Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. We bring you insight from the best in economics, finance, investment, and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, on the Bloomberg Now. The International Monetary Fund has caught its global growth forecast, warning that the expansion scene in recent years is losing momentum.
That contributing to the slowdown, The organization site did increased trade tensions, political flashpoints, including a new deal breaks it well. The i m F Managing director Kissing joins us. Now, we've been talking about this interview all day. Tom and I have been like fighting over what we ask you, because you're really the high even maybe we push it
to an hour and a half. But then, my guard when you look at the risks of a recession, if there are risks to a recession, where would they stand from? Is it China? Is it the US? Is it Brexit in Europe? Okay, today our forecast is three point five three point six next year. And if you ask me, do you see a recession? I said no? Okay, So if there was to be a materialization of the risks that we see on the horizon. And the point is that this horizon is getting a little bit closer to
what we had back in October. That's the reason why we slightly revised our growth forecast. If those risks were to materialize, then it's a different story. And you asked me which one of the risks I rank higher, I would say that the trade tension, if unresolved and if associated with the big question mark, would be my number one risk. I think Brexit uncertainty and the big question mark yet again that we have on how it's going to be resolved is the time frame, what is the
after divorce situation? I would put that as number two, but with probably um major impact on the UK, impact on the European Union, systemic risk risks if the financial sector is not addressed um and then I would have, as a sort of subset of that first risk, in other words, trade tensions continuing to increase, I would have an accelerated moderation of growth in China. If you clear those starts where that's French schooling for you, m my den la guard. When you look at China, how can
we be so sure that it's not trade. I mean it's not you know that is its trade and not a more significant structural slowdown that would be much harder to deal with, you know, I would I would call your attention to one fact. Although we have downgraded our forecast, the two countries that we have not downgraded are the
US and China. So that was partly anticipated number one, and it was part lee remedied number two remedied in the US because of the tax corporate the corporate tax, a major reform that has taken place and that has helped fuel additional growth, new jobs, and all the rest of it anticipated by China with similar s measures that were taken taken in the last few months to compensate both the trade threat impact as well as the credit shrinking,
which was welcome, necessary and hopefully will continue a bit. I want to go back to your public service in France and to Steve Bannon on the early Trump years and his homage to French fascism of nineteen o five nineteen. Of course, all of that going over to Hitler and Mussolini and another far more troubled time in your blue book, your green book, your fistcal book as well there's no discussion of the new populism and his rise of the
far right and elements or shades of fascism. What can your institution do to push again this new populism and someone is just a new ugly populism. I think what we have done and we need to continue to do and probably be more vocal about it, is the study of inequalities, excessive inequalities, impacts of inequalities on growth. And we started that, you know, I began talking about it
four years ago. I said, watch out inequalities of doing claim speech in New York and you went right after Washington. And we need to, you know, be vocal about that, and we need, I think, to articulate the measures that can be taken in order to resist this acceleration of inequalities, both in terms of wealth and in terms of income. And they are good sound tags and fiscal measures that
can be taken in order to address those issues. Added to that, Tom, I think it's not just a fiscal financial coming, and I think it has lots of other roots ramifications, amongst which I would put cultural disenfranchisement. I would put the threat of technologies and how it's going to take my job, displace me somewhere, and the malaise that people feel. As stated, so many people fear that
we're in right now. Then the critical question, and a delicate question for you in your position, is the experience of America, the Trump experience and other populous movements. Can they be at one off where we go back easily to some kind of normalcy or do a leads to leaders have to do something immediate so we get back to normalcy? Is it a one off? We believe that policies have to be taken to address the root causes
of what has precipitated those movements. What I mean by that is address excessive inequalities, address the issues of I feel out of my job. The machines are taking over. Artificial intelligence much talked about here in Douvles, is going to um emasculate my brain and my capacity to deal with my destiny. All these issues have to be addressed
as well. They're not all of an economic nature, but they have to be addressed because otherwise it's very easy to instill fear, to raise ants, and then anything can go. And I'd like to ask you actually how you deal with that though? Is a tax redistribution. How do you make it more more equal? Is there one country that
does it better than others that everyone else could learn from? Well, there are many countries, but each country is going to have to deal with it specifically because some countries are prone to um creating opportunities raising the level of education and health for people to actually aspire to a better future, better jobs, better training. Other countries deal with it with a different tax system. What we're seeing on you know more and more is actually you know, less income going
to labor and more income going to capital. At the same time, we see less taxation of capital income than off labor income. So you have a confluence of those factors which need to be looked at because if we want to address some of them big frustrations around there that that is part of the of the remedies. Yes, again, they also want to ask you about Brexit. Do we understand the ramifications of a possible no deal Brexit? Is it a systemic issues it is? How concerning is it
for for the UK but also the Europe. What we know is that whatever the outcome, whether it's a no deal, whether it's a Alan Norway, whether it's a custom unions with appropriate adjustment for the Irish border, whether it will not be as good as what it is now. In other words, there will be additional frictions, there will be additional bureaucracy. Is there will be more um slow lane for the traffic coming from Europe to the UK and
vice versa. So none of it will be better, but some of the solutions will will be a lot worse. And I think the whole business community here if you talk to them and us from our analytical work, we all agree that a no deal is you know, having very negative effect. We are trying to model and for what it's worth, we're looking at, you know, eight less g d P. In the medium to long term for the UK economy, it will shrink. That's what we see. And that's only at the macro level. If you look
at the micro level. You talk to the automobile manufacturers, you talk to the airline industry, you talk to the pharmaceutical industries, you talk to the food retailers of the UK. They will all tell you it's it's it's terrible. We do not know how to deal with it. So it's it's clearly of systemic importance for the UK and it's
also having consequences for the EU systemic or not. That will depend on, you know, how in particular the financial sector and its activities are dealt with, how much you know reconciliation there will be between the two systems, who would be allowed to do what and what the licensing system will be. I want to bring it back to the idea of we've all got to get back together. It's a wonderful thing to talk about. It's a lot
harder to do. You are the voice of a transatlantic world of follow on too, when that seemed to be an easier process. The President flew to Paris World War One remembrances and couldn't get in a car to go out and see where many many Marines died bravely in World War One. How do we get back the transatlantic conversation that is so shattered right now? I hope we can get back that transatlantic conversation and dialogue and joint approach to some of the critical to take a work.
Can we do it in a peaceful manner? I very much hope that we learned from history and that what has happened in the past we'll actually teach us that together collectively, cooperatively, not all of us being exactly on the same page, can actually address those issues. It was Churchill who said, better chat chat than world war, and that's what needs to happen. We are even more so today. We are facing the same issues ranging from pandemics to terrorism,
from cybersecurity to a financial market stability. We have to address that together. One final question others talk people, do you did you hired a wonderful new director of economic research to your team. What is going to be the new spirit of the I m of for going forward
in your economic research with Geta UM. I think Geta will bring her her energy, her intellect, her youth, her determination to look at all issues, including the processes of putting things together, process putting things together, some of the traditional institutional views that we've had for a long time. And I don't think she's going to look at it with an ideological background at all. She is a researcher, She is a very honest person. She will look at data, impact,
collateral damage and so on and so forth. And and I very much welcomed that, but I thanks so much for joining us. That was the IMF Managing Director, Christina gad Brian moynahan joining me the Bank of America. See when he joins me on Bloomberg TV. They I want to take the opportunity to welcome in our listeners on Bloomberg Radio as well data with the World Economic Forum in Davil, Switzerland. Very pleased to say the man at the top of Bank of America, It's gonna stick with
me for a little while as well. I want to talk about your business and the way investors perceive your business to be working. Right now, a lot of people look at the yield curve and say that this is going to damage bank profitability. What's interesting for me is that then an interest mountain at Bank for America's continue to go up at a time when the yield curve
has continued to narrow. Are we looking at the wrong thing? Brian? Well, people people look at banking and get all involved in rate movements at a time time you have to step back and think about what it is we we provide service to clients. They give us their cash for transactional whether companies, whether whether a wealthy individuals and general individuals,
and we have a trillon for that. And so what the business model is that we give great services for that care, and therefore people give it to us in industry accounts and checking accounts and low interest accounts because they're getting six in ATMs, four thousand branches, call centers, million UH mobile users, certain five millions. So all those services come together. And so I think people the confusion
about the rate cycles because it was so abnormal. We had to we had to recoup a bit of profitability because we are subsidizing, and now we're back in a more normal, closer normal staff status. So I think that you know, our job is to drive more loans, more deposits that will produce more net interest market is that another web saying that you can keep the deposit bits are really low because you offer so many services around the checking accounts. It's it is what the accounts are.
They are zero just checking accounts. What beta can be on half Our consumer checking accounts are zero intertaking Beyond that, I'm looking across all the accounts of banks. But the dominant value banking has driven off the transaction accounts low and and so that's what we drive and that's what we grow. So are checking balances and consumer group temper ten percent excuse me twenty billion dollars year over year gross numbers. That's that's a strong growth phrase about in
in seven cent or something like that. And so that drives a lot of value at a little cost, not because it's because of service sup providing, And that's that's the business one and the corporate size the same thing. And your cash management deposits. So we can keep driving a profitabilities company in a stable rate and environment. It just it will will be driven by volumes, more loans, more deposits. If the economy is moving along and going at two everything. I think it's look good for you
guys right now. I was looking at the Bloomberg terminal before you and I came up here twenty two biased on a single cell on the stock. Overwhelmingly the enthusiasm investors have for the financial sector seems to be there on the surface. Then I can't reconcile record profitability with your stock performance over the last year. Why do you think some people are looking at your stock differently to the way the bottom line looks at Bank for America.
The profits look good, the stock performance over the last year less. So why largely industry get caught up in the question? Can we grow runnings in the context of a type economy slowing out, and that that's debate. We can looking at fixed triding, thick trading has been tough. A lot of people will come on a program with me and say, what the bank's need is volatility. They did that for a number of years. Then we've got
the volatility and the banks, many of them. And I'm not including you in this, but the word I would always hear is bad band folatility. What is band volatility? We run If you look at our capital markets business several last six seven years, you've had a range of revenue from twelve point nine billion to thirteen point six billion over like six or seven years. All the years, all different environments they called different quarters, come out different ways.
We run that business in a way that Tom Montag and the team and do a great job of taking a right risk and just moving and we do in support of our customer base, our issuing customer based companies issue in debt and our investor customer based customer buying debt. And then the equity business fab Gallant team have done a good job and that's come up. So yeah, we we made five hundred million bucks in capital markets after tax in the fourth quarter nearly four billion dollars last year.
It's a great business. And so yeah, one quarter, actually one months. It was a month in December wasn't too pretty, but you know, you get back to January, people get back to work and things start working through. I remember catching up with Andrew ra Chow. He was at UBS at the time, a couple of years ago, and it was right before we got the first rate hike of the Federal Reserve, and he was nervous that a lot of his trading floor had never seen a tightening cycle
from the Fed. They've never experienced a big batter volatility, and how would they be able to operate and generate returns in that environment. Just that there's an argument to make there that maybe some people are struggling with something they've just never seen before because of the age, the average age on the trading floor and our average ages
in the trading floor. You know, I don't know exactly what it is, but the people in that trading floor, the good news is a fair amount and went through the crisis. They understand what to do, not to do, and what risk to take and not to take. In our risk manager practices. That's more important then you and understand the rate cycle. So there is a nobody if you think of the rate environment changed. You know at the time of crisis, it's ten ten plus years. There's
a lot of people who are any better. The thirty five has really probably never seen this kind of environment change. But the reality is don't learn it quickly. Well, let's talk about risk management. What's your approach the leverage lines at the moment, really competitive space, a lot of people aggressively chasing mandates. There was a signing Q three that you guys were maybe taking less risk, maybe being less aggressive. What's your view now? We we've always been consistent. We
haven't changed our risk one way the other way. So we and we have a good, very good business that it's one of our bigger, better businesses on the relative scale. Now, a lot of that business went to other participants in terms of back in the guidance by the occ and stuff, but we really pretty much ducked her in any it's a moving business. We underwrite for those issuers and send healthy investors. That's our postures. So it locked up in
the fourth in December and it's not even October. Really December and and so there's no deals done and we'll get them done. Are optimistic in that space specifically for the rest of the year because eighteen was huge going right up towards the end of the year for supplying for underwriting. It was a big boon for the banks as well. Can we have another through nineteen in that space? You know, we'll see it's going to be more high the equity, you know, the participants and the deals and
things like that. But it's a it's a market we're in, but we're we're in high grade. The nice thing about our franchises with thirteen billion dollars of markets revenue attached to ninety plus billion dollars is of real revenue from all the other businesses is something someone will go right, something will go wrong, But the idea is just keep
flowing through. So if leverage finance is not as strong this year, high grade maybe better, uh FX may be better, all those things playing it out, but the way you played is to just keep serving our clients and moving them. On the vice side, there's some nerves around the space that leverage loans. If you were to have a dashboard, what would you be looking for for certain risk of materialized to to pair back risk to tell some of
it seems to be less aggressive on the mandates. My point we don't change our risk posture, though, the is we have risk parameters that we set from the board to UH to the management, all the way down, all the way down to the desk, all the way down to the underwriting, and so we don't we don't take We don't say, oh, let's decide to add more risk today here, some trap more risks. We do more by
volume because there's just more activity. But the individual deals and the way we think about underwriting is fairly consistent because the end of the day, leave aside syndication market bigger back in commercial lending, you know those credits are going to live with you for multiple years, and so what you're gonna do in nineteen first quarter will make no difference in nineteen what you did in fifteen makes a difference. And that's why you have to have consistent risk.
So final question for you, Brian, I think many of us, and I don't know about yourself when I speak for may have spent much of the last few months talking about downside risk, and we just finished by talking about upside risk, what's the big opportunity for you guys, for our company just continued to drive responsible growth and and and use these capabilities of three billion invest in technology every year, the capabilities that come on, whether it's on
the consumer side WIS and wealth management, new digital capabilities and wealth management UH or in a commercial space and cash pro or cash manager price. It's just to drive those products out there. And there's just set and we have We are a big company, but we have small market share, I mean in the relative sense, so we in terms of absolute sense against against the markets, and
we have lots of market share to gain. And the upside is just that our success might be better than we project because the competency in ca abilities a team and the and the tools are better for clients. Brunt always great to get your inside the globe of economy and of course on banking in America, bron Monhattan, Big Bank America Chairman and see I thank you very much, Sack.
This is always a joy in any number of ways to speak with Steve with Bank Capital, associated with a small basketball team up in Boston as well, and truly one of the most interesting guys in investment in America. Wonderful to have you here today. And you know, like Mrs Tom Brady or Mr Jasobncher whatever, he is a slave for fashion here in Davos Valley Steve Canada Goose and it's a newer coat and you're you're the brand
ambassador this year. That that'd be aderation. But I love the company in the CEO, Danny Reece has done a great job in our team him and it's now a worldwide global company and it's fitting to wear this in Davos. It's actually the first time I was ever warm a Davos was when our wars cos. Very nice endorsement theory
as well. But I want you to explain your Pixie does when you go into a company and you don't tear management apart, you don't blow it up, You assist them to a branding or revenue in an operating income success. Give us an example with Canada Goose. Well, that's a great question. Time I go all the way back to the founding of Baining Capital. We were very unique at it was still unique were unique at the time because no other private equity venture capital shop spawned out of
a consulting firm. So the theory Bill Bain had was you could take the consulting skills that were building companies long term, buy them directly and work with managements as a kind of a tool for management to help build those companies. So that was thirty five years ago and at the time no one thought that would work. It took two years to raise thirty six million dollars. It's laughable these days, but two years and I think only one institution, one smart instution with Bessemer put money. The
fund come on my closet at home. John Farrell is loaded with Canada Goose. And that's how did that. Let's talk about what's changed changed Back then it was harder to rise capital. It was easier to deploy it. Yeah, it's easy to rise capital, it's how to deploy it. So how do you deploy it right now? Well, it's back back to Tom's story. What we've done in situations numerous times through three years. Like Canada Goose. We first met a great entrepreneur. He wanted to take the business global.
He was from from Canada and had been a great business up there. We have a great retail consumer team led by Josh Bekenstein and and Ryan Cotton, and we laid out a vision on how we could help him get global, how we could help him get into storefronts, how we could help him with the supply chain, how we could bring a retail playbook to make this be
a large global company. And he really liked that idea, and so he kept a lot of the company and we we bought about sixty percent of the company at the time, and now the company is is a multi billion dollar company in global. The plan has come to fruition. He's still running the company. Yeah, it's so bad that Bill has Canada. My dog has Candidams. Don't let's go for a different dog. It was Canada pooches, copyright issues, pick it up. The main few guys recently took at
universities red a state portfolio. A lot of people right some eyebrows and thought, and we had a state portfolio. Now this light in the cycle. Why it was a great match. We had been looking to get into real estate for probably thirty years. I was on a project thirty years ago to look at it, and we never thought it was the right time in the cycle because it's it's going up and down. Harvard had an issue where they decided they're going to outsource investment management, not
doing it internally. The Harvard Group had a very similar philosophy that we have a bank capital really had value, look for unique product line. So they group over there was focusing on medical offices, focusing on the biotech industry. We saw a lot of growth and profit in that doing that selectively. Uh, they were only three miles down the road, so this was a seamless transition. One day they were at Harvard, all twenty people came came to
Bank Capital. We understand real estate. We have all companies that need real estate, and that this knitche strategy we felt could kind of power through the potential recessionary approach in real estate. Final question for you stage, what are you excited about deploying capital right now? Going back to the earlier point that you can write capital great, but deploying gets challenging. Where's the big opportunity right now for you?
What do you excited it about. Well, it's really challenging right now since the markets have been at the top, although we've seen a little bit come down the last few months. But look, I've talked to you guys from in the eighties and the nineties two thousands and every time, literally in all those years, every question is too much money changing too few deals. So what really has happened globally is private equity has gone global. It's a model
that works. Certainly, the bank capital model with vertical markets and helping management teams grow does work. You just got to be selective this environment. Selective is the key now for the tension of Davos. Rams are patriots absolutely patriots of surveillance BREA exclusively. We're gonna get the headline across the bottom of the screen that song and we can get it. Has been has been a great It has been a great twenty years to be here. We go.
This is this interview will be it's in the commercial right to catch up with you from my staff Jonathan Farrow and Selan Caine. It is ultimately about the markets and the positioning of global Wall Street within those markets. There's no one better to speak to than Scott Minor of good and I'm of course joining us on our FED days with more of a Wall Street perspective on the FED. I wanna avoid the FED talk Scott. To get started. Mr moynihan just darkened the door and talked
to John Farrell about banking forward. Let's take American Wall Street right now. How bad will the cost rationalizations be? Guys like you have to make tough decisions. Are they going to be made in this quarter? I think so. I think everybody sees the window open because we've had the big people like black Rock come out and say they're going to do staff reductions. So I think that everybody in the industry sees their moment and they're going to take advantage of How lean are you guys right
now into those cost cuts? I mean, is it is it? There's divisions that can be moved out there, Is there going to be micro cuts here and there? I think that it's going to be more micro cuts strategic, you know, or surgical. I mean you know that you know we sold our E t F business last year, so you know there's a bit of redundancy, but we're not going
to take it like some of the big guys. To Scott, I want to talk about what you were doing in the depths of December when things looked really ugly and we saw some really gappy moves in places where maybe you shouldn't be getting big moves like that, right What did you guys do for a cook and high. It was tough, John, because you know, you wanted to h adjust the risk based upon the volatility, and unless you were trading really liquid on the run stuff, you just
couldn't get good prices. Uh. You know, the bank loan market would gap on very little supply. A couple of million dollars of bank loans would move the price by a point or two. The same thing in asset back securities. I want to emphasize that the conversation that John and Scott Miner having right now is really really important because there's all the economic bladder in the reality. I'm gonna promote your show in a moment, but but this is
really serious, folks. This is the reality. As you heard Mr Miner there talks John about liquidity and you lose a point and everything changes away from what GDP is doing. But you know, it's really amazing anytime is to watch in the wake of that less Fed meeting that how crowded and congested the exit Scott, when people started to move in that direction. It really is a warning sign
because when we get to a recession, it's gonna be tough. Scott, you and I talk about things like leverage loans and your ability to get m and out communicate to our listeners, our audience of you is right now, how difficult it is actually to trade loans? How long it takes to actually close that trade? Well, I mean, on a good day, you can ows it in two weeks, you know, typically weeks, something delays it, so it'll take maybe three weeks, uh
even four weeks to clear alone. I mean that's a real challenge when you get into some of these more liquid products like e t f s, because the ets provide you next day liquidity. So if you're trying to liquidate loans and e t F to get out, uh you and we did see it in the sell off, you can start to see gaps of n A V below the price. How is it different than what you experienced in August of oh seven and into bear Sterns and the rest of oh eight o nine? What was
unique this time versus what everyone remembers? Well, I mean this time around, Tom, I think the E t F market in the mutual fund market has become a much bigger player in these more exotic than official player. Well beneficial from the standpoint that uh one, it gave asset manager and firms an opportunity to make more money to It allows retail investors to get into a market that
is traditionally an institutional market. But having said that, given the amount of money that is concentrated in some of these more exotic fixed income products now that are in mutual funds and ets to be hot there before, it's making the volatility in these down drafts much more. Who's holding the risk? That's a great question, not for surveillance, that would be a correct question for the real yield. You can see it with John Farrell Fridays. What did
you say the risk? Who that jar? I love that jargon. That's great, Scott, Please held the risk? Well, I mean it depends on how you define risk. If you look at the leverage loan market, if you're an institutional player, you're just going to ride this out. But if you're someone who is trying to rebalance your portfolio, like a retail investor. Somebody has a four oh one K plan and you want to get out, you hold the risk is critical. This goes back almost a reserve fund in
my market funds of thirty and forty years ago. Someone who is going to have to heads outwards. Regulators, the government's going to come in and say this is not
appropriate for retail. So how do we work through this? Well, I think that the regulators need to take another look at these products, not to get rid of them, but to to try to get rid of the liquidity transformation that's occurring of taking something that's a fairly a liquid security and turning it into something that's highly liquid with next day cash. So I want to know where we're going in the leverage loan space and who's going to get the buying pass out of speaker? Is it the
sale is still with the power. We've seen a lot of these increasingly come to market covenant light. We've seen the banks and this this space become very competitive, so they're aggressively chasing a mandate. What does this look like later this year? Is it does it become a bias market, Do we start to get better covenants in some of these deals, or does it get even worse? No, I
think it gets even worse. Shot when you look at last year and you see the incremental issuance of new leverage loans versus the incremental issuance of c l os, they basically all the new incremental supply of loans and went to clos Those people, in many cases have sold the risk away. So all they are looking for is to get the assets so they can charge them. What you just said, there is an O seven oh eight
memory they sold the risk away, right. Are you just suggesting that we're gonna fold ourselves into another oh seven O eight oh nine set of events, non sequential, non linear events like we did then? I think so, Tom. I think it won't be hopefully nearly as extreme, but you know, let's let's be careful too. Relative to the subprime market, the c l O market is much smaller and it's largely held in the hands of it. There's
no yeah, that's right. But I do think that, uh, the price gaps are going to be justice nauseating as they were in the O eight experience conversation. I think it's I think that's what made have a great conversation because it wasn't a very devils conversation con in a cooking hunt. Great to see if I it grites a catch up As a thanks for listening to the Bloomberg Surveillance podcast, Subscribe and listen to interviews on Apple podcasts, SoundCloud,
or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio