Surveillance: Global Risks Are Interconnected, Bremmer Says

with you write a group. So we're doing this report every year, which is basically asking many many people around

the world, what are the top risks? And since we feel that the risk landscape has changed, we really wanted to have a partner that is also looking at the geopolitical dimension, because what you see is that the top risks remained the same climate, technology, geopolitical tensions, but what new is that they are interlinked and that there is a very big geopolitical component to it, which makes the combination of the two of us very interesting to understand

these risks and see what can we do with them. Part of the risk is the financial risk. We've got the banks coming out right now in America, you have a massive sprawl of financial realities, and part of that is the actual assumption is coming down all those liabilities you about further our butter stuff against the low rate environment. How do you take the financial risk of this study

in with the new actual assumption that's out there. The financial risk is very much linked to the third risk, which is the geopolitical risk because if you look and the social risk, if you look the low interest rate drive the fragmentation of society since uh, it is all about the retirement of people and how they can live going forward. Um, this touch is very much that topic.

I mean, this is heart and center. I mean, the low economic growth, the low terminal whose we have all comes back to populism and the social discontent you have in this report now, I mean it's not a happy report in the sense that we know that the geopolitical risks, the technological risks, and the climate risks are all at

very elevated levels. But they're hitting at a time when the economy is starting to slow really for the first time since the largest recession we've experienced in many decades. That that combination is going to make for a lot of crises, mostly inside countries, mostly making it harder for governments to respond effectively, but some across borders. And John with you to go up and f Yesterday, I just did a down the study of the I m F data. Only two countries have any kind of flat up vector,

the United States and Spain. And other than that, it's a pretty ugly synchronized growth Slowan We'll take a look at Germany and Europe right now, it's onomably the weak economy, the weakest link in the U sign at the moment. And ye know to just aggressively loud Thomas speak to that. R US. We have many people come on this program and talk about how low rates are a problem, negative yields or an issue. You run acca just how much of an issue is this right now? No, it's it's

a it's a big issue for the whole industry. I mean on our side as act, we have moved away from financial risks quite early on, So about three or four years ago we changed our portfolio from being eighty percent focused on financial markets to being eighty percent focused on technical risks, so buildings, health protection and so on. We are less we are less touched by it now.

But when you look at the whole industry. It's a massive issue for the industry, but also for the states because the reaction power of the Europeans, if you're talking about Europe towards a new crisis, will be much lower than it used to be in two thousand night. Have you been able to lobby the European Central Bank its all? Have you had any discussions with policy makers? Have you've given them your perspective on what do you think the

current monetary policy setting actually means for this business? Certainly, but the issue is, to my mind, a different one. The monetary policy is just a question of do I give enough room and free space for the states to actually pursue structural reforms. What we see today is that many of the European states have not pursued the structural reforms necessary, and therefore we come to an end of

the monitor of policy. Ian. Then this is the geopolitics, and right now it's an upper we'll come back and talk about this in our next section. Right now, have you ever seen it like this? Are we just so benumb that we you know, it's this thing, this thing, this thing, this thing. Have you ever seen it like? No?

Not in my lifetime, and it's in part of it's because inside governments you have such polarization that's really challenging the existing institutional framework of the country to so many countries country, but also because the U. S. China relationship has hit a tipping point. I mean, we've had twenty five plus year is where we haven't had to worry about the basic geopolitical fabric of the world. That's not true. And your Meredith Sumter has been outstanding. What is her

latest on John? I mean, I don't even know where are you still in trade talks with China? I believe we're still in a guy shading face. No deal is no deal will phase one Phase A no deal is happening, But more importantly than no deal happening, the Chinese going increasingly their own way on technology, on supply chain, on standards, recognizing that the future, irrespective of who the American president is, is going to be discermined in their space by their rules.

That's not a good place to be a global investor. We're gonna come back with Ian Bremer and Thomas Burrow here on our five Things you Need to Know really wrap it around their good research and report, but John, this is breaking news. The teenager Harvey Elliott of Liverpool banded fourteen days suspended outrage time out here for his impersonation of Mr Kane of the Todds Gina who sponsors Liverpool. No, I don't the gentleman sitting next to me, but I

feel like you knew that already. Are we going to do this in the commercial break? Are we doing this live? Live? In the next segment, Alison Williams dropped behind in charge of all of banking analysis for Bloomberg. That's like a ginormous job. And she has joins us right now, two madmen, And there was the beginning of an adward of Hurts and Avis. My amateur take is JP Morgan is Hurts

and Bank of America's Avis. What does Brian moynihan need to do to competitively find the ratios, the stock performance, the financial excellence of his her competitor. I think what he's showing is that he's getting there. So so wou'd say, you know, so JP Morgan is is executing at the top of all the banks. They have leading profitability, right, um, they are leaders and across all their businesses and so um, you know to your analogy. Others, UM are sort of

on the path. I think for Bank of America, they the positives this quarter were one expense progress and two market share gains. And that's that's really what we're looking for in this environment because the revenue environment execution, it looks like really solid execution. UM. We see it elsewhere

in selective businesses. UM. So UM. You know, there were there were some positives I think in City Groups quarter, but I think you know, if you look at City Group and Wells, I think the disappointment there is on the cost side. And so you know, both of those banks coming in a little higher than expected on costs and you know, looking to the future, whereas we're seeing you know, a Bank of America it happening UM today coming in below their guidance. JP Morgan yesterday also lowering

their guidance on costs. And you know, we talked about costs, we talked about branches. But you know, to me, one of the interesting metrics that that shows us really what's happening is UM. You know, digital, We know that the cost of mobile banking is so much lower, and we're actually seeing an uptick in digital growth at both bank

America and JK we went your market share. And you're too young to remember this, but I remember when they combined and merge banks and they were regionally distinct in separate. Is the future of market share that Bank of America will compete with JP Morgan for the same geography in Ohio or will they continue to partition out market share. I think that we are UM converging to broad coverage. Right.

So to your point years ago, the way to get there was acquisition the bank you bought, Fleet Bank or whatever. The UM and especially Bank America has sort of a storied history of being built through UM acquisition. JP Morgan is sort of a couple of bigger combinations. But anyway, I think in a way the tax gift to banks, if you will, was that UM. With that announcement, we did get two major plans from JP Morgan Bank America saying, look, we're looking at what markets are we not in, what

markets are we going in? And they're going into that market UM. And I think you know what's telling is our regional bank analysts saying that he is seeing share accruing to these bigger banks. And listen, just a final question on what is happening with the right sensitivity of some of these banks. Many of them were looking for two right cuts this year. So far, that's what we've had. We may well have more. How are the businesses holding up? What do the net interest margins look like? What does

net interest income look like? So that was again another story of Bank America that holds holding up more positive And I think what we're seeing for Bank America and JP Morgan as well is as we're seeing a pick up on the consumer side of things, those are higher yielding assets. Um Also they tend to have a different uh sensitivity to rates, if you will, and so that is really helping them interest margins and net interest income hold up better. At the fact that we're getting better

consumer loan ground. So when Tom puts his rent on his credit account at the end of each month, his interest rights aren't going down. That's essentially at Tom, they still high. You're interest right at the end of the month? Is still han your credit count? Yeah, it's like jen, I mean, it's like wicked genormous. Is it a record high? Now? Is that safe to say? I don't believe. Actually it's it's a record How I'll have to look and circle

back with you. But what I would say is that when you look at those prices, they're inelastic, right, So even if they're not, you know, historic high versus their own history, they're certainly the highest across products. And as rates go up and down, you'll get things like commercial loans repricing a meeting you know very closely, whereas the car it is much more in as quick question is

operating income in the middle of the income statement? Do you see that growth continuing forward the last five years recovery has been extraordinary? But does it still for these major banks continue to grow? Grow, grow, It should still continue to grow. The one question that we have, the one thing that would interrupt it relates to credit costs. Credit is solid. We barely even touch on it um over the last few earnings because it's been such a

great story. Um. But you know a recession is coming one day, um and at that point, well we're going to have to see, you know, I guess how long out is it and how severe. Alison Williams always great to get your insight. Blimbag Intelligence is semior analyst on the US banks. As we get more bank earnings from the United States of America over the last twenty four hours and the next twenty four hours to bank America up in a pre market song by a little more

than two percentage point. Tom Keenan John Farrow, had we now celebrate a new book out there, all of you know that listened to me every day. My joy of the Leader's bookshelf James trevidis from four or five six years ago. It was my book of the year at the time. Within it packed from generals, from admirals are forty fifty even sixty books you should read. If you read ton of them, you're a changed person. The adiral now has outdone himself. James Trevidis on Sailing True North.

Ten Admirals and the Voyage of Character. It reminded me so much, Jim of Eric Larrabie's Commander in Chief, his wonderful book on f dr in all of his generals. But you take the admirals over time. You begin long ago and far away. How far back do you need

to go to find an admiral of character? I think, to really a survey the seascape time, you've really got to go back over two thousand years ago, and you have to go to the ancient Greeks and the Battle of Solemnists, where the Greeks turned back the Persian invaders in a massive sea battle. And the admiral's name was the Mysticles. You bring it forward, and let's go right to where Larabie was in World War two, the extraordinary

Nimits full disclosure, Nimits was worshiped in my house. Let's begin with what Nimitz wrought with spruance and the others after the debris of Pearl Harbor. The thing to understand about Chester nimitz Is is incredible resilience, which springs from deep reserves of character. Here's a man who has labored his way up the career ladder finally gets the call to take command of the most powerful military instrument on

the planet, the Pacific Fleet of the United States. Yet the day he takes command, tom as you know, the fleet is smoking ruin in front of him in Pearl Harbor. The beautiful battleships sunk, the carriers are on the move out at sea to win the Japanese. He's forced to take demand on the deck of a diesel submarine, a tiny little diesel. He's not wearing those beautiful choker whites. He's wearing rumb tacks. He squares the shoulders, builds a team and takes on the Japanese Empire, Jans trevinas and

we celebrate with the animal sailing true North. Let me bring in Captain Pharaoh. Did you call the admiral? Jim's called the Admiral Jim and the royalty checks I've gotten from can Jim? Can I just clean this up? Because he never really asks? Is it okay to call you Jim? We're going to call you Jim. He's also a bloom Bug opinion columnist. Now, I didn't know that you've written a really interesting piece Jim recently, a survivor's guy to testify in Congress, and imagine there might be some people

in Washington, d C. That need to read that. So walk me through what your story is and the latest Bloomberg Opim in piece. Um, it's about the character and about the need for those who are facing a very a very changing moment in their lives. They're being called to testify in front of Congress, and they have to follow the truth without fear or favor wherever it goes.

And some of these people will meet that challenge, and some of them will not will know so much more as a result of this unfolds in front of us. But what we're seeing is a tempt of character. The line Admiral Stevens and sailing true north is to sail true east across the Mediterranean to where there's a Russian navy at the end of the Mediterranean. The navy has nothing to do with Turkey and Syria, and yet it's

got everything to do with Turkey and Syria. Tell me first of all about the Russian navy at the in Syria? Is it Lataki? Is that correct? It is? This is one of the boards on uh, the Syrian coast. But this uh, this portion of the Russian navy, tom as I think you know, comes down from the Black Sea. They have long had ambitions to dominate the eastern Mediterranean. They are launching cruise missiles ashore. They have marines ashore,

just like we send our marines ashore. They provide air defense, they're part of the logistics chain that moves supplies to the Russian forces. They are very much integral to what is happening in Syria today. How how is our navy responding to this? I mean do we show the flag through the Bosphorus? I mean, folks, this is ancient stuff. This is like Crimean War eighteen fifty six amerals Tavitas.

How does our navy respond to showing the flag? After the events of the last fourteen days, we are deploying a carrier battle group, which is an aircraft carrier and half a dozen ships through that eastern Mediterranean. Some of those ships, the destroyers, will break off and go through the Bosphorus into the Axe. As you know, aircraft carriers are not permitted to do so under the Montro Convention. So we'll send those smaller destroyers into the Black Sea

show of force. We will be surveilling the Russian fleet off the coast. We'll be operating with our allies partners in France. This is really a NATO mission. The Mediterranean is our largest maritime border to the south, so you know those ways, Tom will continue to be very engaged from the sea in the Syrian crisis. What is the damage to our Pentagon by what we have seen from President Trump? Or is that overwrought by a media? Uh not without a proclivity to President Trump. Is there tangible

damage to the Pentagon? I think there is. Unfortunately, and let's face it, in terms of damage to the president, this is a subject upon which you have agreement between Bernie Sanders and Lindsey Graham, between Mitch McConnell and Nancy Pelosi. This is not the left wing of the Democratic Party coming after President Trump. This is a failure of American's foreign policy. And it's pretty clearly understood that walking away from our allies in a scenario like this will have

long term consequence. I mean, how do we walk this back? And I say this folks with great respect for say Cyprus, where the Turks and the Greeks for any number of time over three hundred years, have been able to walk back the tensions to some form of peace. I know they did this, Admiral, I believe in the nineteen eighties to good effect with Mr pap Andrea. But but how do we walk back the damage that you perceive in

the last number of days. I would say we begin by trying to re establish US engagement in this crisis. And here I commend the Trump administration tomorrow to anchor Go, the Vice President and the Secretary of State. The Turks appreciate that kind of high level delegation that may help. Secondly, we use the NATO Alliance. Turkey values its membership in the NATO Alliance. They don't want to damage their standing in the alliance, so we need all of the NATO

nations to contribute to putting pressure on Turkey. And third and finally, Tom, I think at this point economic sanctions plus keep a residual force at least in southern Syria and see if we can get to as ceasefire and move forward with the events. I'm sorry that we did not focus completely on Sailing True North. We'll have Admiral James Travitas on with us again. I really can't say

enough of this. If there's one book that must be a required read out of his, the Leader's bookshelf as Larabee's Commander in Chief, on the fractious generals that FDR had to stare down with General Marshall and General Eisenhower at times. In the Admiral drives forward that conversation with ten admirals and the voyage of character Sailing True North. And we look forward to a further conversation on this with Bloomberg Opinion columnist James astra Vitas. This is a Joy.

It has been far too long. We have to wait for him to wander out with a new book. And he's not writing. You know. It's not Nancy Drew. He's not He's not writing every six months. To back up, more than a decade ago, a guy named Bennett Galibo's got a shingle out of Black Rock, I believe still and Leo Tillman wrote a book Risk Management, which absolutely changed how we approach risk, in the thinking of risk,

the intelligence of risk. It was hugely Matthew paul I would go over every coefficient and go can they add any more Greek letters to this equation? Mr Tillman has going on to us a storied career and consulting two companies on how to execute all the sixty thousand foot mumbo jumbo everybody talks about. With General Charles Jacoby, he has written Agility, How to Navigate the Unknown and Sees

Opportunity in a world of disruption. Leo, it's another boring book on leadership, but what's great about it is you overlay it with this strange thing called execution. How do congratulations on agility? How do you execute all the fancy stuff? All these consultants talk about Well, first of all, it's

it's such a pleasure to be here. As you said, we the our conversations on these subjects go back decades, and this is the latest thinking on what it takes to adapt to changing environments, adapting in terms of economic cycles, in terms of risk, etcetera. So when you think about agility, we define it as a three step process that is applicable to every company every investor, detect, assess, and respond

to change. So when you talk about execution, it's about response, and that response has to be well thought out, and the company needs to be unified around a common objective. And then everybody needs to be part of the same team. And you've got a military feel to this with General Jacoba. You end the book with the leadership at Normandy and what it took to create organization at that hillacious moment.

That's not the drama of corporate America, but the reality of corporate America's everybody talks to talk, but nobody does the doing, which you're acclaimed for. How do you get from the talk to the doing in agility and leadership, Well, amazingly enough, Invasion of Normandy was the combination of both strategic and tactical agility because by the time the D day came around, there were many years of preparation and planning in vision. So first part of it belongs to

executives and boards of directors. What is your vision of this environment, what is your planning for this environment? And then when the execution comes, you need to make sure that your entire organization is empowered, that they unified around the same purpose and they're all growing in the same direction. So Normandy is one of the most unbelievable examples where that combination strategic agility, strategic top down planning and vision

come together with decentralized execution. So there are there certain industries that lend themselves to being agile versus maybe not so agile. Well, look, we wrote the book that is applicable to any organization. We truly believe that this combination of strategic and tactical agility must be practiced in adapted at any organization that wants to thrive or even survive in this environment. Now, different components of it applied to

different organizations. For instance, for smaller entrepreneurial companies, it's the strategic agility that matters most. Is their ability to detect what's going on the environment and quickly change. But for established companies, tactical agility, the ability of the entire organization to watch what's going on the environment and innovate and improvise, that's important. So the the the proportion changes, but the

principles remain the same. And it seems like technology has brought about this whole concept of disruption, Tom and I hear it all the time when these new companies come public there disrupting this business or disrupting that business. Um, it would just seem like more so now technology makes agility on the part of a corporation much more critical than it's ever been. Absolutely, and and not only that,

but technology works both ways. We go all the way back to cloud, schwitz uh, fog and friction by describing the environment. So on the one hand, technology helps us penetrate the uncertainty and ambiguity of this environment. On the other hand, technology enables our advers area is to really disrupt our plans, both in terms of intelligence gathering and in terms of our businesses. So it goes both ways. I don't mean to cut you off. I I just want to say Leo Tillman with us. The book is Agility.

It's wonderfully brief, but in its density really really interesting on this How's it changed generationally? How's it change when you overlay agility within a small business or a giant fortune one company. You've got to deal with a lot of young people who have a different tone, Many of them have only lived the financial crisis in terms of their business careers. How do you do agility with suspect

millennials and those a little bit older. So, first of all, the ideas of agility go back to Napoleon and claud Schwitz there two hundred years old, all about how you empower organizations across cultures across time. So that's one general theme that these are to enmless lessons and timeless principles. On the other hand, U. S. Army and US Armed Forces present a great example of how you take people from all walks of life and h k them of what it means to have these common values and unify

them around these common values. So I think the experience of U. S. Army in creating cultures that last is a great example of how you can take many different generations across different cultures and backgrounds and unify them around what Bill George calls true North. Let's let's come back well and and uh we we've had Bill George on any number of times. Let's come back, Leo. Tell me where thrilled you can stay around with us. The book

is agility. It's it's just the right. It's airplane size, airplane size, airplane size, it's actually yeah, I mean this is a I can rip through this one over a weekend, one or seven with some great ext The thing I love about it is it's an awful lot about execution, not not you know, the industry babble, but like that to do as well. We're gonna come back Leo Tilman.

I want to talk to him, take him back to risk management, a classic from ten years ago or so, and talk to him about how we're managing risk within the new fixed income space of negative interest rates. Did you know what a negative interest rate was? When you and I first met again, they were considered and they were considered to be theoretically impossible, So you got that. That's how long we have been around. This is gonna

be a treat for Global Wall Street. Leo Tillman on the theoretical impossibility of negative interest rates will do that here in a bit. So we are right in the middle of the investment banks kind of rolling out their numbers.

Yesterday was just a ridiculous day, plethora, okay, and today we have a a Bank of America a little bit uh, a little bit more reasonable for the bank invest There's some bank reporters out there, including Nali Boston could covers all things financial for Bloomberg News Socnale, let's step away just a little bit. We were talking here about Global Wall Street and you know how some of these companies

are adapting. What's is there a key takeaway we have for Global Wall Street given all the results we've seen over the last twenty four hours. Maybe it's just because in my mind because Tom was talking about it, but why does Goldman Sacks now want to be a consumer bank? It lowers your funding costs? Right, You're going into an interest rate environment that is continuing to be very low, which is very unfortunate for banks that make their money

off of net interest income. And so we're seeing a new normal here where Bank of America makes twelve billion dollars a quarter. Uh, and with pressure on interest rates is you know that's that's the most of their income. Right, And so if they don't make money from interest rates, where else do you get it from? Right? Um? For Bank of America that got very lucky for investment banking fees, big ticket deals are lower now the really big mergers don't want to I don't want to go through for

regulatory reasons or whatnot. But that doesn't need smaller firms aren't merging. It just popped up my head. Let's look forward. How big a deal is a RAMCO? I mean, the media makes a big deal about a big fat fee, But does it actually move the needle for these major banks? Yes, whether or not it happens, actually because the thing about it is, you know the American consumer. Fine, you're they're healthy, and they're driving costs forward. But all of these banks

want to be global. All of the European banks are struggling. Bank of America they want to be Did you learn that profit is global? I mean, I mean they're global. Banking is profitable. You know, it's not even just that. It's not even just about making money from one deal with Saudi Arabia p if they've deployed money here there in soft bank they're in Uber there and we were.

We told Leo, Leo can't talk math. Leo can't talk math to me, do you have a question from miss bassk Well, it's a question and in a in a common um, the funding costs is super important, of course, um, But going back to our we just got on Goldman, it's also a question of a business model. How do you compete? Do you compete on ideas as a standalone investment bank or do you bring in a huge balance sheet and compete on that? Questions you are asking my

favorite question. Every banker on Wall Street believes that they're the most important thing that exists to their bank and that you can win on ideas. What did you learn in the Golden Sex conference called or Mr Tillman's comments, Well, their investment banking revenue is not winning, so obviously the greatest minds in the world are not breaking it in. Is the golden sacks of Lloyd Blank find gone? Yes? And what's replaced it? Do you think so? Well, they're

trying to figure it out. I mean, what Leo is just bringing up here is that can you win on ideas? Old school advisory advising somebody on how to do a big merger or raise more money. But what they're trying to do, you're right, is bring in more technology that will appeal to the American consumer, make a digital bank, have people own a fancy Apple call hard and is that going to be enough? We don't know. The markets

not buying it quite yet. So again reminding of how old we all are, it was looking at it was I am not looking at you at all. I'm looking in the mirror um back in the mid two thousand's. I will never forget a annual report from Goldman Sact that sets something like this. You can never win on ideas anymore. You have to be simultaneously an advisor, co

investor and FIRS here going all the way back. This is great when you sell the movie rights to Agility, We're gonna have you back room as Basska and we could. This has been a great Seriously, this has been a great conversation. 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 Keane. Before the podcast, you can always catch us worldwide. I'm Bloomberg radio