U.S. Startups Need Immigrants, AOL Co-Founder Says

Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg I'll leg it to my Morning mus Street is an entree to Steve Case on technology and the people we need to make America about it. This is from the wonderful Noah Feldment of Harvard, one

of my favorite favorite people on law and constitution. As they argued in a column I wrote at three am after the election, it's all about the Constitution now, the protection of sanctuary cities and these example of how the Constitution protects minority rights, in this case, the rights of cities that dissent on immigration policy with US. Is Steve Case, a o L co founder and author of The Third Wave.

I can't say enough about the accessibility of his book, and I would suggest out of Punaho that you grew up in the sanctuary state. Hawaii is the absolutely crucible, almost almost a test tube if you will, of these these these emotions that are buffeting America right now. If Hawaii was a sanctuary state for so many, particularly out of Asia. Tell us about your thoughts on sanctuary cities and what we do if we build walls around them. Well, I did have the opportunity to grow up in Hawaii,

which is sort of a melting pot. There are a lot of different people, a lot of different countries, and even as a as a young Caucasian guy, was actually in the minority. They're not the not the majority. So I had a sense of what was possible when you brought different people, had different perspectives, different backgrounds, different outlooks together. I think that's with what's made not just Hawaii great, but American great. We've always been a great immigrant nation.

Now we need to figure out how to strike the right balance in terms of enforcing the rules of of the road while also still being welcoming. Uh. I'm a little concern that the applications to the schools are particularly PhD s things like that from other countries are are down, you know, requests for visas are down. We need to make sure we are welcoming to people while still for enforcing our laws. And that's particularly important in the technology

sect of the innovation sector. That's where a lot of a lot of of the fortunate companies were started by immigrants. Almost of Silicon Valley companies were started by immigrants. So we need to figure out how to strike this this this balance. I hope that will be more of a focus going forward. Steve Case, of course, the co founder of a Well Enough, chairman and CEO of Revolution, the author of the Third Wave, an entrepreneur's vision of the future.

And I should also add someone who's advised Person Obama on innovation and entrepreneurship, a member of the former President's counsel on Jobs and Competitiveness. He joins us here in our Bloomberg eleven three oh studio. Is great to see you, Good morning, New York. Let me start with with the government angle. Here. We talk a lot about how to catalyze or encourage innovation entrepreneurship. As you've been thinking about this, has been dealing with it. What role should the government play,

What can the government do well to to kick start innovation. Well, one thing it could do and hopefully we'll do this year is sort of level of playing field in terms of access to capital. Right now, if you're in a place like New York City or Boston or San Francisco and the whole Silicon Valley area, you do pretty well and the entrepreneurs there can raise the capital and need.

But most of the country, most entrepreneurs can't. Last year, the data is pretty sobering that seventy eight percent of venture capital went to just three states California, New York, and Massachusetts. The other forty seven states got So we need to what we we're focused on what we call the Rise of the rest to help those entrepreneurs in those places. The other is to in this third wave it's just to be merging now, which will be the next evolution of the Internet and really disrupt you know,

some sectors like education, healthcare, transportation, food, agg culture. Getting the regulations right will be critical. How do you keep bad things from happening and make sure that the food your kids eat at school and make them sick or you know, driver list cars don't create havoc, but have a bias towards enabling good things to happen and and

unleashing that innovation. Actually, the government did that pretty well with the Internet when they kind of, you know, put the money in to build the basic research that made the Internet possible and then commercialized the Internet and had had a light touch approach to regulation in those early days thirty plus years ago. Hopefully that will be the case in some of these new emerging sectors as well, because that will enable the United States to remain the

most entrepreneurnation. You've got a new partner revolution. That's J. D. Vans author I Field Bill LG. I think a lot of us have read the book and know of his his work. He's setting out to look for innovation new companies outside of California, New York, and Massachusetts. How's it gonna go about doing that? How do you do that at the firm? How do you look for for pockets of innovation outside of those three states? Well, there's two parts.

We started an initiative about three years ago called Rise of the Rest, and I've traveled by bus six thousand miles visit at ease and plays like Detroit, Pittsburgh, Atlanta, Phoenix, Salbuquerque, Madison, Minneapolis, you know, Des Moines, St. Louis, really all over the country, trying to understand what's happening in each of the cities and trying to champion the the entrepreneurs in each of the cities, tell their stories, attract more capital to their

to their companies into their their cities. So that's what we're doing at the Revolution. And jd. Vance just joined just recently. We announced that last month. He of course, when he wrote the book Killed Billy Elogy, it was a huge bestseller. I think it's sold a million copies already and really told the story of a lot of people in this country that do feel kind of left out and left behind by technology, by digitization, by by globalization. And and he was at the only time there was

writing the book. He actually was in Silicon Valley working for Peter til focused on UH and venture capital investments. But when I met him last fall, he said he was planning to leave Silicon Valley move home to Ohio, which is where he was born and raised, because he wanted to not just defind the problem as he did in the book Hell Bill the Elergy, but be part

of the solution, and one part of that solution. The others as well is trying to level the play feel, get more capital, going to more entrepreneurs in Ohio and other places. So he'll be moving back and forth between Ohio where he'll be based, in Washington See where where we'll be based, but spending a lot of time on the road talking about his book and talking about the rise of the rest and championing these entrepreneurs that really have the opportunity to build the next great iconic companies

if we pay attention and if we fund them. Do you associate uh in Ohio the same pixie dust that I see in San Francisco, which is top flight academics. Ohio happens to have that. Yeah, it's an advantage that they've got a case Western Reserve and the and the rest of the good people and the great expertise in sectors where Cincinnati. My first job actually out of college was Procter and Gamble in Cincinnati. A lot of consumer technic. What do you do for proctoring? Game? Brand management? What

what the hell is brand man? It was basically when I was twenty one years old that I was still learning what was basically they assign you to work on a particular product I was there at the same time that you sold toothpaste. I worked with called it at the time, the toilet goods division they had that they they because they're a good market if they renamed it beauty here after a while, but it was like, you're

too taste in shampoo. And I worked on a hair permanent product that failed in test market, and I also worked on a couple other other kind of hair care products. But I learned a lot of particularly about market. Even the people used to tease when all was kind of in the nine ninies really rapidly expanding. We were giving out free trial disc all the time, UH, and that was sort of a lesson we learned from PG. They're great at getting people to try their product for free sample.

So essentially Well got got big because of the pmber My experience. But going back to your question, Ohio has great uh talent there, but historically there's been a brain drain. People grew up there, went to school there, but felt like they had to move to California or New York for some other place to to, you know, kind of find their opportunity. Now they're realizing they don't have to leave because of the innovation is really now happening everywhere.

Just so you understand, David, and you're way too young to understand this. We used to use Steve's ale well dis that you get in the mail. Those would be beer coasters for Jenny Crema. You could you could just say, look that we got. We got a whole brace of it. We have like six or twelve of them for for all Reduce for users. They're the great coaster FORTI case

with some Bloomrick surveillance. We talk about geography here. If I'm starting a company, um am, I looking for a place to put it, do I say, oh, look it's it's less expensive to do it in Detroit. I'm being encouraged to do it in Detroit. I'll go there, or I might go to d C, or might go to Silk How how does that calculus work? How does somebody decide where to start a company in the r teth I think the big the biggest driver in this next ten fifteen, twenty years, what I've called in the book

the third wave, will be domain expertise. If you're really trying to disrupt healthcare, for example, being in Cleveland near the Cleveland Clinic or in Baltimore near Johns Hopkins, or near United Health in Minneapolis. When partnership has become more important,

being closer to those partners will become important. We're seeing this in cities now like Pittsburgh that is known as the sort of the steel capital help power the whole Industrial revolution because of Carnegie mal and their expertise and robotics and their history of making things. There's a lot innovation there. Even Uber, kind of a prototypical Silicon Valley company is focusing its innovation around dry West Cars and in Pittsburgh. So you're starting to see the agriculture what

some people call agg tech. Uh, there's innovation happening in Silicon Valley, but there's also innovation in place like Louisville and Lincoln, even St. Louis which ra Monsanto's based. There's a lot of engineers and understand a lot about farming. In your book, the last and then you're you're brilliant on this. You've got like ten pages of photographs and the last three pages is kids in Pittsburgh, kids in Ohio, etcetera, etcetera.

Aren't they there because they can actually afford to get to the end of the month paycheck that this is like a huge deal. That's a big part. Now, some of them are there just because they happen to be there and they're starting companies, but some of them are there because they believe they can build companies there and at the cost of living is much lower. And I've

seen this also if we travel around. The winner of our Rise of the Rest Pitch competition in Detroit actually started company in San Francisco but moved to Detroit, partly for cost of living it was going to be less than half a aust for rent and salaries and and so forth, partly because he was from there and wanted to go back there and raise his family there, and probably because he wanted to be part of the renaissance,

the rebuilding, the reimagining of of of Detroit. We're starting to see that all over the country what had been a brain drain at that brain drain now slowing, and even we're beginning to see a very early signs of a boomerang of talent where people who felt they had to go to the coast now are beginning to realize that, you know, this regional entrepreneurship is beginning to accelerate and

and they can really start a company anywhere. How is the the environment for we're starting a company and growing a company chain since you started all and when when we got started, venture capital was was still uh, relatively early days. It's a relatively recent phenomena. When we started in the Washington, d C. Area, it was not very start up friendly. It was, you know, kind of a big company town, kind of a government town. So for all our venture capital came from other places, Boston, Chicago,

San Francisco. None of it came from the the DC area. Uh. And even when I graduate from college, I talked about this in the in the book. I had read a book called The Third Wave by Alvin Toffler when I was in college, and it talked about essentially the Internet, uh, And I was mesmerized by it. I wanted to do it. But when I graduate night there was no Internet companies to go do and there was no startup culture, so I couldn't really do my own thing. So it's really

changed quite dramatically in the last few decades. What's amazing about this, David, is you read Elvin Toffler, you read The Third Wave, and you had your Karmen Gia. You know you had a Karmen Gee. And if you're a rich kid, you had a SOB and you put your talk. You could pick up girls just by putting your third wave on the back, you know, the back of the four seat car. They think you were sensitive. Gearshifter was on the dash right, Yeah, well, yeah, well that was

a SOB. My first car was the exploding Pinto I got I got from four box. I didn't tell my parents about it because they've probably have been scared. A fine engineered vehicle that Pinto. Mike Michael Barr still drives one. I think I had two of them. You had two pints at one point. Uh, talk about energy. That was terrible.

David Garrett and Tom Keene in New York with us THEEF Case of Revolution here in our Bloomberg eleven three oh studios and Steve I wanted to ask you about um sort of the conversation about manufacturing that we're having right now. The present talks an awful lot about bringing jobs back, and we don't hear a whole lot about the future manufacturing. We're about technological advancement, tour automation. Are we are we missing out? On some component of that

conversation by not talking about those issues. Yeah, I think so. I think it's great for the president were trying to keep as many jobs in the country or you know, from moving off shore. But I think we have to not just kind of think about what was there thirty or forty years ago, but what's going to be there thirty or fourty years from now, and make the investments

in the industries of the future. Now, advanced manufacturing is starting to show some momentum, and they're actually because of robotics. It's an odd dynamic, but because of some of the automation technologies, manufacturing that was moved off shore twenty years ago is now beginning to come back because there is less of a labor costs. So the bad news is there's fewer jobs. The good news is some of the jobs that were going away are are are coming back.

So that's an example where there's sort of a kind of surprises emerged. But I think the real opportunity is in this third wave is to figure out where things are going and figure out what partnerships are necessary to lead the way. I think there's a broader social discussion around artificial intelligence and robotics and driverless cars, and how do you deal with the fact that a lot of jobs will be displaced. A lot of jobs will be

lost because of those innovations. I think the only way to deal with that is to try to make sure you're offsetting that by backing entrepreneurs in these emerging Rise of the rest cities. So it's not just about job destruction, it's also about job creation. Startups are the big job creator. We just can't just focus on backing the startups in place like Silicon Valley and not in places like Detroit.

As it's like to be a founder of a big We had Tim Armstrong here a couple of weeks back, and there was a rebranding and talking about oath and all of all of that stuff. But when when you when you found a company, how far out are you looking? Could you have envisioned what a o L is today? How many iterations it's been through, where it's headed now? How How forward looking are you when you're starting a company like well, you have to be pretty forward looking.

And again, when we when we started at thirty two years ago, it was early days. Only three percent of people were online at all at the time, and they're only online about an hour a week. And so when we said we wanted to get America online, get the world online, we knew it was gonna be a tough task. But the surprise to me, frankly, it was it took

longer to get going than I thought. It was really a decade before we finally It was just just it struck me as an obvious idea, but the reality is most people didn't think it was something most people wanted to bother with, So I just took a long, long term view. I think the challenge is to have that vision, have that that focus on long term, but couple that with with execution, and that Thomas Edison said, this is

inentrigo vision without execution as hallucinations. And how you strike the balance between having the big idea, having a big vision, but also executing and having the patience and perseverance I think will become more important again in the third way. The second way, there are a lot of overnight successive snapchat, facebooks, cetera. Uh, and the third wave it's gonna be more like the first wave. It's going to take more like ten years in the making before you had that overnight six let

me ask the question. And I'm doing this folks. I got my iPhone out of my fancy brown case. He's got his iPhone out and his tasteful black case. You got your iPad? On page two forty two of the Third Wave? What's your advice? For the third wave of the manufacturing shop known as Apple Computer? What do they do well? I think they're doing a great job. Did you have a Lisa? I did not own one. I certainly saw it when it got launched and was and

then you saw that was the dog it was. It was the sort of an enterprise office of computer based on some of the Xerox parktect How do they avoid a Lisa? What's your What's your advice? And they have You have to keep pushing, you have to keep trying you can, and they have to open up some new markets. I've said for some time that Apple, even though their focus has been on sort of horizontal markets, has to

start focusing on some vertical mark healthcare being one. I saw just over the weekend that there's some rumors that they're working on some technologies around diabetes, other kind of things. I think figure out how they take the expertise they have around interface and simplicity and and and accessibility and

apply that to other other sectors. So I think it's not just about the horizontal heating platforms, whether it be a phone or iPad or computers themselves, about how you take that expertise into more vertical markets like like health care. It's one sixth of our economy. Everybody agrees it's broken. Innovation is necessary. Company like Apple could be a great innovator. There is that the rich You've mentioned healthy here a few times. That is that the richest vein now for

for innovation to use. I think so just because it is such a big part of the economy and it's so broken, and there are clearly a ways to use technology to make you care more convenient uh and or accessible, more more affordable, and more personalized. That this one scary thing I talked about in the book is MD Anderson, one of the great cancer hospitals. When people come there for second opinions, twenty five percent of the time they reverse the first opinion. That a lot of people go, yeah.

But now some of it's because there's some regional hospital that doesn't have the expertise in that. But some of it's because that the technology hasn't been embraced to really be much more specific around pathways and identifying what the problem is there for, what the diagnosis, what the what the solution, the therapy should be. So clearly there's a

role for technology to play. The same time, one of the key lessons I talk about is that it's not just about the technology, is not just about the software. It's got to be people. It's got to be culture, and that, you know, the revolution healthcare will be getting doctors and hospitals to think differently. The revolution education will be getting you know, teachers and professors to think differently, not just getting the engineers to write I got I

got forty seconds left? Is all on Steve Case in third wave? How do you manage your email? It's your fault? How I must have met? There are mornings I wake up and say, this is a stupid ideas. Who got this thing started? Now? I I have multiple accounts for starters, multiple accounts. I've been stealing newsletters things like that. I

have go to one I want to account. Uh, And so it's one way to kind of, you know, when I have time in today, I'll kind of look at that and I also just try to afford to other people that somebody else kind of deal with it with much. But it's a great it's a great resource, but sometimes it can be a source of frustration for all of us. It's your fault, So hush. It is a fabulous book, folks, with a new epilogue that really brings it up to date with all that's going on in Washington. The Third

Wave Steve Case and Entrepreneur's Vision. I'll change the title of what to Do with this Nation? Steve Case. The Third Wave, very important effort brought you by Bank of America Mary Lynch, dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections, Mary Lynch. Pierce Federan Smith Incorporated, Member s i PC, joining us now from the Union Bank of Switzerland. He's run six marathons, Julian Emmanuel, you've

run six marathons? Are you one of those slugs that comes in at five pm staggering away? Tell me how you do this? Back of the packers they get uh, you know, basically it is all preparation and psychology. You get in there, you decide you're gonna do it. You put in your miles before the event, and you do it, and then the pain comes and you keep going. How do your ankles hold up? O wise one, These ankles

need plenty of support. It's it's a challenge. Uh, you know, there's a lot of pain, but it's just it's a great experience. Going across the Arizona Bridge must be just extraordinary. Well, the first time I did it, and the field the bridge actually sway. It was it was a little it was a little bit unsettling, but you get you said, okay, we're sixteen Washington Street, sways up in Boston as well, Julian Emmanuel with us with U B. S as we talked to Marathon and on this special Monday for New

England and really a special market as well. When you construct your research notes, now, seriously, do you could you construct them around a gauze of a rash exuberance or is there a sanity to where these equity valuations are well, so when you think about investing, you basically put forth a thesis and then you wait for it to develop. Obviously, if it develops, you perhaps increase your exposure to the thesis and if it doesn't, you peel it back a

little bit. Investors after the election took on the thesis that the economy was going to grow stronger than had been the case for the last many years, and that's what engendered the confidence. So the confidence readings seem very high. You might use the irrational zuberance simply because we haven't

seen the confirmation either through the economy itself or through policy. However, the pent up investment psychology of getting rid of zero interest rates really has a long way to go, and we think that this thesis is going to have to play out over a number of quarters. It isn't just the first hundred days. Um, So you know, it's it's really a wait and see mode for markets right now. So you give me a sense of your optimism for

something getting done in Washington. You're reevaluating the timetable here or we have a pessimistic are you? I guess we've been We've been realistic all along and and and basically, you know, the world never repeats itself. But the simple fact is is that Ronald Reagan came to office in night doubtless intending to do tax reform straight away, and he did it, but not until nine six. So you know, given the fact that there are divisions within the Republican Party,

we need to be patient. We need to let things play out. And obviously, well what do you do? I mean, okay, that's great, and I get the idea I need to be patient, But am I going to be patient and enjoy a correction or a true bear market on the way to being patient? I mean what I learned? And David, I was away for a week. I don't know if you noticed. People are baffled. People are baffled about like what to do. They're not getting a lot of what

to do. What is your prescription? Now? Given where valuations are so so very often, the best thing to do in investing, and I think it's it's a lot more of the time than people actually give it credit to is to do nothing. Okay, So in our view, you're likely started a correction in the beginning of March. The market's gone sort of sideways as opposed to selling off

more vigorously. We think that if the macro breaks a certain way over the next several weeks, and there are a lot of events coming up, including the potential closure of the government on April, the market pulls back more, and that's the sort of situation where you need to be prepared to buy very quickly. This happened to be the you know, David, do you have women at your house that they go to drug stores and just acquire stuff?

You know, the occasion. So today, looking down, it's something from a famous toothpaste company, Like, why the hell did we buy this? That toothpaste company? Is trade to get a blended twenty seven times earnings pe ratio. Which budget is the price or the earnings? Uh, the price budget is in the near ternament our view. And that's why when we look at the consumer sector and when we look at the market as a whole, you've got to be selective at these valuations. And and where there is

value right now is technology, healthcare and financials. We still like the financial story, despite the fact that the yield curve flattening over the last Do you see share by back and dividend growth just continuing as a blended concept. Well, it's it's it's been a part of this entire bowl market. We continue to see it. And and look, if there's repatriation, you're certainly going to see a lot more of it. I'm gonna give you the highest marks for staying in

this market. We've gotta go to cash. The world's going to die as we know it. And UBS has had the courage saying, no, you've got to be in this market and uh and participate. We do that. At twenty tho four fifty three, we're rocky in equities with Julian Emmanuel of UBS, a serious discussion about valuations right now. One of the themes through all the surveillance this morning, Julian, has been the lack of volatility. The VIX has gone from twelve to sixteen. Is that a normal vix right now?

To see it the historical normals twenty? Ugly'st forty. We're not ugly. We're actually pretty complacent. But it's a sixteen of sixteen on the vix. No, it's not at all. Uh well because again going back to post election, people played their thesis. They they got positioned the way they wanted and now they're waiting um. And in fact, if you look at the flows year to date, the public really has been the incremental buyer. But another thing has happened.

Stocks don't move uh similarly to each other on a day to day day basis the way they did, and this lack of correlation is also driving volatility lower. But net net, when you look at the risks, the VIX should be higher, and we think it does go higher. It's earning season. Now we had some financial supporting last a couple more later this week is a theme shaping

up to the to the quarter earning season. Yeah, well, we think that basically because you're at the valuation paradigms that that you're at UM that not only are you going to have to report good earnings, you're going to have to beat the number UM, which most companies do quarter in, quarter out, but that number is going to have to be good to begin with, and you're going to have to be a reasonably valued company because there's just at almost twenty times trailer earnings across the broad market.

There's less room for error given this macro overhang. Let's talk about that macro overhang. There there is so much happening. How do you separate out the real risks from those that are distractions? Uh, it's it's definitely challenged, there's no question about it. And and we're seeing things that we haven't seen before. UM, particularly you know, unfolding in geopolitical theaters across the world, and frankly, you're in a situation

where events could go in any number of directions. And so for us again, uh, you're seeing the vix actually start to pick up the last week or two in recognition of that fact, even as people don't make the stock market itself more volatile. But there's definitely hedgen going on, so you have to be mindful of that. Is there the impulse to hunker down and look purely at fundamentals or is that something you'd caution against it At this point,

I think this is a very rare time. We haven't seen it that often over the course of the last thirty or forty years. Politics really does move the fundamentals. And if you you look it back at politics moving the confidence numbers higher, We've seen times throughout history where confidence actually causes the economy and a self fulfilling prophecy

to strengthen. We haven't seen that yet. We're not sure it's going to happen, but we do expect incremental strength to this debate on the soft data versus hard data, and what the soft data you're saying you're not seeing it. You're you're not seeing the leading value of the this off date at this point, it's not there yet. You're a hard day to gug. We we like to see the facts and and the facts are that the first

quarter was was quite weak. But on the other hand, when you look at the FED commentary over the last several weeks, the FED doesn't seem to be terribly concerned. Well, I mean, I got all sorts of opinions on this. Macroeconomic advisors to St. Louis readjust second quarter call to three point six percent? How do you gyrate from zero point six or zero point eight whatever the number comes in out to three point six percent? I mean, when does the switch? Have you noticed, David, where the switch

got turned on? Or you know, it's like one of those big theater toggle switches, the sparks go off when you turn the lights. Part of the where's the toggle switch? Part of it is is is the difficulty in measuring g d P um And a former colleague of ours really made the point that GDP is a very noisy indicator and that if you want to get a good look at how the economy is moving in a more

clean basis, there are three things to look at. Bank lending, which has been weak as of late, uh I, s M S, which really is you know, is something that's been quite strong, Yes or no? Our conditions going to get that hard data that that's that's hard data HARDA. Yes, we we consider that to be hard day, even though there's an opinion aspect, but it tells you what the

people on the ground are seeing. And the last piece of hard data that's very important is the weekly job hard The hard data right now is the Yankees are killing it, killing it in April. That's the hard data. I'm a Mets fan, Tom, The Yankees are killing it. They no one expected. Come on, no one expected the Yankees are killed. I mean Michael Barr helped me here. The Yankees are you kidding me? They want seven in a row in April. That's hard data. Meanwhile, Tiger fans

over here, Miggy's hurt. It's a mess. No one cares about the Tigers. Someone get a memo to Michael Barton. No one cares at all about the Detroit Good morning, Detroit. Glad you're listening on Serious Sex Empt Channel one night. Julian Emmanuel, thank you so much. You know full. You know, not that I would editorialize, but I'm in the Julian Emmanuel camp on hard I'm like, when did the Vogue? Where did I ever read about soft data? Hard data? No?

Let mean, come on, it's it's the function of the times. Things are more difficult to measure the Internet. Julian Emmanuel with Hubius, thank you so much. They're now joining us at studying at the University of Maine. He went to Delaware and then to San Francisco to lose his main accent. Michael Mayo independent bank Analysts, one of the few that we have on I want to go back to governor incident. Of course, you made a real splash the Bank of America.

While back thinking about the Minutia, you have a jaw dropping fact Toyd in the Michael Mayo research, and that is City Group has a peer group different than the other major banks. A guy like me was thunderstruck by that. I mean, we compare them, and they compare them to the same banks, and yet City Group, is this true,

compares itself to the European banks. Am I right? Let let's take a step back here, so um, you know, I focus a lot on governance as you mentioned, and when you look at the large US banks, banks have been hardwired for safety, they have not been hardwired for better governance. To Regulators did their job, they did it well to make sure banks are safe, but investors need to make sure that banks have proper governance. So that brings up City Group and City Groups annual meeting is

a week from tomorrow. I'm going to the meeting. It's that in the East Village of New York City at the Cooper Union, and I have ten questions that I intend to but you're up in the cheap seats under the dunkin donut sign right. Well, I'll line up early to ask my questions that you will. And certainly one

one question relates to compensation. And the peer group that City Group uses for compensation is different than the peer group they use for their financial comparisons, and less than one and ten companies the United States, you know, uses that sort of technique, and City Group is the only large bank to do so. So certainly one question is on compensation and peer groups. But the more Germaine question is why does the CEO letter of City Groups say

that you know they have so much right? They say they're the right model, the right strategy, the right customers, the right clients, the right people in the right places. But then they still have worsting class returns, worst in class stock valuation. They missed their prior targets. They push their new targets four years out. So that that's my most important Mr Corbett attending one of the Trump the

President Trump festivities in Washington. Their chairman is someone everybody young Blue Bolas respects Mr Michael O'Neill's legendary within the business. If any chairman can write a ship I would respectfully suggest it's Mr O'Neill. Explain to us what a chairman does at a big bank. Well, not every bank has the chairman roles separated from the CEO. In the case the City Group, though, chairman Mike O'Neill he's you know, he's been a rockstar and banking for decades, so he's

the right guy at the top of the company. You know. One question not explicitly asked, though, is is he being too soft on management? So the job of a chairman is to make sure that um, the board is overseeing management properly, to ensure that they have the right strategy and ensure that they're being held accountable to executing on that strategy. Also, risk control banks is always huge. I remember you agitating for more separation of those roles within

within banks. Is that does that continue to continue to push for that? Is? Is it likely to happen at other at other banks? Well, one size doesn't fit all. Going back to SIT group, I was on your show when they had um you know, Dick Parsons of Vicram, pad It FOT, I said their names. I didn't like that combination. It was separated. On the other hand, you know, Jamie Diamond has gotten the job done at JP Morrigan,

you know, for over a decade now. So I think if you execute well, you have double digit returns of return on equity, and you're controlling your risk properly, then maybe it's okay. But I think it's situational. You mentioned James. Let's talk about JP Morgan. They reported last week. Get your reaction to to the earnings that we saw from them. The respeculation ahead of time here that we wouldn't see great growth in in uh the equities trading side of things.

It seemed like they performed better than expected. Well. JP Morrigan. I still consider them the Lebron James of banking. And that's because like Lebron James, they have both offense and defense. And when it comes to JP Morgan, in the first quarter, they certainly had the offense. They had strong capital markets growth, that's underwriting and trading and that did really well, and they also had some of the best net interest margin improvement.

Yet on the other hand, the defense side, you know, credit costs are still good, but they went up, and also their expense control wasn't quite as good. A better offense this quarter from Jake Morgan the defense. What size of a moon shot was co America for? You don't tell me, you said, load the boat a share? Where did you get into America and say this is going to be a turnaround of turnarounds? Um? Well, you know I upgraded America for the first time in over two

decades the stock almost that was early last year. Um and and so that. But the reason Camerica is so important to me because it shows when you, you know, spend energy on this governance and these oversight issues. You know, I went to the America annual meeting, so did ten other investors, most of whom stood up and said you need to do a better job. One month later, America announced restructuring. America was the best performing of the thirty

largest banks last year. So when someone says you're checking a box, you're doing these annual media things for no reason wrong, it helps investors. Everybody's we have spent too much money in chocolate this weekend. Help me here with how where's the next America? We spend all our time, David and I are is guilty of this as anybody talking about four or five big banks. The Comerica is under their those twenty five or thirty regional kind of big banks. Where's the next America? Well, my thought is

there's always under performers. There's always banks in the bottom half of the bottom quartile. Those are potentially the next America. So you know, as stocks trade from day to day and we get the more earnings reports from big banks, so you don't have an identified stock you can share with us this morning, it's going to be the next America. I you know, I can't tell you first, Tom, but I can maybe me tell you after I tell a

few others. You see how we got around there. But having said that, let me and you want to stock here at least I figured I have to come on the show and give you a stock and so you know what I do over the weekend. You know, if you do this job long enough is you know I read annual reports. The marriage is great, folks. You know the bar is high for a bank. Yellow staff fun um. But I reread Goldman Sacks and report last night, and to say one time to pound your chest. Hey, you

told us to downsize, but we didn't. At least three times in the CEO letter of Goldman Sacks they advertised the fact that, you know, we're one of the few firms that have remained committed to serving clients a lot of areas. Then they go, we did not extrapolate the bad conditions. And then they in the last section the follow up by Lloyd Blank found and the CEO LETTERY goes, in the past decade or so, some of our industry pulled back from sales and trading businesses, as to say,

but we didn't. And then they repeat, and then they repeat in the report that like the fourth quarterbacklog was good to the story of bank earnings. So far as Wall Streets doing well, Main Street is not doing well. So I want to own a Wall Street bank like Goldman Sack before the report earnings tomorrow. Okay, very good. I got twenty seconds left. That's all. Does Gary Cone working for the Trump Bank down in Washington want to get rid of Glass? Uh? We bring back glass Eagle?

Will that help Mr blankfind? You know what? Look at first quarter results? Okay, lending, traditional corporate lending and overall learning is the worst in six years. On the other hand, debt underwriting, raising, debt and capital markets good. From the customer standpoint, Glass de Eagle has been good, evidenced by this quarter. Okay, We've run out of time. Never enough time with Michael Mayo on the banks as well. He'll be at the City. Maybe we'll get him on after

City banks. See how that goes. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio, brought you by Bank of America Mary Lynch, dedicated to bringing our clients insights and solutions to meet the challenges

of a transforming world. That's the power of global connections. Mary Lynch, Pierce, Feeder and Smith Incorporated Member s I p C,