, doing away with subsidies would only help Tesla.
I don't know how exactly he squares that circle. But perhaps it's a matter of Tesla is you know, the strongest of the companies that's trying to make this work and is for this along, and so taking subsidies away would hurt you know, competitors even more so than it would Tesla. But it certainly wouldn't be good for Tesla to lose access to seventy five hundred dollars for a lot of its customers in the US or would be customers.
And so I do think it's very interesting, and we've we've heard very similar sort of intiev rhetoric on the on the part of jd Vance, his running mate, and so I think it's it's not only Trump who's you know, sort of campaigned against e but his running made.
Our Thanks to Craig Trudell, Bloomberg Global Autos Editor. Coming up on the program, we'll break down a slew of bank earnings in the US. You're listening to Bloomberg Intelligence on Bloomberg Radio, providing in depth research and data on two thousand companies and one hundred and thirty industries. You can access Bloomberg Intelligence via Bigo on the terminal. I'm Paul Sweeney. This is Bloomberg.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with 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.
We move now to US bank earnings. This week, we got quarterly results from Morgan Stanley, Bank of America, and Goldman Sachs, and all three firms posted double digit increases in investment banking revenue. From where we were joined by Alison Williams, Bloomberg Intelligence senior analysts Global banks and asset Managers. We first asked Allison what the street liked about Morgan Stanley's quarterly results.
Really strong institutional numbers, I mean, it was a great quarter for trading and investment banking, so equities trading really, I think a source of strength. Morgan Stanley doing better than expected across the board, So equities trading I think was the standout. Fixed income you know, was sort of mixed, but really compared to a year ago, I think that's strong. Those revenues are turning out to be resilient and on the investment banking side, investors are excited that there could
be momentum coming into the next quarter. You know, M and A still just historically low, so improving from a low base. Same thing with equities, but I think reasons for optimism, especially with the stocks in general doing so well.
Now for Bank of America, when I think a Bank of America, I think it a corporate bank, you know, making big loans to big corporate customers around the world. What did you see there, so you know.
I think the demand is for loans is still so something that we're looking more for the second half.
If we do get the FED rate cuts, that is definitely going to be a help.
And I think for Bank of America, what people are excited about is that it could be the trough. So Bank of America saying that it's going to be the trough, This will be the weakest quarter, but keep in mind that they are baking in the FED rate cut expectations and some loan growth in the second half, so we'll
see if they can deliver that. But definitely telling investors what they want to hear in terms of the fourth quarter, a little bit higher entry rate, firming that up and again that the you know, the most of the weakness could be behind us.
So does that mean that if we don't get FED cuts that Bank of America's going to have some problems here?
I think where the disappointment will come will be loan growth.
Spurred by FED cuts.
Right, So I think that some of the loan growth that they're factoring in is based on that we heard from Wells Fargo where they're you know, still a lot more cautious on the loan growth side. And commercial and industrial has been.
A weak spot. Credit card is it has been a strong spot.
You know.
When I was in banking, one of our most lucrative businesses that the Chasement had bank was this leverage lending, you know, lending to companies that don't have assets or inventory and any kind of just lending into cash flow. It's a little bit more risky. It's tough to show your credit officer where the collateral is for this loan. But we made a lot of money doing it. How's a private credit market been poaching on that business?
So actually you would have been making this would have been a good quarter for you. I know, you'd be happy. The first quarter was good. Second quarter was good, and I think that if you look at some of the most recent statistics that we've seen, is that banks.
Are still doing a lot of that refinancing.
Right, So a lot of the business that's been happening in the debt markets, debt fees, a source of strength across the bank's disquorter has been refinancing, and that leverage lending business has been doing well at the bank. So even though private credit is certainly raising a lot of funds and a product and demand, banks are still getting their share of refinancing in their leverage one volumes.
And that's you know.
Sort of you saw like the huge growth at City Group and the numbers at Gold and Sachs where they have relative strength in those businesses.
High yields another area that's doing really well.
Back to the consumer so we'll have Paul Donmus and banking stuff, all the consumer stuff. What about chargeobs on their credit card losses for Bank of America? Was that higher lower?
Where did that come out in general?
I would say there, so their provisions overall came in in line. We did see, you know, charge offs in the car business, charge offs and commercial real estate, So those are areas that we're watching, but you know, controlled and in line with expectations. I think the area of weakness that we saw in CARD this quarter was at City Group. They have a private label business that tends to skew on the lower income side of things. You're
seeing losses come in above their targeted range. There is seasonal pattern to that, and so there are expectations that that could come in, but I would say the second quarter did not give us confidence in those expectations. So I think that is continues to be an area for watching.
It's not necessarily a big area for the big banks that we're talking about and the ones that I cover, but I think it's important to watch, you know, for the overall economy and to some of the other CARD names such as Synchrony.
CEO at Morgan Stanle we have a new CEO, Ted Pick. I guess with a little bit of hindsight here does it seem like it's kind of working and everybody's kind of found their place.
And so it seems like, you know, he's talking with conviction. I think the boldest statement he made was with regard to the margins and the wealth business. So the wealth business, as you know, under the former CEO and a lot of acquisitions. Wealth and asset management is the predominant revenue and profit engine.
It's what investors are watching. The wealth margin was.
Something where Pick early in the year took off some of the upside under the prior targets, and that thirty percent wealth target I think is a question among investors if they can get there, and Ted really trying to instill confidence that he is a believer the wealth flows at Morgan Stanley, I would say, you know, that is the probably the number one thing I think that that we watch for them, and that did come in week
this quarter. The fee based part of those flows were relatively resilient, so some puts in takes there, but I think the wealth flows do bear watching and that that really has been the engine of optimism investors, like you know, the tilt towards the recurring fee based business, and so I think that they'll have to continue to deliver and deliver on that thirty percent margin that Pick is confident.
And then I'll go to sort of what the macro read is for Morgan Stanley, because also on the call, Ted Pick said that you're going to see normal m and a return unless there's a full blown recession, and he thinks we're in the early stages of multi year investment banking leed cycle.
Oh yeah, oh yeah, But we've been hearing that for so many quarters now and you're starting to definitely, you know, feel more of the doubt coming from analysts. Right, So the twenty twenty one, amazing twenty twenty two disaster, the lift that we got last year did not materialize.
I would say that so far this.
Year EM and A has been disappointing again, and you know you can see in terms of the reported fees and the announcements, right, so both of those have been disappointing. It does tend to pick up late in the year, It does tend to pick up after elections, So I think it'll be hard to get for that particular business line, you know, sort of the momentum people are looking for, perhaps until after the election. But on the underwriting side, I think is where you're seeing, you know, perhaps more
the momentum and strength. Golden Sachs, though who is tends to be the biggest and reported revenue, did say significant uptick in their pipeline debt. Underwriting and advisory were the areas of strength all.
Right, Thanks to Alison Williams, Bloomberg Intelligence Senior analysts, Global Banks and as a managers, we move next to the airline space. This weekend, Edited Airlines reported second quarter profit that grew thanks to strong travel demand, but the airline also said third quarter profit will fall short of Wall Streets expectations. United warned that price cuts by low cost
carriers are weighing on the entire airline industry. For more guess sos, Matt Miller, and I were joined by George Ferguson, Bloomberg Intelligence senior Aerospace, Defense and airlines analysts. We first asked George for his take on this week's results.
The industry is just suffering from overcapacity.
Right.
United confirmed that Delta told us the same thing earlier. We saw Alaska results come out, their load factors down, yields flat load factors down, telling me they can't fill airplanes at the right price point. We need capacity to come out. Everybody's pointing to an inflection point in three Q. United said that you know, they'd get down and maybe after mid August, maybe two to three percent growth in capacity.
I think this is still a too high level of capacity growth, right, this isn't an economy that probably a year over year grew about a percent. I think that number ought to be tied much closer to GDP growth. You talked about unemployment rising, right, so the US economy appears to be slowing a bit. So I think those things are working against the airlines right now. A bunch of capacity has to come out, I think, to get back to pricing power, and that's what's needed to get profitability going.
So how does that happen? I mean, do the airlines themselves pull capacity out? Don't they have competition in this market? Don't we have regulators to ensure that.
Yeah, so how does it happen? We're starting to see some of it happen. Alaska announced that they were going to add more premium seeding to them.
Can I just pause here for a fun fact, George, For a long time, Paul Sweeney thought that the Eskimo on the Alaska Airlines tail was actually a picture of Jerry Garcia.
I did.
Yeah, Actually he's told me that. I'm not sure what that says about Paul Sween.
I mean, what an airline Jerry Garcia on the tail?
They're so cool?
All right? So sorry, sorry, go ahead.
So we're starting to see capacity come out with these announcements like Alaska where they said, you know, we're gonna add more premium seating, which usually means a bit less capacity in the marketplace. Frontier is gonna block your middle seat, so you can get a premium seat out of Frontier. That obviously brings the capacity out. You know, what you really need is you need airlines to start parking airplanes. And I think that's hard too, right, So United Delta
all jazzed up about this inflection point. But look, I would note that there's a lot of very fast growing, low cost airlines in the US, Frontier, Spirit, even Jet Blue, right, they lease a lot of airplanes. You fly airplanes you lease because you gotta pay that least payment no matter what. Right. So I think it gets difficult here and it takes a little while to get capacity out. Maybe next summer, you know, I don't know.
I was talking with the CEO of JSX. They fly fascinating roots. For example, Well, they'll fly from the west Chester Airport to the Naples Airport, right or some airport outside of la into you know, Palm Beach. So are we gonna see more of these upstarts, George.
Well, so we always do in the industry, right. So the beautiful thing about this industry is when people sell airplanes, someone buys them cheap and starts flying routes like that, and there's always someone of the wants that come to this industry, right It's it's got just a heavy allure. Everybody wants to own an airline. That becomes one of the challenges too, I think, and sort of making money
in this industry. But the big folks, they'd love to have more, you know, more maybe the ultra low cost point at those smaller airports, but you just don't get the demand out of those smaller airports, you know, to really fill big airplanes, and so that becomes part of the challenge I think right now. One of the bigger parts of the challenge is definitely business is kinda We heard United say one hundred percent of what it was in twenty nineteen. Obviously that gives you sort of no
growth since the pandemic. They're saying, the share of revenue in the cabin is lower. That's always at a really nice price point, and business likes to go different places than leisure does, so it diversifies your routes to a certain degree, but you need enough of it to go to those other destinations. So business just isn't back enough.
I think to let the big full service carriers move into maybe some smaller sized airplanes, more diversified destinations, and get competition off those sort of heavy volume routes, and I think that's part of the problem too.
Our thanks to George Ferguson, Bloomberg Intelligence, senior airspace, defense and airlines analysts.
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