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So the Trump administration reportedly and talks with Intel to have the US government take a stake in the company. What does this all mean. Let's go to someone who knows about it. It's Ryan Gold. He's Bloomberg Deals reporter, joining us live here in the studio.
Ryan, Thanks for joining us. What would a deal like this do?
I think this probably should be seen as a way to potentially show up Intel's balance sheet. I mean, it's a company that's mean struggling, it's losing money. It's really got an ambition to return semiconductive manufacturing on mass to the United States in a way that we've not seen in use. It's all centered around the Ohio plant. The Ohio plant has been seen as a way for Intel to become a shining light across the world. That he said by twenty thirty it was going to be one
of the biggest and the best in the world. Obviously that hasn't been the case. It's been delayed quite a few times. So this investment, this proposed investment should probably be viewed as a confidence capital type of arrangement for Intel, you know, bring give some confidence to investors that this is something they should stand behind because it has the backing of the most credit worthy institution in the world.
We don't do this very often. We've been the US government.
This is a monstrous change in industrial policy. What are folks saying out there about this?
It is I think, you know, certainly among the people I've been speaking to, this is something that you know, it's a new dawn in a way. I mean, if you're a bank or a lawyer, or anyone on Wall Street thinking about struggling US companies in quote unquote mission critical industries or industries that are sensitive to the United States, is the government now an option for you? I mean, we think back to the financial crisis, the Cristo GM
and so on. I mean that's years ago. I mean, tied has turned since then, clearly, But it does seem as though just given some of these other transactions we've seen, like MP materials, like the almost you know, pay per play in a way in video agreement with AMD as well the fifteen percent that Trump struck to allow China to have these chips. It does seem like a new time, a new dawn for how to think about, you know, the Trump's administration's play with private industry.
So who's going to pay for the stake? I mean, we're hearing the Trump administration eyeing the Chips Act?
Is that right? Yeah?
So far? I mean, we just ran a story this morning. Our understanding is that at least for now, the funding could come from the Chip SECT. I mean, bearing in mind, the Chips Act was passed in twenty twenty two, committing two hundred and eighty billion dollars in new funding for domestic research and manufacturing of semis in the United States. Intel was already poised to be the biggest beneficiary of
the Chip SECT. I mean, I think they were awarded seven point nine billion dollars in grants for a commercial semi manufacturing program, and they also struck agreement with the Pentagon under the Secure Enclay program that was worth around three billion. So Intel's already seen quite a bit of this money. It remains to be seeing exactly how much or what size stake the government will take.
Does Intel do they welcome a stake by the US government. Have they said anything?
They haven't said anything. I think one of the things that was kind of telling yesterday when we went to them for comment, they you know, the client to comment on what they called rumors in speculation, But they did add that they were deeply committed to supporting administration's efforts to strengthen US technology and manufacturing leadership. I mean, make no mistake, Intel sees itself that it should be the leader in semiconductor manufacturing. It has always been in the
shadow of TSMC as it relates to semiconductor fabs. I think they do feel as though this could be a potentially very good time for them to change course and return to the top of the channel.
So do you see this as just another intervention intervention by by President Trump. We had the you know, the fifteen percent cut of certain semi doctor sales to China. You had this golden share in the United States Steel.
I mean, can can you dive more into that?
Yeah?
I think you know this is certainly I say, I just really want to draw a line under how unprecedented this is I mean, this is a wacky suggestion what we have here, Lipbu Tam By the way, who you know, there are very few people who were as qualified as him in semi conductors. I mean he sat on the board of Intel before he became the CEO. He left the board, and then they've had a process and now he's back a CEO. I mean he was already making the point when he was on the board that in
telling them to sort out its manufacturing problem. The fact that the Trump administration is now coming in and suggesting that they could be behind essentially as a as a backstop in a way for what the company is looking to do there is turning conventional wisdom on its head for sure. I think to draw the tension again to the MP Materials deal, that was really interesting because it's about you know, loans, it's about outside financing. It could they mentioned as part of that deal, it could take
the of partnerships with other customers. I think it's really being seen as a blueprint for for what the Trump administration is thinking about Intel here.
It could work, I mean, it could have.
It be really advantageous because we see Intel investing all this money in this new foundry plant in Ohio, but they don't have any customers exactly. And if the US government was now a part owner of Intel, I think I might want to do some business.
With Intel, exactly. And I think you make a great point because we've you know, we've been asking these questions since yesterday. If you're one of Intel's competitors looking across the way and thinking, okay, sure, we'd love to be in this business, what about us? That's the kind of scenario we're in now. Is is Intel being seen to get preferential treatment from the US government? And what does it mean if you're another semi conductor company which has
ambitions like Global Foundriies. Global Founderies is a major backerd is Mubadla, the Sovereign Wealth Fund. But they're a semi conductor manufacturer. They have a few sites in the US, a few in Germany. You must, you know, penny for their thoughts.
Before you go the timing of this.
Didn't the Intel's CEO just come back from meeting with the.
President at the White House? Was was this kind of discussed during that time?
That was Monday? Yeah, and now on Friday? Is it crazy? What differences that we can make but yeah that this these plans were talked about on Monday between Trump and let Bhutan. You'll note that the Trump put out the Truth social post after that meeting and said that he described him as an amazing man with a really interesting backstory. You know, it was an about face given that he just the day before called for the guy to be replaced. I think another point i'd not just on the on
the politics of this. Poor you mentioned Ohio. Ohio is a massively sensitive state for Donald Trump. It's where he has a very deep base of you know, margat Republicans, and they won their three He's won there three times. So JD. Vans, the Vice President, is also from Ohio. Big, big, big social attention. Then stay with us.
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So, Paul, my daughter and I have these matching bracelets. They're Pandora bracelets. They're really cute. They have these little charms and everything like that, but I think we might stop at one because the.
Price of them might start to go up.
That's according to its CEO, weighing potential price increases due to higher tariffs.
But we want to go someone who knows more about it.
It's Deborah Ak and she's Bloomberg Intelligence Luxury Goods analysts.
Deborah.
Thanks for joining us this morning via London, coming in from zoom So what do we know about these price increases? I mean, how much is this going to affect the consumer?
I think, well, the price increases are still very much to go through the market. In the jewelry industry, we have already seen the higher end brands As and others popping through prices of around five to six percent, and then on top of that with this brings some collections and extra foccent into the US. So we would expect when we did some deep analysis, and because of the different tariff situations, we would expect maybe four cent pricing
additionally to come through from Pandora, for example. And that's very much a difficult play when other prices are going up and in the value orientated offer.
Well, how about in the watch business, because that's one I'm interested. And I mean Lisa and her daughter have the bracelets. I get it, I get it.
I'm kind of a watch guy, not a crazy one.
But boy, the arrfs.
We're talking about thirty nine percent tariffs on stuff coming out of Switzerland, little old neutral Switzerland. That could be a problem for the watch manufacturers.
What are they saying?
Yeah, so I think you know, the watch MANUF and the retailers too, because I think they'll take a bit of the brunt, a lot of the brunt of some of the biggest names. So Richmond and its brands, Swatch and all of its brands, Swatches brands are all produced on the watchmaker side out of Switzerland, richemon On watches and also it's Cartier brand, a lot of that out of Switzerland, mostly out of Switzerland. So the idea there
when we did our analysis. They're not saying anything on numbers yet, but in order to try to manage EBIT margin, we would say that they would need about nine percent from Richmond. They do have very high gross margins, so low cost of business that is one thing that will
help them. But even so, we are going to see mid single digger prices expected to be passed on to the consumer and the big thing coming from you know, the numbers this morning from Pandora were very much that actually they haven't been passed on yet in key categories, with jewelry being one of them because they're gifting occasions and so a lot of that inflation is to come into the US market.
So is Pandora's US exposure lower compared to its rivals.
If we think about it from a global perspective, No, But if we're looking at the US, if we're looking at the US consumers, then yes, it's one third of sales for Pandora globally, but it is its biggest market and it has been the engine for growth through the first half of this year. It's of eight percent on a constant currency twelve percent including the store opening it's doing, and that's versus eight percent overall for the business. So
it is the key driver. But then otherwise, if you think about the business overall on the jewelry side, for branded business, it's still hugely fragmented. So Pandora only has a two percent market share and it's one of the leaders, so a lot of pricing to come through lots from India and others also with those tariffs coming into force from the beginning of August.
So, deb you cover all of global luxury here. What are your companies generally saying about the US market and the tariff situation? Are they suggesting that makes that the US market less attractive to them? And what are their policies for actually dealing with the tariffs?
Yeah, I think.
Twofold or threefold should we say one of them is cost safe in. All of these companies are working avidly on cost safe in. There are also adapting portfolios, which does take a little bit of time, so we see more of that in the autumn winter. They're widening price points, so prior to for example, had said, we realize we need to be more at the top of the price point, but equally we need to be further down the architecture. So they're going to be one of many companies that
will do the same into the US market. But generally, I would say, actually, the market from the mid luxury upwards has been particularly robust, and we've seen the consumer confidence are still very much at are low, but it is picking up in the higher end income brackets more quickly than others. And that's typical and a trend that we've seen over the long term from the different income bands in the US.
Yeah, but we've got about a minute left. How is a luxury market doing in China? That's been kind of a sticking point.
It has it's very, very slow to recover to the things we discussed just this week. We're thinking about the fact that there's an extension between US and China and the tariff situation until the tenth of November, so another ninety day pause, so to speak, and we think that's negative because both the US and China are running on very low consumer sentiment, with China four years in the dold rooms and the numbers that we're seen now today on kind of CPI on different retail analysis highlights that
the Chinese consumer is really resolute on holding onto their money or shopping very high end or finding something that's local. So there's a lot more localized competition and they're not traveling the way that they used to. It's all held off until they really know what's going on. So difficult outlook for the first half of twenty twenty six for luxury.
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One of the stories in the mortgage market that really got my attention is potential IPO of Fanny May Freddie macause I'm just thinking about my finance group bankers on was shtreet what a boondogle that would be for them, but also concern here what it might mean for mortgage rates out there. So let's check in with Ben Elliott, consumer finance analyst Bloomberg Intelligence.
So Ben talk to.
Us about Fannie Mae, Freddie Mac. Is there going to be an IPO of these companies and if so, when, Well, Paul.
It wouldn't really be an IPO since the companies do still trade over the counter. But you know, Treasury is talking about different options, maybe selling some of the shares that they currently own, maybe raising some new equity at
the market. But I think the core of the issue here is we don't know what Treasury is planning to do, and so they're talked about timeline, which was by the end of twenty twenty five seems to be very optimistic because as far as we can tell, none of the work has been done.
So what does this What could this mean for mortgage rates? I mean, how much higher could they go?
If any?
So there are different estimates out there that you know they could go up twenty thirty basis points. Some people suggest maybe a percentage point if you sort of sort of think about agency nbs. The most of the premium there over treasuries that investors get today is because people can prepay their mortgage and they have negative convexity, but
not because of credit risk. Right, So if you re reduce credit risk as a result of making the company's private and cutting off the federal government guarantee, then that could add relatively substantial price there.
So, just like rewind back to the terrible time of the Great Financial Crisis, the government basically bailed out Fannie Mae Freddie Mack, and they now have significant equity ownership of those two entities. And the question is is now the time to sell down some of that equity interest is at the story?
Yeah, that's part of the story. So they own warrants to purchase eighty percent of the common stock but they also own a senior class of preferred shares and that has a par value around two hundred and something billion, But it also has a liquidation preference which rises each quarter along with Fanny and Freddy's earnings that's hovering around
three hundred and fifty billion. So when you hear different people on the street talk about the potential to raise you know, three hundred billion dollars, you know that's actually from writing down the senior prefers. That's actually not enough really to pay back the stated value or the liquidation preference of the senior prefers. So a lot of the uncertainty here is what will Treasury do with its senior ownership stake as opposed to just its commons.
Hey Ben, can you dig into what are some of the pros and cons of making these companies private?
Yeah?
Sure, So, I mean the obvious con right is that if any of ready work extremely well, they're providing a ton of liquidity to us home buyers. We have a unique financial product in this country, which is a thirty
year fixed rate mortgage at incredibly low rates. The credit quality is fantastic, it's better than really it's ever been, and so you have to ask yourself what is the benefit of disturbing that and going back to sort of the pre two thousand and eight status quo that led to what occurred with the companies in the financial crisis.
But if you sort of, you know, take a sort of thirty thousand foot view as a more theoretical observer, right, maybe there's some benefit in getting the government out of private capital markets. Maybe introducing competition could increase innovation, but it would have to be done in a really careful way that ensured that we never sort of returned to the risks that we're inherent in the business model prior to the financial crisis.
So, Ben, you cover the consumer finance industry. What are the companies that you cover? What are they telling you about the health of the consumer. There's a lot of places I like to go to get kind of first hand information. Restaurants for examples. I talked to Mike Haalen and he gives you a view. But also for you like the consumer finance companies because they bank everybody and not just the big blue chips. They bank you know, the small and some of the more questionable credits.
What are they telling you?
Yeah, so our credit card companies put out a really interesting data set every month with their delinquencies they're net charge offs and their growth. And the story is sort of two part. Loan growth is slowing, people are spending less money on their credit cards. Maybe consumer confidence is declining a little bit at the margins, but credit is still fantastic. It's still you know, write at about twenty
nineteen levels. It's trending sort of down as though it might eclipse those levels, and buy and large borrowers are are very resilient. But if you sort of look down into the weeds of some of the more marginal lenders who are doing things like store credit cards, you know those people. Those companies say that they see some of their consumers struggling and managing through things like inflation, and so there's a potential at the margin of the economy worsens for that to create some trouble.
But the question is are they paying off the credit card dead?
Are they're paying it off? They are, Yeah, they're And delinquency, importantly, which is a leading indicator of charge offs, is still improving. And that gives you about a six month view into charge offs because of how they work and how long it takes, and so right now of the trend work to continue. Credit would keep improving over the next six months.
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