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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie Hortenn. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
We have the wonderful lineup of guests today, starting with the very own CEO of the Royal Bank of Canada, Dave Mackay, who joins us here.
Dave, wonderful to see you. Thank you for being with us.
It's great to be back.
It's amazing at youears gone by already.
Right, I mean, what's your impression so far of this jobos? It feels very different than previous ones.
It's more intense. There's more leaders here than I think there's ever been. Over eight hundred and fifty CEOs, four hundred ministers, sixty five heads of state, so there's been a lot of dialogue already in the first kind of forty eight hours, a lot of joint business government leader dialogue, a run investment to your point, looking at making deals, looking at co investment, every country, looking at diversifying trade, bringing business leaders with them to talk about co investment
or whether it's manufacturing investment, defense spend in Europe and Canada's going up, a lot of discussions about how do we spend eighty billion dollars in Canada on defense? You know what partners are we looking at?
How do we use that.
Defense spending lever to attract manufacturing investment, in automotive energy investment. So there's a lot of grand bargain discussions going on with business leaders with and haven't seen that before, and so it's different. It feels different. It's transactional to you said, but it's exciting. At the same time, there's opportunity here.
Well you're talking about the excitement, and yet you are Royal Bank of Canada. You are expanding in the United States, and right now there is a breakdown in the relationship between these two trees.
How problematic is that for you at.
A time where you have been expanding in the United States and you do see flows at least in travel going me other direction a little bit.
No, I think we're in this temporary world where we're trying to figure out how we're going to trade going forward. But I come back to the core of USMCA. Canada really helps America with affordability. We make things in Canadian dollars, we sell it to the US. The US buy is it that a thirty percent discount, but it's automotive parts, whether it's steel, aluminum, food, and a lot of our Canolagos the United States, and therefore we help keep prices
down in the US. And if the US were to bring all of that back, it's inflationary, you shortage of labor in the United States. So as you look at the core of USMCA, it's good for America, and I think that gives me comfort that we will come to an arrangement going forward recognizing this is good for America. It's good for Canada obviously, but it's good for America
and that's important to the President. There will be change, I don't think it will be the same agreement going forward, but the core of it, I think is so important to both sides, and that gives me comfort that we will continue to trade Canada, and you heard our Prime minister's message. I'm sure we'll talk about that has to diversified trade. I think we've relied on trade to the
US substantially a big part of our economy. And I think that the conversations that are happening before Davos after Davos. In Davos are very much about here's what we're good at. Can we find a grand bargain deal. Can we expand trade across multiple countries where that's Europe, A lot of discussion with South Asia and Asia, and a lot of discussion with the Middle East, and investing in Canada. And what's different about Davos this year? Honestly, Lisa, it's risk on Canada.
Let's talk about the Prime minister speech.
The sharpest tone I've ever heard from Mark Carney about Donald Trump without mentioning Trump's name, He's talking about a new world order, saying these middle countries, if you're at the table prepared to get eaten. Does that make it harder when you're talking about things like watching the USMCA trade deal. Do you think that the relationship is going to become more challenging in Canada and the United States.
I think relationships are about value exchange, and if there's good value exchange and you both see a benefit to that, then you're going to find the right place. So when just as I said, there's great value exchange, four hundred billion dollars go back and forth across the border every year because there's value. We're the number one trade relationship
with thirty six states. Most of those are red states at the end of the day, So when we think about the importance of that relationship just beyond a federal level into the state level, it's really important. So I think you come back and you say it's good for America, it's good for Canada. That's the basis for exchange of value and going forward. Having said that, I think the Prime Minister is very clear that we haven't done our
role in defending ourselves. We haven't invested enough of our GDP in defense, and you've seen that commitment to spend that money.
We have to do that.
We have to increasingly defend ourselves and are not just our economic security, it's our physical security.
We have to play a bigger role.
We have to defend the Arctic and we have to invest in the Arctic, and it's a big part of the commitment we've made to NATO and we've made to the United States that you'll see a greater investment from Canada. And we have to have dual use investments, not just military, but commercial and economic investments in the Arctic in Canada should play a role in doing that. So you're seeing that a big part of his speech yesterday. And we have to create scale. We're in a world of scale.
Businesses needs scale, countries need scale, and I think the Prime Minister's message was we have to continue to diversify, but diversify in a way that you continue to build scale and what you need.
So I think that's what I took away when he.
Says diversify, does it mean maybe a new strategic partnership with China?
Is that what you take from the Prime minister?
You know, the Prime Mister was just in China a week ago and it was a very important delegation that he led to China to kind of reset the relationship after a better part of a decade where the relationship had separated, and part of it was to renew economic ties and to agree on areas where we definitely agree and to say these are areas where we might not agree, but let's focus on where we agree and where we can build a future together.
And I think that was a very positive step.
You saw China make a commitment to resume buying our canola oil, and that's very important market for Canola. The United States and China of big markets. We ceded a small part of our automotive market three percent to Chinese imports. That's an affordability issue. China will bring in affordable electric vehicles, So I think that's good for Canadians at the end of the day. So I think there's more to build on and I think it's part of diversifying across multiple countries.
Okay, so we've gone all this time without talking about what you actually have done.
You just had a year that's phenomenal. You had record.
Revenues for any Canadian bank ever and you have grown tremendously.
You beat all of your targets.
I'm just wondering, when you're talking about diversifying businesses, does it go to your business as well?
Are you expanding in places like China? Are you still planning to expand in the United States?
Our second home markets, the United States. We've grown wonderfully in the United States. We just launched a whole new treasury management platform, the United States RBC clear that's had a great reception. Technology leaf we brought in twenty five billion dollars of new money from US senior corporate's fortune kind of five hundred. So the United States is our
second home market and we continue to invest there. We lend significantly to US corporates, We lend in the mid corporate space, in the commercial space, and we have the fifth largest high net worth platform in the United States. So the US is very important to US, serving Americans, helping Americans grow. And I told the administration already yesterday that we've invested significant in the US economy and we're part of the solution, and we.
Feel very welcome in the United States. So it's a big part of our strategy.
To your point, our strategy has not included China up until now for all the reasons where we didn't have significant diplomatic ties. We didn't see the basis for that investment, and now we have to review that. I can't say how we would go back in, but if the trade continues to diversify and Canadian corporates invest in China, then we will have to be part of that. What I'm focused on now is the least significant investment commitments from
the Middle East of Canada. I think one of the themes of Davos is Middle East is a great place to invest. Abu Dhabi, Dubai u Ate on that side, Riad and Saudi Arabia significant commitments on both sides, and you'll see a greater presence from RBC in the Middle East as well. So yes, to your point, it's a great question. You're seeing RBC become a more globally connected bank because Canada is going to become a more globally
connected country. In the US is already incredibly globally connected country.
Stay with us, Mulbloomberg. Savannah's coming up after this. We begin this out with stocks slightly lower following the biggest slide in three months of investors search for direction. The Morgan Stanley chairman and see Ted pick has Sino and he joined Usnaphomore.
Ted, good to see.
You guys, Thanks for having me. I'll like your mom like fading good, feeling pretty good.
You're not going to be in the speech in about twenty eight minutes time. Avoid that.
Yeah, I'll be with you, guys.
Let's talk about how things are set up for twenty six. We've drawn a big distinction between the energy that's coming from European officials and the emotion they have about a place like Greenland, and the optimism that people have for the broader US economy, particularly from bankers regarding the pipeline and the amount of debt issuance we've seen over the past few months. The debt end to writing that you've really benefited from that's going to fund a lot of
the transition. How ammed up are you about the year ahead?
Well, thanks for having me, guys, great to see you.
I'm pretty amped up. You know, we had several years where the emin ACTIVI who's going to get going? And then COVID happen and then retrooved, and it's taken a while for a tongue glue. But this kind of in this case literal noise speaks to c suite need to act, whether it's to reglobalize or reorient where your operations are, who you want to do business with, and as long as there's activity, we're busy. So cross border M and a large cap M and a going to be important
AI access an accelerant to that too. If you want to act, you get after their productivity gains and embedded in AI. You have to have the wherewithal to do it. And if your market cap is thirty or forty billion, that's tough. You know, how do you take a couple of points off your income statement to do that year after year? But if you're two three hundred billion, maybe
you got a shot. So people are thinking bigger. And then the sponsors, as you know, a couple thousand companies that have been sitting there that have a billion dollar market caps implied they need to come. And then very importantly have these great companies that have been private. And over the last fifteen years we've seen companies go public to defase options or effectively be secondaries.
You may actually see great companies that.
Are growth companies, some of them in the AI ecosystem, that want to go tap capital. So for the investment bank, a great period and for a wealth manager, leading wealth manager in the US and the world, you want to allocate your capital efficiently, so very exciting.
Some pank some of those business lines. So let's just pick up on the IPO pipeline. The activity we could see later this year SpaceX open AI. We're talking about some absolute monsters. Even the team have been historically quite dominant in the tech sector. What are you doing right now to prepare for that moment that might be an.
Office Well, these companies, you know, you bank them for a whole bunch of years and you get to know them. So there's a process, obviously the formal bakeoff process and then the go or no go decision.
But typically the company has.
A pretty good idea of what it wants to do ahead of time because it's selected its group. And the stakes are really high this round because as you say, these the implied market caps these companies are enormous, but also they are paradoxically they are very large but also mega growers. They have, you know, some of them have a little bit of a change the world field to them,
so they could become must own. I mean, one of the things that you guys have talked a lot about is so much of the equity base has become either beta or it's become kind of the seven or eight names. What if there's some additional companies that three, four, or five hundred billion dollar market caps and trillion and a half dollars market cap. The active management community say is I want to own that. I want to own that from the time of the IPO. So I think it's
not just Wall Street getting to know these companies. It's a whole bunch of investors who have either backed into early rounds or want to be there when the IPO.
When we were speaking with you a year ago in these seats, you were talking about how it is going to be a great year for IPOs and M and A, and it was for your bottom line.
You had an incredible year.
There was, though, a lot of IPOs and a lot of deals that got stymied by Liberation Day and policy uncertainty. What has to go right for some of these deals to come to fruish and open ay anthropic SpaceX Well, I.
Think part of the reason that these companies are so interesting to investors is they are not rushed to go public, So there has to be an element of being patient. If you're in and around the ecosystem. They don't have to come in the first half of twenty six I think come in the second half of twenty sixth. They could even come in twenty seven, but they are drawing a whole bunch of interest to names like them, derivative
plays and the ecosystem. As you sort of disaggregate the entire AI daisy chain, where do you want to play? So the anticipation of the company going public almost is as important as the company itself coming. But whether they come LEASA in twenty six or twenty seven, they're going to come.
They're going to come.
It's sort of a dissonance right now when you talk to business leaders about how much enthusiasm there is for deals and for energy in the US economy, and then when you hear the policymakers, you hear uncertainty and you hear sell America. How do you square those two narratives at a time where you do hear a growing number of investors say they are diversifying away from US assets.
I hear you guys talking about this a lot. I think there are two separate phenomena, but they're not exclusive.
One is we got the arca history.
You know, I've gone on about the end of the end of history and that things would get going again and the Nation States would be battling for a Gemini and kind of trying to you know, win out on the rise and fall nations. That's just a historical fact that kind of got there was an interregnum between Berlin, Wall and COVID. We're actually back to the balance of human history as we've all studied, and that means there's going to be the kind of stuff that we are
living through right now. It's just been a while and I don't know necessarily that that is something we should expect to go away anytime soon. There's going to be renationalizing, nationalizing, and that means in some case they'll be higher country risk, they'll be maybe pockets of liquidity. There may be opportunistic transactions or allocations that happened. But after twenty years of financial oppression, we're back to live markets and.
Live nation states. That's here.
But at the same time, you have US capital markets which are more than half the capital stock.
And the reality is very.
Basically as we know, corporate health is excellent, consumer health at the top end is excellent, and obviously the administration is getting after housing for the bottom half of the k earnings as you know, grew eight percent this year, that could grow in the mid teams next year, that's double the long term average.
That's pretty good. So good corporate, good.
Consumer, excellent, capital markets, an easier FED the lowered by seventy five.
Maybe there's more to go.
Maybe it's a demand driven twenty twenty six, in which case the Fed doesn't have to move.
We have good.
Inflation, we keep on powering forwar growth. Or maybe it's supply side where they're spending, but there isn't the same kind of job creation and the federal help out, so they're downside cases. But just in the main oh, and the tailwinds of deregulation and the bill are kicking in. It kind of is hard to argue against the twenty six US led growth case.
Now we can get a.
Debate about where ASID prices should be, but in terms of just two years ago were talking about recession. Last year we weren't sure. Because the administrations come in, we're not talking about that today. So for our business, very simply, we write tickets to kind of two times GDP nominal, and so if you think about our Wealth and Investment Bank, if we're going to grow you know, five ten percent on a two times basis nominally, that should be pretty good for our business for doing our job.
Culporate health is very good, it's excellent. Software in health is questionable. Right, can we talk about that.
Right?
The move in the last twenty four hours, the live market stuff, let's get into that. The move in Japan at the long end of the curve, is that a warning shot, is that the start of something bigger?
Well, I mean this Japan trade has been talked about forever and uh and I would expect then in a lot of you know, highly indebted countries, you know off the Liz Trust moment, where the demographics are poor and you don't have the wherewithal our FIAT to kind of work your way through that, there could.
Be some vulnerability. So what does that mean?
That means if we're sort of do our economics meets you know, poly side thing. I think that means you want to get closer to places where you can act in your joint economic interest. And I think the Japanese examples one that we should continue to pay attention to.
I wouldn't be surprised that we see pockets of that now and then when you know, there's a little talk of the bounty looks lousy, but we're going to inject a little stimulus and let's see I anyone notices, Yeah, they noticed, so you know you sort of have to you know, then then you just it's you know, it's a triballoon. It gets pulled back, and that's probably healthy for markets. You know, you see a lot of that's been bought act today. But that's different than the US
Treasury phenomenon. Yeah, that's that's been hugely overblown. The reality is that when we did this a year ago, the Treasury Secretary is you know of anyone was talking about the ten year being so important to keep an eye on. I think the ten years around four fifty seven, four fifty five for sixty now it's a four twenty five four to thirty, so the ten years doing his job,
there's some steepening. Yes, it's probably healthy. So I do think there's a conflation between kind of US Treasury phenomenon and the world, and I think there's a difference, and you know, we just have to continue to highlight the.
Difference very quickly.
Ten you spend time you grew up in Venezuela, New world. Now are you planning to maybe help facilitate companies go back in.
Not prep for that question you lived in. Thank you so much.
Interested because you have a different take, probably than every other CEO walking around this forum.
Well that as well as an extraordinary place, has a proud but now in recent decades, very troubled history. But is you know, if you know your Monroe doctrine critical and has albeit as you've talked about it at length, it's it's it's more sulphuric, but very high, vast quantities of oil beneath the ground. So do I think Venezuela is going to be relevant? I think Latin America is
going to be relevant. I think the Hemisphere is going to be relevant in its sort of thinking around how wants to get closer while maintaining its own, you know, political and social independence from the US. But I think coming together of some places may make some sense and maybe in the broader economic interest.
Back to the previous question, it.
Was a fantastic counts, thank you so much. I've got one more. Yes, it's not a land of mind. There was some news about Deutschebank, and I just want to breathe some life into that story, and essentially the Treasury Secretary came out there was some research that he didn't like and according to him, the Deutsche Bank CEO has turned around and said, I don't stand by that research.
That's basically the point.
Is it difficult for the research apartment of Milk and Stanley to say what they think in an environment like this one? And I asked this question because I know some tremendous individuals at Molke and Stanley in research, and they are all highly intelligent, capable and have their own thoughts about where they think we are.
In this moment right now.
But is it difficult in the C suite to allow them just to go out their full throat, full throttle, full blooded and just say what they really think about this moment.
Absolutely not.
I'm not at a piece of research at my desk for a yellow light or a no go. I think what gets a little tricky is these institutions.
Also are desk analysts.
So I don't know if this one came out of the research department or maybe a desk analyst sitting in one of the divisions.
But to answer your question.
Directly, we want we celebrate broad opinion, I do think, but to give not kind of the standard answer.
Part of the reason you're like our research.
Is because it's not just regurgitation, because we all have a lumber terminal, okay, So it has to have some kind of value add but it doesn't have to just be provocation for its own sake. So we have industry leaders, we have sector leaders. We have Seth Carpenter, who you pointed out. I was watching you talk to him, and I was and that was quite a moment when I.
Looked Starbucks all over my sue. So thanks for that. That was excellent.
You had at least one viewer that day, and that was me, so and Seth. But the answer is the independence of research is important.
We've invested in it for all these years.
That having been said, sort of writing research to just sort of provoke and kind of get your Warhol moment, I mean that is not really fair to the institution either, and it puts it puts the particular government or whomever in an awkward spot because they read the research. So I think there's got to be a balance between independent integrity and what you're writing and writing something that actually is meant to add value and bring intellectual capital to the fore.
Seven of the Drunk and Bill I saw that out for you.
I didn't actually split it up. I just swallowed wild.
Thank you, sir, Thank you very much.
Thank you.
Stay with us.
More Bloomberg surveillance coming up after this.
Joining us now.
The Republican Senator Tom tillis at the epicent of some of the conversations down in Washington, d C. Regarding the Federal Reserve Sena, it's good to see you. Great to see you. So you're like the human roadblock now to getting anyone confirmed. So let's get into that. Is it about the individual or the process?
It's about the process.
Look, I made the statement that I did when the news broke about the investigation on Chair Powell because I felt like, leading up to the markets, I was on a Sunday night that I want to send a signal to the market so the Fed is independent and will be independent, and this legal process needs to play itself out.
Your signal to.
The market is actually potentially why we saw the market shrug off.
That's a PENA.
Well, yeah, And I think also you have to look at people light Chair french Hill and others who weigh in. I think that it made a simple fact obvious. The Senate does have control over who gets.
On the board.
The Jump administration definitely doesn't like slow processes. So how long do you think this is actually going to take.
Well, it's up to the Department of Justice at this point. I didn't get us here. They got us here, So they need to go through this process either prevent the facts fully adjudicated or determine.
What to do with the investigation.
So, in other words, and tell Us is dismissed. There there's no new FED chair.
Well until it's the semester three hundred and forty seven days, that's the expiration of my term.
Okay, right now, we're here where you are diverging quite a bit from some of the members of your own party, including President Trump.
You've gone back and forth. You're not running for reelection.
What do you tell people who try to get a sense of what the American people are going to do or what Congress is going to do. What do you tell them when they approach you here at Davos looking for direction.
Well, I remind them that the United States two hundred and fifty years old now this year our happy birthday. But where a very complex democracy. It's very difficult to understand. It's difficult to understand the institution of the Senate and why one Senate member in this particular Congress can control processes on committees. You know, we're the deciding where the cloture maker.
Where the deciding votes.
So I think it's an opportunity for us to demonstrate democracy at its best in the United States. I support the vast majority of the President's policies, a lot of the Watts, but some of the House to me, make no sense to me. Greenland the what makes a lot of sense to me? Project power in Greenland? Why would any fiscal conservative want to spend billions of dollars to
buy something that we already have access to. Greenland has offered us a base for a dollar, folks, we could get seventeen bases if you extend that for seventeen dollars versus fifty seven billion dollars or whatever it would cost. Not to mention the Danes pay about a half a billion dollars a year to just keep the infrastructure running for some fifty seven hundred and fifty seven thousand indigenous people on the island. Why do we want to take
on that overhead? Is it really about projecting power in the Arctic.
Or something else.
If it's something else, maybe I look at the business case, but ostensibly it's about projecting power in the Artic and the best way to project power in the Arctic is through the NATO forces using their Arctic skills, their ice breaking skills. The projection of power that we come together, the synergy of the NATO alliance is far greater than anything in the United States could do.
On its own.
Do you know any fiscal conservatives in Washington.
Well, starting with one, no, I think there are several looks, and we've got to start thinking about these other structural decisions that we make. The run up the debt already to unacceptable highs, with the fraud that we're seeing here, with the uncertainty, with the increasing debt, I worry about
almost a level of irrational exuberance. We've somehow been able to withstand some of the uncertainty, but there's a proverbial straw out there, and these sorts of decisions could get us closer to breaking the camels better.
What does corrective action actually look like?
Corrective action?
What's doable in Washington at the moment.
Well, you know, presumably even if we were to move forward and there was some deal offered to Greenland, and and to Denmark that would require congressional approval. The president doesn't have a blank check that he can continue to run up debt. That would require a process and raizor thin margins.
And if it's a process.
That doesn't play out until next year, it's post election. We've got to know what Congress looks like next year, or they've got to know what Congress looks like next year.
The President's fairly focused on November third and this affordability push. Do you expect him to make more phone calls to Senator Elizabeth Warren, another senior member on the Banking Committee, than to you.
I actually, Elizabeth Warre and our friends, we're not political friends, personal friends.
I got on the floor, no the well at the house.
I said, Elizabeth, remarkable, you've sold the president on your arbitrary caps on credit. We're no longer going to rate for risk. We're just going to be rating basically what's going to happen. We're going to under or unbank a lot of people, and we're going to stabilize the asset backed secure asset backed securities market along the way. I said, Don't get me wrong, it's extraordinary that you've solved the President on this idea, but you know, I'm going to do everything I can to kill it.
But do you think something will be done when it comes to credit cards?
Maybe it's the other bill.
That's why would we want to repeat a bad idea. If you're taking a look at MasterCard and BS, they're working with.
The small retailer.
The retailers have a legitimate concern and the credit card companies are working that out. We don't need a big government arbitrary solution. We've seen credit card competition acts in Europe and they've been abject failures. Seventy percent of all of the travel to Alaska, for example, are through rewards. Do you the money's got to come from somewhere? Do you think that that travel is going to be funded in the future. Are those sorts of rewards and programs
going to be cut? It makes no sense. It's not sustainable, and I think that we have the votes and the Congress to hold it off.
This Congress States has been known for process. That's one reason why a lot of businesses have invested in the United States and the capital markets that we've created. And I just wonder, as you are here with global business leaders. Does it worry you that you hear more investors, more businesses looking to diversify away from the United States because of a lack of predictability of process of policy.
We have to do that.
I spent nearly twenty years at Price Waterhouse Coopers and how Bey on global business services. I would I would have to tell every client I advised at that time, this is a risk. You've got to reduce your bybox for any sorts of high risk ventures. And that freezes capital, that that tamper's growth. That's the last thing we need right now.
Are you going to be in the room in thirty six minutes time?
One hundred percent?
What are you expecting to hear?
I'm expecting to here President Trump, you give a speech?
What content? So one thing I'm certain of.
Have you got to read on the content of seid speech?
No, No, I'll hear it when everybody else here is it. But you know, I will tell you the raison. Everybody's probably what still has got the bling on for this says from we had a new tribe. The largest tribe east of the Mississippi is Columbia Indians. They got recognized after one hundred and thirty seven years of abuse and neglect. Interestingly enough, they're about the same sized tribe, fifty five thousand of the indigenous people in Greenland. I heard a
very important comment when I was in Denmark. They say people can trade, but you can't trade people. We need to make everyone understand that those people on the ground have been there for forty five hundred years. They want us there, but they want us there in their territory, non American territory, and it can be accomplished much more conservatively, much more sustainably, by cooperation.
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