Surveillance: Marriott Sees Travel Rebound

and of course on the Bloomberg terminal. Right now, Lisa Bramins and Tom keenan we digress, and we digress to corporate management in moving forward in this pandemic, Anthony Kapjanos, with Marriott the CEO and Tony Capiano out of Cornell Hotel, has had the toughest task in management of any corporate officer in America, filling his shoes of the great Arne Soords and I'm gonna go to Cornell Hotel and Arne Soords and life is service. How have you managed this

tough task? Well? I had the first of all, thanks for having me. It's great to be back in per sin In Studio. I had the good fortune of working with Arnie for almost a quarter of a century. I think the easiest way to manage through the grief that that the Marriott family has experienced is to honor his legacy by continuing all the great work he had done and continuing the company down the path that he had set forth for us. Cornell Hotel didn't have a course

pandemic one oh one. They may now what they may now? What have you learned? A few things? I think I've learned how valuable our culture is. I've found how resilient and adaptable are people are around the world. I've learned how much people miss travel, and I've learned how responsive

we need to be to these sorts of crises. We had to not only stabilize the company's balance sheet in a matter of weeks, but roll out all new operating and um cleanliness protocols in a hundred and thirty three countries around the world in a matter of weeks, Tony, How difficult is it to hire enough personnel to meet the credible demand of people who do want to get

back on the road. It varies by market, Lisa. In the markets here in the US where we've seen demands spike most rapidly California, Texas, Florida, it is challenging, and we're competing for labor not only with other hospitality and travel companies, but with those industries that have thrived, some of the online retailers and the like. We really have to be much more proactive and deliberate about reminding folks

about the appeal and the opportunities that exist in traveling tours. Meanwhile, as we're dealing with a number of supply chain kinks and certainly labor market frictions, were also dealing with a different international backdrop, and we had President Biden come out

and warned companies about doing business in Hong Kong. How are you dealing with these types of saber rattling warnings and possibly even more than saber rattling, particularly with respect to China, where I know that you guys were planning to expand. Well, we continue to expand in China. It's our biggest, second biggest market globally. We've got four hundred

hotels open, another four hundred in the pipeline. I think we're helped a bit Virtually the entirety of our footprint and pipeline are owned by Chinese owners, and so we are viewed a bit more as a Chinese company versus an American company in terms of the ownership of the assets there um. But again we've got to navigate these complexities in a hundred and thirty three countries around the world. And it's really I think starts with being good corporate citizens.

Best thing you ever did was restore the old King cole mural at the St. Regis Hotel in New York. You don't have to restore it in Hong Kong. You have a Saint Regis in Hong Kong that is an absolute palace. The reality is you've got to get fat cat bankers into that St. Regis and Hong Kong. How are you going to do that given the politics of Beijing, Well, it will certainly be a challenge. What's interesting is, at least through the pandemic, given the condition of borders in China,

UM China is relying almost entirely on domestic demand. But we look at corporate business travel in China in market right now, we were six percent ahead of where we were in March of nineteen. So the volume is there, the pricing powers there, but the mix is different because it's largely domestic demand. Tony, what about globally, are you

starting to see global travel wax or Wayne? Given the increase in delta variant around the world, it varies by market, and one of the nice things about our businesses we track and analyze the data in real time. When the EU came out with a fairly opaque statement about borders opening to international travel, we saw booking volume jump for

in two weeks. When Greece came out with more specific details on what was going to be required to enter the country, we immediately exceeded demand booking volumes from two thousand nineteen. Then you shift to other parts of the world, countries like India that are still struggling mightily with the pandemic,

we see really muted demand patterns. Honestly, I just actually traveled interne nationally and it was amazing to see how everyone felt like they were getting in just into the wire, and they were all checking the news to see what

additional restrictions might be in place. On the way back, things were different, including the number of times a housekeeper would come into your hotel room to change the towels, the concern about being in the same room at the same time, buffets that would not be out there for you to take the way that they previously were. How much of this is going to be the new normal going forward? I think There will be changes we've made

that will endure through the beyond the pandemic. Some of the contactless technology we've put in place, the ability to check in, check out on the app, chat with the hotel staff through your device. We've got mobile key and more than four thousand hotels around the world. I think a lot of that will continue. Things like housekeeping, how we deliver food and beverage service will evolve on a market by market basis. If you were in China today,

the buffets which are so popular, they're back. I look at Goldman Sachs arguing about raising pay of junior bankers. Do you have to raise the pay of your line employees because of employers like Amazon competing at a lower wage in an all in benefit package in some markets? Absolutely, Amazon and Jesse and Bezos, they're affecting your base way.

I think they're affecting to me this entirely of travel on tourism, how doing What is what is Amazon doing in a juggernaut to affect your employee pay Stork, I think their entry level wage rates are putting pressure on wage rates in certain markets. Um and I I think

one of the things we're wrestling with a bit. The employment market at large has often viewed travel on tourism as a bit of a safe harbor industry, and I think some of that confidence has been rattled a bit when you look at global occupancies dropping down into the low teens at the outset of the pandemic, all of that travel on tourism companies had to make heart wrenching to visions around furloughs and job eliminations, and I think we've got to do a lot of work to restore

confidence that this is an industry that you can build a long term career, get to work. I need lobster role in all right Coast to Coast, Tony Cupiano with us their chief executive officer, arguably the CEO of the year on the death of Earning Sorensen as well Kenner Leon with us, and I do want to say, folks, and it's just an opinion, but when we look at four or five, six, seven banks, the chart presentation a Bank of America and the heat of an earnings release

is absolutely best in class. There's no other way to put it. Ken Ley on where Us was c f R A. Ken Brian moynann has a courage to put the efficiency ratio up in a gorgeous chart before the pandemic. The number was a brilliant six. After the pandemic and in the pandemic, it's not do you have a belief that the bank can you get back to the constructive efficiency ratios of the past or is that day's gone by.

It's only for the problem banks where the efficiency ratios will stay elevated, and that would be perhaps City Group and Wells Fargo. But for Bank America JP Morgan, the answer is yes. And then you've got to look at what is the efficiency UM it's essentially and how they operate and with their investments in digital and technology and enables them to improve that ratio. So it's a semple

ratio that captures their whole business. UM. It's kind of a second derivative for analysts as as we look at what is performance, I see a moonshot on the chart kenn Ley on and it's what John Farrow was talking about. We're using digital, we're using our phones, the zell z E L L E. Folks, we all move money around to our kids on it um Kenner Leon, what does zel mean for Brian moynihan James Diamond and the rest

just up up we go. In cell phone payments, you want to definitely be a player and take advantage of how society is changing behavior, how they shop and how they spend. But don't get distracted, and I don't think Brian moynihan and Management is a Bank of America that a physical presence will help them now for the delayed rebound of the consumer for banking and small business small business loans, they come to a local branch or to

a financial center. So we're also seeing market share gain of the large banks in even the top mark metropolitan markets in the US. So it's it's kind of a boring strategy, but incrementally that's going to help them, especially when we see a pickup and loan activity. Unfortunately, Tom, I think that's what confidence in not for Q three of this year, and maybe we get a glimpse of that later this year, and down to what's happened on the fiscal side, can for you to get a decent

read on what was happening with loan growth. You know, so much of the catalysts here for for loan growth is really the consumer. It's not commercial corporate. Their flush with cash or they have access in the US markets to the capital markets, and we saw that in fixed income underwriting. But you know, for the consumer, it's you look at the FED data. Of course, many metrics households saving the ratio of debt relative to their to their income, and they're at record low. So it might be we

got technology going, but the consumer is more conservative. It's like coming out of the depression of the thirties or the financial crisis. They're saying, we're gonna pay our bills and we're not gonna let these credit card balances rise as much as they can. That's a big story as we go into the next quarter because we're going to see if that's really true. The big distinction there, of course, they've come out of this one. I'm aggregate not pull or.

That is the big distinction this time around. I know Alison Williams and bloom Bag Intelligence, you as well, Lisa, have written about this in the last twenty four hours, that distinction between main street and Wall Street companies and consumers and how that cash is being deployed. The idea here that you can bet more reliably, and that's what we're seeing in the stock price on banking on mergers and acquisitions, deal making, other types of financial markets activity

than for consumers to be profligate with their spending. Can going forward, can we continue to rely? Can investors continue to rely on the banking activity to support any lag in lending until that picks back up. The banks are are strong, the balance sheets are incredibly at great levels, and return of capital. So I think for the consumer, the banks are solid. And for the investor, uh, there's

return of capital. We have substantial increases of dividend and buy back they could do after the Federal Reserve stress tests. And keep in mind the whole battle here again they after capturing wallet share of consumer spending. But we didn't talk about today. Uh. The strong results of the asset management and wealth management businesses here today for Bank America, but all the large banks. UH. And this is great because this drives for investors confidence on recurring revenue and

cash flow. Kenley on CFR right, thank you, sir Kenley on that wank in on these numbers. Let's bring it, David, George Robert w vad City of Research Analysts for US banks. David's your first take on the numbers place. I think overall John, it's it's great to be here. I think the numbers overall were pretty good and continued to reflect an improving economy and that's evident in activity levels as

well as a very strong credit quality really across the board. So, David, when we take a look at these numbers, one thing that has popped all of the bank earnings has been the lack of loan growth. And I'm wondering to the extent that there is loan growth, it is a come among the wealth there individuals. How much is that sort of keep point here that wealthier individuals are borrowing versus their assets that they don't have to liquidate portfolios that

are currently invested in equity markets. Yeah, we've seen that. It's a great point. We've seen fairly significant growth um, Lisa in what I would call security spased loans and as you as you refer to wealthy individuals basically using their stock portfolios and wealth portfolios to uh to use a debt for other purposes, could be to buy home or other or other measures. So we're also seeing a

pickup in credit card growth. So Jp Morgan, yesterday I had eight percent card growth, and we've seen the card stocks are act pretty positively. But other than that, loan to make one of demand continues to be pretty soft. David George, you want you to parachute in Mackenzie or Bain or the other great thinkers out five years Which of these banks is best position for five years out? Um? I really think that the industry, Uh, Tom, I'm trying

not to make any headlines. I think that the industry in many ways is as in good as shape as it's ever been, particularly from a risk perspective. I think that the regulatory framework of the c CAR has made many of these companies, and I say this as a positive, very utility like in nature with respect to the predictability of their revenues, predictability of their earnings, and the general

um lower risk um perspective of these business models. They've all got a ton of capital, significant access liquidity, and we've obviously this industry has been part of the solution to the pandemic rather than the problem like it was. As you know, Tom and the O eight oh nine time frame. What do you make of this argument that the consumer is really strong coming out of this pandemic, coming out of this crisis this time, But that's going to generate some rewards when it comes to loan growth

further down the road. Do you buy into that? I do. I I'm a little worried that that consensus expectations for loan growth are overly optimistic. That the I continue to get questions from investors and and and the like about at lack of loan growth, and the story really is deposit growth. So Bank of America, as an example, had fourteen percent deposit growth and BA base got over two trillion in deposits with the T so that there is

significant deposits coming into the system. So it's simply not intuitive from our perspective to expect a lot of loan growth until you see deposits start to leave the system. Once we get some sense on that, then I think you'll see loan growth improved. Now on the corporate side, I think supply chain disruptions are definitely playing a role because companies simply can't get inventory. So I do think you'll see a small step function higher once the once

some of those um supply chain issues become resolved. But but but in the meantime, I think it's going to be pretty slow going. David, can you build on this idea of deposits increasing at such a quick pace given that people have been expending so much spending, is there an incoherence here and the fact that people are still stashing so much away in their savings. Well, um, it's a great question. I think part of it is just

simply the government crowding out the banks. A lot of this deposit growth is simply government stimulus money finding its way into uh into bank accounts, and um, I don't really see uh um that changing much in the near term now. I think in two we should see loan growth start to get better, but it's not going to be nearly as stronger growth is maybe what we've gotten accustomed to over the last twenty to twenty five years. Do we have to give them the toaster? That's actually, John,

that's a really really sophisticated question. We've given them the toast that we have to pike the toasters called John the toaster David, This is really important, John, David a firm and square, they're the toaster is a firm in those people changing the debate. What's the fear level on modern fintech for these bankers? Yeah, it's it's a good question. I think that that the industry, these these behemoth banks

continue to be infringed upon really from all angles. And you you mentioned obviously some of the the fintech companies of the Firm and the like, and I think that's going to continue. UM. Where banks really differentiate themselves from my perspective UM as a longtime bank analyst seeing a lot of different cycles, is their ability to underwrite risk

as well as their funding. They've got all of the same products that these fintech model line companies, but also have we think much more sophisticated credit modeling, capability, scale and funding. David love catching up with you in earning season. It's good to see it than wity of research analysts on the U S banks. Steve Major, HSBC global head of fixed Income Research joins us, and I'm pleased to say it's going to be with us for the next

five ten minutes. Steven want to start that with the provocative question, if I may, do you think we might have already seen the peak in this yield curve for this cycle. Yeah. I think we saw the peak of yields at the end of March, John, And what's happened since then is the market just repricing to the reality rates aren't going up anytime soon. To me, I wonder what's happened to the two percent and and and above consensus forecast because to me, to me, that wasn't particularly

robust in the first place. So so so I think that there could be a scrambling of people's forecasts, as you have seen some people scramble to cover their shorts, so you know, pushed if yields are going to move towards one percent or two percent through the rest of

the year, I go for one, Steve Major. We've got an awful large audience of listeners and viewers that don't have a c f A. They didn't study for bose cover to cover like you did, and they're going wait a minute, debt up, debt up, ever ever higher, and as you brilliantly show, yields continue to fall. That is the arch conundrum. How can that be? Well, first of all, the last twenty years have seen that association of higher debt and lower yield in place. Now, of course, the

correlation is not causality. To go to causality, you need to think. We need to think about the debt servicing channel, and that's the cash payments that have to go towards servicing the debt. The simple point, Tom is, we cannot afford higher rates and it's very very unlikely that we will reach the height of the last cycle. Now that that seems to me to be more important than the date of the liftoff. It's it's the destiny that really matters,

not the departure. Stephen, how much does this rely on an ever easy federal reserve versus just the dynamics natural in the economy. Well, look, the Feds are easy in several ways with forward guidance and the QUEI and the interest rate that it sets, and that sets up a bit of a trap because it's very, very difficult to unwind all of this. So so the death stock is huge globally, the indust rates are now and there is qui et cetera. So it's going to take a long time.

Think about a super tanker turning around the Cape of Good Hope. I mean it looks it looks to me it's going to take a very long time. And that speaks to today's testimony. At best, you might get an iterative shift at some point, but nothing dramatic is going to happen today. It can't steve a lot of conversation about the reaction function over the Federal Reserve. Let's talk about the reaction function of the market. Participant to data yesterday morning got a lot of attention from a lot

of people. It wasn't just a cp I print, it was how the market responded to. The cp I print didn't last too long because, as you know, we had a messy thirty year issue a little bit later in the afternoon that changed things up. But you'll read just in that period, those several hours after that inflation print,

what did that tell you? Well, I think the market is displaying a sort of Pavlovian response to all of this, in that it knows that if the probability of rates going up is to increase, as it seemed to have done at the June f m C, then equally the probability of reaching the heights of the last of the last cycle I'm also going down. So so so to me, the earlier they hike that the less room they have

to go up, they'll have to stop earlier. And I think that that's how the market is now understanding the Fed's reaction function. They have this flexible average inflation targeting, but they've sort of chopped off the right tail by indicating that that they may they may hike into thousand and twenty three. Steve Manajor, if we have a boom economy, whatever the numbers are so goldben Sex as far apart, are optimistic than capital economics, which is more cautious hus

WEC doing their own work as well. If we have a truly boom economy, can yields go up with a boom g d P and everyone remains happy? Very unlikely that yields are going to go up even with strong growth. If you if you get a six percent growth this year, you have to weigh against the minus two from last year, so the average is plus two. And look, as your show has been pointing out, real yields have been falling because they are the shock resorver that comes through. Nominal

yields are being controlled. If inflation expectations and risk premium rise, the real yield can only go down. That's all. That's all that's happening, Stephen. If you see the bond yields can remain low, well, this is a boom economy. Does that mean that bonds have lost their signaling power, that they don't have the same kind of predictive view on the economy that they've traditionally had. Yeah, that that that's

a that's a deeply involved, complex question. And I would say that when yields were down at fifty basis points last year, they lost a lot of that signaling and also they lost the diversification benefit. But when we're at one forty or so, then then there are investors who will buy long bonds, long bonds anywhere near two percent

off ballast in a portfolio. So in terms of signaling, and I think maybe maybe people are over interpreting what what the yield and the yield curve means, because look, we've had a decade or more of que and unconventional monetary policy will of course some some of the stuff from the seventies and eighties that doesn't doesn't really apply to today's economy and bond market. So Steve, just a

final question from me, if I may. You and I have known each other a long long time, and I know that you've been right more than you've been wrong on this bond market. Someone just reached out to me and said exactly that, and they asked the question what will it take for the two percent crowd to be right? What would it take ultimately for you to be wrong with the two percent crowd to be right? What do

you think would need to happen? Well, there needs to be something more durable on the on the employment and wages side, and I think that this is where the FED is very inclusive and in answering the questions. I'm sure that Chair Powell will will point to that the FED is helping ordinary people by getting them back to work. We're a long way from seeing durable increases and wages that that might change the inflation outlook. Okay, um, so I would I would put that as one of the risks.

I guess you could have personnel changes that we're not predicting in the in the next year or so, so, you know, personnel changes at the FED. I'm not really sure how how how how problematic that would be. But yeah, the point is there are always to it all risks to the forecast, but we're trying to take that into account. There's also a risk that yields go much lower. By the way, Steve Major on the bond market, Steve just in terms of personnel change, it just quickly the coaching

staff of the English football team. Do we need some changes there too? Do you need to make a bit of an adjustment there? There's been success, we got to the final. Let's think about the positive. John. I'm happy to do the positive, so just I didn't know if you would do that after talking about the bond markets so negatively for so long. And what's happening with Steve is gonna see it. It's gonna catch up as always HSBC Globe ahead of fixed income research on this bond market.

Always fantastic to catch up with Steve Major Tom, and it always gets such a fantastic reception to This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten AMI Eastern. I'm Bloomberg Radio and Bloomberg Television each day from six to night AM for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg