July 17, 2025 • 35 mins
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While rival media companies are unloading assets and cutting costs, Netflix Inc. continues to thrive.
The owner of the world’s most popular paid streaming service on Thursday reported second-quarter results that exceeded investor expectations in every major metric, saying revenue grew to $11.1 billion and earnings jumped to $7.19 a share. The company also raised its forecast for full-year sales and profit margins.
The second quarter is historically slow for Netflix, which typically adds more customers at the beginning and end of the year. But the company released a steady slate of popular shows, including two of the most-watched titles of the year — the third season of Ginny & Georgia and the final season of Squid Game. The company also benefited from a weaker dollar. More than two-thirds of its customers live outside the US.
Shares of Netflix have nearly doubled over the past year and the company’s market value tops $500 billion. That makes Netflix worth more than Walt Disney Co., Comcast Corp. and Warner Bros. Discovery Inc. combined.
While investors used to judge Netflix by the number of subscribers it added in any given quarter, the company has stopped disclosing how many customers pay for its service, directing them to focus on more traditional metrics such as sales and profit.
Netflix expects to generate up to $45.2 billion in sales this year and says its operating margin is now forecast to hit 29.5%. Net income is on track to exceed $10 billion for the first time, thanks to exchange rates that will boost sales and a strong slate of programs. The second-half schedule includes new seasons of the hit shows Stranger Things and Wednesday, as well as movies such as Happy Gilmore 2.
Today's show features:
- Mark Douglas, CEO of MNTN on Netflix earnings and the streaming giant’s advertising strategy
- Bloomberg News Economics Editor Molly Smith on monthly retail sales and imports data, as well as weekly jobless claims figures
- Bloomberg Intelligence Senior Analyst for US Regional Banks Herman Chan with a roundup of regional bank earnings out this week
- John Gates, CEO, Leasing Advisory, Americas at JLL on the company's Q2 2025 “US Office Market Dynamics Report”
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
Week Daily reporting from the magazine that helps global leaders
stay ahead with insight on the people, companies, and trends
shaping today's complex economy. Plus global business finance and tech
(00:23):
news as it happens. The Bloomberg Business Week Daily Podcast
with Carol Masser and Tim Steneveek. On Bloomberg Radio.
Speaker 2 (00:32):
It is Bloomberg business Week Daily. That's normal. Linda in
for Carol Master this afternoon, on this Netflix earnings day,
we are seeing shares of Netflix actually move lower in
the after hours after an initial mounts higher, down right
now by one point seven percent. The company did report
results that exceeded investor expectations in every major metric, revenue
(00:52):
growing to eleven point one billion dollars, earnings jumping from seven,
earn is jumping two rather seven dollars, and nineteen sense
per share. The company also raised its forecast for full
year sales and profit margins. It expects to generate up
to forty five point two billion dollars in sales and
have an operating margin of twenty nine point five percent.
Speaker 3 (01:12):
Let's bring in Mark.
Speaker 2 (01:13):
Douglass, the CEO, of the publicly traded advertising and marketing
company Mountain ticker MNT, and he joins us from Miami.
Mark always good to check in with you. I want
to focus specifically with you on the ads supported element
of this. I was telling Nora earlier. You know, I'm
old enough to remember when Netflix said they would never
do ads, they would never do live content, they would
(01:35):
never do news, they would never do sports. Now they
do all of those things, And is the in more?
Is the ads business working?
Speaker 4 (01:43):
I think the ad business is off to a start.
It can grow so much bigger, and you know, it's
obviously growing. I think they're saying that they expect a
lot more growth, but it's also in a competitive space.
They're competing with Disney with Peak, with Paramount, Warner Brothers and.
Speaker 3 (02:03):
Those big spenders.
Speaker 4 (02:05):
Those big brands, they don't really increase their budget, so
if you want to come into that space, you have
to take market share from someone else. Netflix is what
I would expect over time, is that whatever percentage of
viewership they have is what percentage of the ad market
they can get, So they have a lot of room
to grow. It is working, but it's still relatively small
(02:27):
compared to where it can be.
Speaker 5 (02:29):
I find it really interesting.
Speaker 6 (02:30):
We were discussing how people are willing to pay for
these subscriptions even if they do contain ads. I can
literally remember when you would watch Netflix all the way through,
no gaps at all. But it seems as though this
is a really thriving part of their business here.
Speaker 3 (02:44):
Yeah.
Speaker 4 (02:45):
Well, I mean why did they add the ads Because
their customers wanted a lower price point, and so it's
a simple trade off. We'll give you the lower price
point if you'll let advertisers pay for part of your subscription.
That's effectively what's happened opening, and so the customer is
getting what they want and Netflix is getting the revenue
(03:05):
they need know in order to make that possible. So
it is a win win. I'm not sure everyone that
gets ads thinks it's a win, but it's certainly a
win that they don't have to pay as much to
get the content.
Speaker 2 (03:17):
So I'm looking at the different plans and pricing for
Netflix here in the US. There's the standard with ads,
there's standard, there's premium, so it starts with seven ninety
nine a month. You can go for premium up to
twenty five dollars a month. Again, this is here in
the US. There are different intricacies to this because you
can pay for extra members and the like. Netflix has
gotten really good at as my brother likes to remind
(03:39):
our entire family understanding, if you're sharing an account and
now everybody kind of needs their own accounts. Is there
from the perspective of actual growth here in a saturated
market in the US, is there a concern or is
this by design that if Netflix raises the premium price
then there will be a small portion of the folks
(04:01):
who don't want to pay twenty five dollars a month
or whatever, and instead they'll drop down to that ad
supported model. Is that the strategy?
Speaker 3 (04:08):
I think yeah.
Speaker 4 (04:09):
I think worldwide Netflix maybe last quarter the quarter before Essential,
the last time they were reporting subscriber numbers, they said
the number one, you know, kind of tier that people
were buying was the ad supported tier. I think it
was as much as half of all new subscribers. And
so people want it. They want that price point. I
(04:32):
think what's really interesting is the way to think of
it is Netflix is building a backlog of future revenue, so,
in other words, they bring on the subscribers that they
are essentially under monetizing. They're charging them seven ninety nine,
and they're getting relatively few ads. And as Netflix increases
the ad load and essentially makes more money, that is
(04:55):
just like pure like that's going to flow directly bottom line.
I would Netflix's earnings to outstrip their revenue growth literally
for years to come. It's somewhat similar to the password backlog,
where they knew all these people were sharing the passwords
and at any time they can just kind of kind
of get more serious about that and all of a
(05:15):
sudden it produced all this additional revenue. That's what's going
to happen with Netflix is advertising. And I think I
have never seen a company this large that I would
say should be treated as a high growth stock. That's
the potential in the app business, right Mark.
Speaker 6 (05:31):
One thing that was interesting to me as we're parsing
through this earnings was the fact that Netflix boosted its
full year revenue primarily due to US dollar depreciation. What's
your takeaway from.
Speaker 4 (05:41):
That, Well, I mean, the their global business. I mean,
I think that's for financial analysts to really to really
look at. I mean, obviously they don't want to be
fluctuating their price points based on the way financial markets
are valuing the dollar.
Speaker 3 (05:58):
And other things.
Speaker 4 (05:59):
But I think the I think most investors are going
to look at the growth in revenue, growth and earnings,
continue expansion in national and I think the most important
value for Netflix, which is not really explicitly measured in numbers,
is they, through surveys, they are the first place people
(06:20):
go when they turn on their TV. Is they turn
on Netflix. And the amount of power that gives this
company is it's almost hard to state that. That's how
they can turn you know, like fights into like numbers
that rival some of the biggest sporting events, or turn
WWEE into you know, big show on Netflix where one
(06:42):
has been as big as another channel. And if I'm
gonna investor, I'm gonna be as long as Netflix is
the first place people go, It's going to be the
first stock I want to invest in that. I think
that's the biggest correlation.
Speaker 2 (06:54):
Hey, hey, Mark, since you are focused on the ads business,
in your view, what's a more profit subscriber for Netflix?
Is it the one who's paying seven ninety nine a
month for the ad supported version, or is it the
premium subscriber at twenty five bucks or the standard subscriber
at eighteen bucks.
Speaker 4 (07:12):
I think the premium is probably the most profitable, but
I think then the AD supported has the potential to
become the second most profitable. I don't think it's there
yet because they simply are not monetizing all those entertainment
consumers at the level they could be. But when they are,
they're doing seven ninety nine on that price point. Who knows,
(07:34):
it might be eight ninety nine next year or something
like that, and they can make probably equal to that
in terms of AD dollars per user, and maybe even
a bit more than equal to that in AD dollars
per user. And you see that's what Amazon did with Prime,
where they just flipped the entire customer base in the
AD supported. So that AD supported in terms of volume,
(07:54):
because most of the subscribers I think will be AD
supported over time, is the most profitable just share dollars.
Right now, it's probably the premium twenty five dollars mark.
Speaker 6 (08:04):
I mean, when you think about Netflix historically, they were
initially felt like the leader, but you're seeing a lot
of these other companies in here trying to additionally monopolize
the space. But that being said, we did see some
news earlier that Comcast is raising the price of its
Peacock streaming service by three dollars a month. Very fitting
today when we have Netflix earnings. How are you thinking
about Netflix as a potential leader right now in this space?
Speaker 4 (08:26):
Yeah, I mean that losing that leadership position is going
to be hard for them because they just have to
keep investing in content, and they're profitable and very profitable,
so they can afford to keep doing that. But I
think what you're seeing happening is the other networks are
fighting back. Peacock with Love Island just massive show over
the last month from what I know, did incredibly well
(08:50):
advertise in terms of revenue generation. I think it's the
number one reality show in the world. Plus they have
Bravo and others. You have Disney with all the children's content,
Star Wars contentes PN now going in a live sports
I think all the networks have gone way more serious
about about competing and they're bringing out their own hit content.
(09:10):
But as long as Netflix is number one, I think
it's hard for them to lose that spot. Probably the
only company that can really truly challenge them is Disney.
Speaker 6 (09:19):
Absolutely, it's interesting. We were just talking about Love Island.
Speaker 4 (09:23):
I am.
Speaker 6 (09:23):
I'm a watcher of Love Island, so I see how
they were able to skyrocket here.
Speaker 2 (09:27):
Somebody who I'm co anchoring with today went to like
a Love Island premiere watch party, watch party or one
you hosted a.
Speaker 3 (09:35):
Watch party of my own two days later.
Speaker 2 (09:37):
Meanwhile, I've never even seen an episode of whatever you
guys are talking about.
Speaker 3 (09:40):
Mark Douglas.
Speaker 2 (09:41):
Always good to see you fly on up here to
New York next time so we can hang out in
the studio. Mark Douglas is CEO of the publicly traded
advertising and marketing company Mountain.
Speaker 1 (09:52):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
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Listen on Alva, Karpe and Android Otto with the Bloomberg
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Speaker 2 (10:05):
Well signs at the US economies holding up just lifting
stocks this afternoon, as we heard from Charlie. This coming
just a day after speculation about the fedhare.
Speaker 3 (10:14):
Really rattled markets.
Speaker 2 (10:16):
Better than estimated retail sales and a drop in jobless
claims pointed economic resilience driving the S and P five
hundred toward fresh all time highs. Let's bring in Molly Smith.
She's Bloomberg News Economics editor. She joins us here in
the Bloomberg BusinessWeek Studio. I want to start with retail
sales because a big rebound in June, a broad advance.
Ten out of thirteen categories posted an increase. Does this
(10:38):
answer all questions about the health of the US consumer?
Speaker 3 (10:40):
Are we all good?
Speaker 4 (10:41):
God?
Speaker 5 (10:41):
I wish it was that easy, Tim It's not. I
wouldn't be here if it were that easy. I explained
it was, so I like to caveat by saying that,
like retail sales is, I would say, like a relatively
narrow look at consumer spending, that this is a report
that mostly captures just spending on goods like physical stuff,
but that's really just that's a third of overall consumer
(11:04):
spending in our economy.
Speaker 3 (11:05):
I think this is a really important point.
Speaker 2 (11:06):
The consumer powers the economy, but services are what they
spend their money on, bing go, Okay, yes.
Speaker 5 (11:11):
So not to say that a third of consumer spending
is nothing, but it is not the majority of where
consumer spending is really directed at. So that's one thing.
Second thing, these are not inflation adjusted, so when you
see these increases, you can kind of do a little
bit of the math, since we did just get the
CPI to see where prices were rising or not. But generally,
if you see a number that's up, it could be
(11:33):
up because prices are up, or because actual spending activity
is up, or both. So in this case, there's probably
a bit of a mix of that, and either way, though,
the takeaway from economists was definitely positive that, you know,
we just had two months of declines in retail sales
coming into June, so to see a rebound, especially of
this magnitude, was definitely reassuring in some ways, you know
(11:55):
that maybe tariffs are not totally sapping consumer demand at
least as of yet, but.
Speaker 6 (12:00):
Not the end all be all here, which you've clearly
spelled out for us here. What were some of the
highlights that you saw in this print.
Speaker 5 (12:06):
I think I don't know if I would call it
a highlights so much as a surprise that that motor
vehicle sales were up as much as they were, especially
because we saw the administrative data from Ward's Automotive groups
showed that car sales dropped again in June, and the
CPI report showed that car prices were down, So that
to me would spelled, you know, an overall negative for
(12:28):
car sales a commist you're saying, probably a seasonal adjustment issue,
because I'm not really sure how else you would get
a positive number out of that.
Speaker 2 (12:35):
But there was also this pull forward in the earlier
part of the year because consumers are very worried about
what tariffs would do to automobiles. Is that part of
this equation at all? Is that why it's surprising too.
Speaker 5 (12:45):
I think that there's probably still you know, there's been
so many obviously, as we know, whiplash with tariffs. Are
they on, are they not? Is it delayed?
Speaker 4 (12:53):
What date?
Speaker 3 (12:54):
So I think, you know.
Speaker 5 (12:56):
There was a bit of a pullback in June when
like we had, you know, put to rest the idea
of one hundred plus percent tariffs on China. You know,
that was like a pact that was reached in early May,
and that we've had a bit of this pause until
the now we had this announcement in the past week
that the real mayly more significant tariffs are going to
kick in next month. At least that's the plan right now.
So who knows, we could be going through another one
(13:18):
of those you know lulls right now with the tariff
talk that could be boosting spending and sentiment. In the meantime, Well, let's.
Speaker 6 (13:24):
Talk about the job market right now. Of course, we
got that weekly print that we always get, which is
jobless claims data that came out today. We saw that
the estimates were two hundred and thirty three thousand, but
it actually came in at two hundred and twenty one thousand,
So a slight miss here. But what are you really
seeing when we think about the broader economy as it
relates to jobless claims.
Speaker 5 (13:44):
Well, it's a good thing when we see a miss
on jobless claims froming a point that how these fewer
people are filing for unt employment, So that's a good thing. Plus, yeah,
assuming that we're in the camp of not wanting people
to lose their jobs, so that's good. And at that
level of overall claims of where the initial ones have
been coming in in this like two hundred and twenty
thousand area, that's very much in line with like the
(14:06):
pre COVID economy and would suggest like a pretty solid
labor market overall. Granted, where more of the concern is
happening is in continuing claims. So these are people who
are continually receiving unemployment benefits, whereas the other number is
just new filers. So the continuing claims number has kind
of been flirting with around like that two million number
(14:27):
for a while now kind of like up around the
highest levels. Since the end of twenty twenty one, that
one has definitely been trending in a worse direction.
Speaker 6 (14:35):
So for a while it used to be bad news
is good news? Where do we sit now? What are
we say?
Speaker 5 (14:40):
Oh gosh, I want to say that good news is
good news. I mean it's I think, well a lot
of it is because you're thinking from the perspective of,
like what happens to FED rates? Right, So I mean,
right now, all of this data is telling you that,
like the economy is solid and that this is all
also supporting why we're not expecting to see ray cuts
(15:02):
in July, at least July for now, who knows. September
still seems to be a wild guard.
Speaker 2 (15:07):
Okay, So on this I just want to end with
you on the FED and play some sound from one
of the Kevins who is a vying to be the
next chair of the FED. Kevin Walsh, former FED governor,
was on CNBC earlier today.
Speaker 7 (15:20):
I think the President's language is this could be a
golden age, and frankly, I think they.
Speaker 3 (15:24):
All could be right.
Speaker 7 (15:25):
Good policies could advance this US economy. What we'd call
AI in a couple of years will just call business,
and AI is going to make almost everything costs less
and the US can be a big winner. If I
were the president, what I'd be worried about is a
central bank that doesn't see any of that, a central
bank that is stuck with models from nineteen seventy eight,
(15:47):
governance from a prior period and don't recognize we could
be at the front end of a productivity boom, and
if I were the president, I'd be worried that they might.
Speaker 8 (15:55):
Not see it.
Speaker 2 (15:57):
Kevin Walsh, a former FED governor, on CNBC earlier today, Molly,
I want to ask you about this idea that a
central bank with this dual mandate, in Kevin Warsh's view,
might be stuck on old models and old priorities.
Speaker 3 (16:11):
What's your view on this.
Speaker 5 (16:12):
I mean, I still think the priority for the FED
is definitely the dual mandate, as you said, so that's
ensuring price stability and maximum employment, and I think those
are still good goals to have, no matter if you're
in nineteen seventy or if you're in twenty twenty five.
There are a lot of central banks that don't have
both of those, you know, they just have an inflation
mandate or an employment mandate, but not both. So I
(16:33):
think that, you know, and that's also something that for
us comes from Congress. That's not the Fed's own idea.
This is a mandate from Congress as to what they're
meant to achieve here. That said, I mean, yeah, the
economy is rapidly evolving. AI certainly has a lot of promises,
but I don't think that's really had any widespread impact
yet in terms of like taking out jobs that were
(16:55):
you know, at a really widespread level here. I think
it's just so far been like pretty concentrate and we
haven't yet seen all of that, and of course when
those things are going to be happening a bit more notably, Yes,
the FED wants to be acting forward looking, but like
you can't also be like, you know, acting in advance
of like if this is still perhaps years or decades
away from now, who knows our.
Speaker 3 (17:16):
Good place to end it?
Speaker 2 (17:17):
Molly Smith, Bloomberg News Economics editor joining us here in
the Bloomberg Business Week a studio.
Speaker 1 (17:23):
This is the Bloomberg Business Week Daily Podcast. Listen live
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Speaker 6 (17:41):
Let's talk about commercial real estate today. We had pro
Lodge's shares that gained in yesterday's session. Those they're down today.
The industrial real estate investment trust industry and that company
in particular, that company delivered a beat and raised earnings
report for the second quarter and beat consensus expectations for
the second quarter. There, that's industrial commercial real estate and
that can certainly tell us one thing. For a view
(18:04):
on the office market, we bring in John Gates, CEO
of Leasing Advisory America's at JLLL. The offer real estate
and investment management services around the world, so it's got
a great view on different economies and if we're indeed
getting back to the office, talk to us John a
bit about what the landscape is like right now for
the office space in the United States. Are people coming
(18:25):
back to the office.
Speaker 8 (18:26):
They are thank you for having me by the way,
and good afternoon.
Speaker 9 (18:29):
Yes, unequivocally, we see increasing numbers of organizations ask their
people to come back and in fact tell them to
come back to the office an increasing number.
Speaker 8 (18:38):
Of days a year.
Speaker 9 (18:39):
It's been more of a step function, I would say,
than a leap, if you will.
Speaker 8 (18:43):
That's been happening and building for quite some time.
Speaker 2 (18:45):
John, where are we compared to let's say, January twenty twenty, though.
Speaker 9 (18:50):
You know a year if you said twenty twenty, we're
getting closer, but we're not in the same place. So
fifty four percent, I think of the fortune one hundred
have said you're in the office five days a week,
and that was probably ninety percent then. But hybrid policies,
you know, have people in the offices three to four
days a week. So it's you know, somewhere in between,
(19:12):
but far closer than we were a year ago.
Speaker 2 (19:14):
What about from the perspective of inventory and how much
leased inventory you have versus what you had back then.
Speaker 9 (19:22):
There's a lot of ways to segment buildings for that question.
I think the easiest way to do it is the
new higher quality product and then everything that's say pre
twenty fifteen, and the first category is leasing very very
well at record rents, and occupancy levels are very high,
and vacancy levels are low.
Speaker 8 (19:43):
We don't have a lot of construction. We're going to
run out of space.
Speaker 9 (19:45):
The older product is a different story, and leasing volumes
there are nowhere near as high, and that's where the
majority of any increasing vacancy is coming from older product.
Speaker 6 (19:58):
John I cover commercial real estate stock for our US
equities team here at Bloeberg News, and we talk a
lot about the bifurcation in quality office space in the
United States. You have the Class A buildings, You've got
buildings that are lower tier, and of course you see
a lot of these big corporations going for the higher
quality buildings. As we look at the broader country and
what it looks like for the office real estate space,
(20:20):
where are you seeing areas for opportunity?
Speaker 9 (20:24):
Well, I think well positioned assets that are a little older,
meaning a good location and good bones and a good
footprint because they would trade at a really meaningful discount.
So you have in the old days we called that
neurovalue ad play. But you invest some money, you're below
brand new replacement cost and you've got a very leasable
building because you've spent a lot of money on us.
Speaker 8 (20:44):
I would view that as an opportunity.
Speaker 9 (20:47):
And then I think at the high end, well located sites,
you all would be familiar with the all street phenomenon,
a lot of financials moving jobs here. As an example,
if someone were to break ground on a top of
the market off US building, my belief is in Dallas
it would lease quickly. So some of us where you are,
New York is very solid right now, and in general,
(21:07):
the cities across the south are very.
Speaker 6 (21:09):
Solid, and I know Park Avenue in particular. Here we
are seeing a bit of a tailwind here in New
York City. But let's talk about the West Coast. Of course,
we have a lot of those remote workers. We've got
the tech industry that started going a bit more virtual,
not paying as much. They're not seeing these companies forcing
people as much back into the office as other industries.
What is the West Coast office demand looking like right now?
Speaker 9 (21:30):
You know, location, location, location has always been a thing
in real estate, right and we call that sub markets
in our space.
Speaker 8 (21:36):
Some markets matter a lot.
Speaker 9 (21:38):
In Northern California, dramatic change really started a year ago.
And it's not necessarily big tech driven, but it's AI
spawned industries and organizations at startups. So absorption of space
has been very healthy in the Bay Area. LA is
highly concentrated on the west side of LA if you
wille Orange County would be more typical. And then SEE
(22:00):
has been lagging, but we're starting to see recovery as
Amazon and Microsoft and other great big name companies have said,
we're coming back to the office. You just don't see
the job growth right now in the largest tech companies.
It's more in the startup community, so that's overweighted to
Northern California.
Speaker 2 (22:16):
You know, John we you mentioned that New York is
strong right now, and that's where Nora and I are located.
That's where our headquarters is here at Bloomberg, and I
wanted to ask you a question about this region, specifically
in regard to the mayoral election that's coming up. There's
been some concern, especially from business leaders, that Zorroon Mamdani
(22:40):
might drive away business as a result of wanting to
raise taxes on the wealthy and wanting to raise taxes
on businesses.
Speaker 3 (22:47):
And he did meet with.
Speaker 2 (22:50):
A bunch of leaders Hunter business leaders from the Partnership
for New York City earlier this week to.
Speaker 3 (22:54):
Talk with them.
Speaker 2 (22:56):
Are you looking at that at all as being a
risk to New York City commercial real estate?
Speaker 9 (23:02):
Yes, I mean would be the one word to answer.
I'll draw I think a direct comp for you. Last
fall in San Francisco, in the city proper, we had
a local election, as you too would be aware, and
we had some of our agency professionals, people who represent
the owners of the buildings, had leases ready for signature,
and the tenants said, I want to see the outcome
(23:23):
of the local election, and based on the way it
went there, they ended up signing the leases and putting
their people in the city.
Speaker 8 (23:29):
And I know, I.
Speaker 9 (23:30):
Do believe that could happen in New York, but that
doesn't mean it will as a certainty.
Speaker 8 (23:35):
I would take people at their word, though.
Speaker 2 (23:37):
Well.
Speaker 6 (23:38):
Talking a bit more about this mom Donnie and the
impact that it's having on markets here. Of course, we
know that part of his campaign has been to freeze
rents in New York City, so we did see apartment reads,
especially that have exposure to New York City falling after
the news. But I want to talk about office conversion
because of course, we are also dealing with the housing shortage,
(23:58):
and a lot of the conversation in the real estate,
in the real estate industry has been about whether or
not we're able to convert some of these office spaces
into multifamily apartment properties. Is that something that you all
are thinking about and what is the leatest status with that?
Speaker 9 (24:11):
Oh, it's accelerating, and it's happening at a pace we've
never seen in the commercial history.
Speaker 8 (24:16):
You know.
Speaker 9 (24:16):
Again, as you know, Nora, absolute real estate is not
a new thing. People see houses torn down that are
old and build bigger, shinier ones, and so that can
happen and all the asset classes, and we see that
happening now. Now, as you know, not all office buildings
lend themselves to being multi family. The floor plate configuration
matters a lot, and obviously the location in a given
(24:38):
city matters a lot. But we do see unprecedented amounts
in terms of numbers of building and total aggregates square
footage that are being converted to another use hospitalities and
other likely candidate that's probably the two most meaning multifamily
and hospitality. And we do have an affordable housing challenge.
Speaker 3 (24:55):
So that's good John.
Speaker 2 (24:57):
You guys are with a two q US office market
Dynamics report, and one thing that you argue in the report,
based on the data that you found, is that there's
essentially this turning a corner for the US office market.
What's the evidence that you have for that.
Speaker 9 (25:14):
We're just looking at the data and statistics and watching
aggregate industry decisions. As an example, law firms have very
broadly said we're working out of the office, and they've
been expanding their footprint for a ear taking more space,
and the data is very clear that it says that,
and you see office leasing volumes increasing on a quarter
over quarter basis. There's also anecdotal data. If I walk
(25:37):
down the hall here where I sit with the real
estate brokers, they're positive when they're in a better mood.
It means volumes are good and they are in a
better mood, and they will tell you they're busy. They'll
tell you they're chasing more opportunities and people are making
decisions at a greater pace, which is also cycle times
is something we always measure and pay attention to here,
and they're shrinking, which means people are making decisions.
Speaker 8 (26:00):
So all good news.
Speaker 3 (26:01):
And it adds out, John, good to see you. Thanks
for joining us, John Day.
Speaker 8 (26:06):
Thanks you for having me. Great to see you.
Speaker 2 (26:09):
Whenever the jail folks join us, they're always joining us
from the office, which I.
Speaker 3 (26:12):
Guess makes sense.
Speaker 2 (26:12):
Nobody's ever working, nobody's ever working from home. I can
tell you that John Gaates, CEO of the Leasing Advisory
America's services over at JLL. They offer real estate and
investment management services all over the world.
Speaker 1 (26:26):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eastering. Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 4 (26:41):
Mac.
Speaker 3 (26:42):
How about you let me drive?
Speaker 1 (26:43):
Oh no, no, no no, this is not a twin, Honry.
Speaker 3 (26:48):
Please, I'll do the travels ease. Great, I want to drive.
Speaker 8 (26:52):
It's a good question.
Speaker 3 (26:59):
This is the drive to the clothes plunks.
Speaker 1 (27:01):
Your thing well up on Bloomberg Radio.
Speaker 2 (27:06):
TikTok, everybody. Just about eighteen minutes to the close. We've
got a special guest for our drive that close. Today
we're talking regional banks. We've got Herman Chan with a
senior analyst for US regional Banks at Bloomberg Intelligence. Herman
joins us here in the Bloomberg Interactive Brokers studio. I
just want everybody to remain calm. Okay, despite the fact
that Herman is in our studio. Nothing is collapsing, Nothing
(27:30):
is collapsed. The reason I say that is because we
got to know you so well a couple of years
ago during the regional banking crisis.
Speaker 3 (27:37):
It's my claim to fame each and every day. We
spent so much time together.
Speaker 2 (27:41):
So it's nice to see you on a day when
we don't have to talk about the FDIC.
Speaker 3 (27:45):
That's right.
Speaker 10 (27:46):
Actually, banks have been pretty good this far in the
earning season. Actually it's been pretty interesting because banks universally
have have been estimates. But the bar's a bit higher
because just because of the run up over the past.
Speaker 3 (28:00):
Okay, so let's take a little step back.
Speaker 2 (28:01):
Because we've gotten earnings from I think it's fair to
say the majority of them, M and T Bank, First Horizon,
P and C Financial, Citizens Financial Group, fifth third in
US Bank Corp. We're going to get tomorrow, truest Co
America and Huntington Bank shares. Right, you would say if
there is a through line to sort of tie all
these companies together, at least the ones that we've heard from.
Speaker 3 (28:24):
Things are good.
Speaker 10 (28:24):
Yeah, things are good universally. The banks have beaten on credit,
So the fears of tariff uncertainty and potentially worsening credit
quality and higher loan losses, that really hasn't been apparent
so far, and banks have been able to deliver some growth,
which is interesting because you've seen some corporate clients and
(28:48):
business clients front run some tariffs and build inventory ahead
of higher costs, so that's actually been helpful for regional banks.
Speaker 6 (28:58):
How are we thinking about this earning season more Brolby?
Who are the out performers here?
Speaker 3 (29:02):
Yeah?
Speaker 10 (29:03):
So P and C has done probably the best so far.
They've been able to deliver loan growth and also improve
their nand margins, which is they're spread between lending and deposits.
That's the one that has been the belt weather, and
you've seen that performance from yesterday. Some of the other
ones have been a bit more mixed because they've either
(29:23):
haven't grown their loan portfolio or their not just margins
wasn't as robust.
Speaker 6 (29:29):
Are you How do we think about just leverage right now?
When we look across the industry what are you seeing?
What are the main takeaways?
Speaker 10 (29:36):
The main takeaways really is I was trying to preference earlier.
There's a higher bar for performance given the thirty percent
run up in stocks over the past three months.
Speaker 3 (29:47):
And on the back of that, the largest.
Speaker 10 (29:50):
Banks like JP Morgan and Bank of America, we're showing
strong deposit and loan growth, so there's a higher bar
for performance. And where things really stack up is can
the banks really drive top line revenues in the form
of an interesting come work fees.
Speaker 2 (30:08):
When we talk about the six big banks, we often
talk about Bank of America being a good bell weather
of the consumer because they have so much consumer access.
We talk about JP Morgan in a similar way. A
lot of the focus of our coverage is about the
trading revenues, and they were certainly good during volatility. The
regionals serve somewhat of a different group of folks. We
(30:29):
speak to Bruce Vansn a lot over at Citizens Financial
and he reminds us that construction small business, they're the
ones who are powering their loan books. Is that every
regional bank.
Speaker 10 (30:44):
The regional banks that I cover, which are the tier
below the Bank of Americas and the JP Morgan's we're
talking about P and c US bank truists all the
way down to OZ King.
Speaker 2 (30:56):
And when you say tier below you just mean an
assets in assets, right.
Speaker 10 (31:00):
These banks really tend to cater towards the middle market
commercial customer and small businesses. Those are the bread and
butter customers.
Speaker 2 (31:10):
For what was the commentary that they offered around those customers.
Speaker 10 (31:14):
Yeah, so it's a bit more mixed if you talk
about the small the mid market commercial. They're saying that
they're still transacting, but on the other hand, there's not
a lot of you know, key capital spending that drives
a lot of loan growth for the regional So depending
on what we're seeing. Some banks are talking about higher
(31:38):
commercial line usage, which means they're just tapping their existing
commercial lines for gross purposes like a good sign. So
that's a good sign, but it could also mean that
once the terraff costs really start to pull through in
the economy, those line usage will be paid back.
Speaker 6 (32:02):
Were there any concerns that stood out to you at
all through these prints.
Speaker 10 (32:06):
Yeah, there's hasn't been a lot of real concerns. It's
really about if we get further loan growth or if
that can be persistent in the back half of the year. Right, So,
if you take a step back last year, there was
not a lot of loan activity for the regionals. A
lot of it was due to the uncertainty with rates
(32:28):
with the election, et cetera. And then perversely with tariffs.
You've actually seen more loan growth and if that continues,
that would be great for the regionals.
Speaker 3 (32:39):
But that's still a question I'm.
Speaker 2 (32:41):
Wondering about exposure to commercial real estate. One of our
viewers listeners getting in touch about Historically people have been
petrified of commercial real estate exposure, right when it comes
to at least that was in twenty twenty four.
Speaker 3 (32:56):
Is that still happening.
Speaker 10 (32:58):
Yeah, So the commercial really state exposure that is been
in the spotlight has been office commercial real estate exposure
in particular, and for these larger regional banks, it's the
smaller and exposure. We're talking about on average, about two
percent of their entire loan book is off a CRE
and they've had a lot of time to really build
(33:19):
their bad debt reserves on these loans. So it's a
known risk that they've been managing, and you've see charge
offs come quarter after quarter, but because of the smaller exposures,
it doesn't really move the needle that much. And they've
been really conservative with building their reserves. In fact, you
mentioned citizens they actually reduce their reserves, which means that
(33:42):
they're just letting the reserves flow down as they incur
more charge off. So that's just a sign of strong
confidence that the portfolio can perform going forward.
Speaker 6 (33:54):
So we know that US lenders really came into this
earning season trading at or near record highs and looking
at the KBDS Bank Index that's ticker BKX up twelve
percent year to date. So essentially we're hearing some people
saying that high valuations among the big banks really is
what tempered some of the enthusiasm surrounding the results. But
how are you thinking about next steps? Where do we
(34:14):
go from here?
Speaker 10 (34:15):
The next steps really is there going to be a
catchup trade? So for the KBW index, the largest banks
are really driving the boat here, with JP Morgan and
Bank of Mary City Group showing out performance for the year.
Speaker 3 (34:29):
Whereas the regional banks have lagged a little bit.
Speaker 10 (34:31):
Right, So because the regionals don't have the markets and
trading exposure that you mentioned earlier, are they going to
be able to catch up, and is the catchup trade
going to happen. That's what we're waiting to see, and
really that's really dependent, as I mentioned before, on growing
the balance sheet and improving the manager's margins.
Speaker 2 (34:51):
Herman, always good to see you, especially on a day
where we're not talking about a regional bank collapse. So yeah,
thanks so much for hanging out with us.
Speaker 10 (34:57):
You.
Speaker 2 (34:57):
Herman janis senior analysts for US regional banks at Bloomberg Intelligence.
Check out his research and the research from the entire
team on the Bloomberg Terminal.
Speaker 3 (35:06):
He's here in the interactive Brokers studio.
Speaker 1 (35:09):
This is the Bloomberg Business Weekdaily podcast, available on Apple, Spotify,
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(35:30):
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(00:23):
news as it happens. The Bloomberg Business Week Daily Podcast
with Carol Masser and Tim Steneveek. On Bloomberg Radio.
Speaker 2 (00:32):
It is Bloomberg business Week Daily. That's normal. Linda in
for Carol Master this afternoon, on this Netflix earnings day,
we are seeing shares of Netflix actually move lower in
the after hours after an initial mounts higher, down right
now by one point seven percent. The company did report
results that exceeded investor expectations in every major metric, revenue
(00:52):
growing to eleven point one billion dollars, earnings jumping from seven,
earn is jumping two rather seven dollars, and nineteen sense
per share. The company also raised its forecast for full
year sales and profit margins. It expects to generate up
to forty five point two billion dollars in sales and
have an operating margin of twenty nine point five percent.
Speaker 3 (01:12):
Let's bring in Mark.
Speaker 2 (01:13):
Douglass, the CEO, of the publicly traded advertising and marketing
company Mountain ticker MNT, and he joins us from Miami.
Mark always good to check in with you. I want
to focus specifically with you on the ads supported element
of this. I was telling Nora earlier. You know, I'm
old enough to remember when Netflix said they would never
do ads, they would never do live content, they would
(01:35):
never do news, they would never do sports. Now they
do all of those things, And is the in more?
Is the ads business working?
Speaker 4 (01:43):
I think the ad business is off to a start.
It can grow so much bigger, and you know, it's
obviously growing. I think they're saying that they expect a
lot more growth, but it's also in a competitive space.
They're competing with Disney with Peak, with Paramount, Warner Brothers and.
Speaker 3 (02:03):
Those big spenders.
Speaker 4 (02:05):
Those big brands, they don't really increase their budget, so
if you want to come into that space, you have
to take market share from someone else. Netflix is what
I would expect over time, is that whatever percentage of
viewership they have is what percentage of the ad market
they can get, So they have a lot of room
to grow. It is working, but it's still relatively small
(02:27):
compared to where it can be.
Speaker 5 (02:29):
I find it really interesting.
Speaker 6 (02:30):
We were discussing how people are willing to pay for
these subscriptions even if they do contain ads. I can
literally remember when you would watch Netflix all the way through,
no gaps at all. But it seems as though this
is a really thriving part of their business here.
Speaker 3 (02:44):
Yeah.
Speaker 4 (02:45):
Well, I mean why did they add the ads Because
their customers wanted a lower price point, and so it's
a simple trade off. We'll give you the lower price
point if you'll let advertisers pay for part of your subscription.
That's effectively what's happened opening, and so the customer is
getting what they want and Netflix is getting the revenue
(03:05):
they need know in order to make that possible. So
it is a win win. I'm not sure everyone that
gets ads thinks it's a win, but it's certainly a
win that they don't have to pay as much to
get the content.
Speaker 2 (03:17):
So I'm looking at the different plans and pricing for
Netflix here in the US. There's the standard with ads,
there's standard, there's premium, so it starts with seven ninety
nine a month. You can go for premium up to
twenty five dollars a month. Again, this is here in
the US. There are different intricacies to this because you
can pay for extra members and the like. Netflix has
gotten really good at as my brother likes to remind
(03:39):
our entire family understanding, if you're sharing an account and
now everybody kind of needs their own accounts. Is there
from the perspective of actual growth here in a saturated
market in the US, is there a concern or is
this by design that if Netflix raises the premium price
then there will be a small portion of the folks
(04:01):
who don't want to pay twenty five dollars a month
or whatever, and instead they'll drop down to that ad
supported model. Is that the strategy?
Speaker 3 (04:08):
I think yeah.
Speaker 4 (04:09):
I think worldwide Netflix maybe last quarter the quarter before Essential,
the last time they were reporting subscriber numbers, they said
the number one, you know, kind of tier that people
were buying was the ad supported tier. I think it
was as much as half of all new subscribers. And
so people want it. They want that price point. I
(04:32):
think what's really interesting is the way to think of
it is Netflix is building a backlog of future revenue, so,
in other words, they bring on the subscribers that they
are essentially under monetizing. They're charging them seven ninety nine,
and they're getting relatively few ads. And as Netflix increases
the ad load and essentially makes more money, that is
(04:55):
just like pure like that's going to flow directly bottom line.
I would Netflix's earnings to outstrip their revenue growth literally
for years to come. It's somewhat similar to the password backlog,
where they knew all these people were sharing the passwords
and at any time they can just kind of kind
of get more serious about that and all of a
(05:15):
sudden it produced all this additional revenue. That's what's going
to happen with Netflix is advertising. And I think I
have never seen a company this large that I would
say should be treated as a high growth stock. That's
the potential in the app business, right Mark.
Speaker 6 (05:31):
One thing that was interesting to me as we're parsing
through this earnings was the fact that Netflix boosted its
full year revenue primarily due to US dollar depreciation. What's
your takeaway from.
Speaker 4 (05:41):
That, Well, I mean, the their global business. I mean,
I think that's for financial analysts to really to really
look at. I mean, obviously they don't want to be
fluctuating their price points based on the way financial markets
are valuing the dollar.
Speaker 3 (05:58):
And other things.
Speaker 4 (05:59):
But I think the I think most investors are going
to look at the growth in revenue, growth and earnings,
continue expansion in national and I think the most important
value for Netflix, which is not really explicitly measured in numbers,
is they, through surveys, they are the first place people
(06:20):
go when they turn on their TV. Is they turn
on Netflix. And the amount of power that gives this
company is it's almost hard to state that. That's how
they can turn you know, like fights into like numbers
that rival some of the biggest sporting events, or turn
WWEE into you know, big show on Netflix where one
(06:42):
has been as big as another channel. And if I'm
gonna investor, I'm gonna be as long as Netflix is
the first place people go, It's going to be the
first stock I want to invest in that. I think
that's the biggest correlation.
Speaker 2 (06:54):
Hey, hey, Mark, since you are focused on the ads business,
in your view, what's a more profit subscriber for Netflix?
Is it the one who's paying seven ninety nine a
month for the ad supported version, or is it the
premium subscriber at twenty five bucks or the standard subscriber
at eighteen bucks.
Speaker 4 (07:12):
I think the premium is probably the most profitable, but
I think then the AD supported has the potential to
become the second most profitable. I don't think it's there
yet because they simply are not monetizing all those entertainment
consumers at the level they could be. But when they are,
they're doing seven ninety nine on that price point. Who knows,
(07:34):
it might be eight ninety nine next year or something
like that, and they can make probably equal to that
in terms of AD dollars per user, and maybe even
a bit more than equal to that in AD dollars
per user. And you see that's what Amazon did with Prime,
where they just flipped the entire customer base in the
AD supported. So that AD supported in terms of volume,
(07:54):
because most of the subscribers I think will be AD
supported over time, is the most profitable just share dollars.
Right now, it's probably the premium twenty five dollars mark.
Speaker 6 (08:04):
I mean, when you think about Netflix historically, they were
initially felt like the leader, but you're seeing a lot
of these other companies in here trying to additionally monopolize
the space. But that being said, we did see some
news earlier that Comcast is raising the price of its
Peacock streaming service by three dollars a month. Very fitting
today when we have Netflix earnings. How are you thinking
about Netflix as a potential leader right now in this space?
Speaker 4 (08:26):
Yeah, I mean that losing that leadership position is going
to be hard for them because they just have to
keep investing in content, and they're profitable and very profitable,
so they can afford to keep doing that. But I
think what you're seeing happening is the other networks are
fighting back. Peacock with Love Island just massive show over
the last month from what I know, did incredibly well
(08:50):
advertise in terms of revenue generation. I think it's the
number one reality show in the world. Plus they have
Bravo and others. You have Disney with all the children's content,
Star Wars contentes PN now going in a live sports
I think all the networks have gone way more serious
about about competing and they're bringing out their own hit content.
(09:10):
But as long as Netflix is number one, I think
it's hard for them to lose that spot. Probably the
only company that can really truly challenge them is Disney.
Speaker 6 (09:19):
Absolutely, it's interesting. We were just talking about Love Island.
Speaker 4 (09:23):
I am.
Speaker 6 (09:23):
I'm a watcher of Love Island, so I see how
they were able to skyrocket here.
Speaker 2 (09:27):
Somebody who I'm co anchoring with today went to like
a Love Island premiere watch party, watch party or one
you hosted a.
Speaker 3 (09:35):
Watch party of my own two days later.
Speaker 2 (09:37):
Meanwhile, I've never even seen an episode of whatever you
guys are talking about.
Speaker 3 (09:40):
Mark Douglas.
Speaker 2 (09:41):
Always good to see you fly on up here to
New York next time so we can hang out in
the studio. Mark Douglas is CEO of the publicly traded
advertising and marketing company Mountain.
Speaker 1 (09:52):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five e's during
Listen on Alva, Karpe and Android Otto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 2 (10:05):
Well signs at the US economies holding up just lifting
stocks this afternoon, as we heard from Charlie. This coming
just a day after speculation about the fedhare.
Speaker 3 (10:14):
Really rattled markets.
Speaker 2 (10:16):
Better than estimated retail sales and a drop in jobless
claims pointed economic resilience driving the S and P five
hundred toward fresh all time highs. Let's bring in Molly Smith.
She's Bloomberg News Economics editor. She joins us here in
the Bloomberg BusinessWeek Studio. I want to start with retail
sales because a big rebound in June, a broad advance.
Ten out of thirteen categories posted an increase. Does this
(10:38):
answer all questions about the health of the US consumer?
Speaker 3 (10:40):
Are we all good?
Speaker 4 (10:41):
God?
Speaker 5 (10:41):
I wish it was that easy, Tim It's not. I
wouldn't be here if it were that easy. I explained
it was, so I like to caveat by saying that,
like retail sales is, I would say, like a relatively
narrow look at consumer spending, that this is a report
that mostly captures just spending on goods like physical stuff,
but that's really just that's a third of overall consumer
(11:04):
spending in our economy.
Speaker 3 (11:05):
I think this is a really important point.
Speaker 2 (11:06):
The consumer powers the economy, but services are what they
spend their money on, bing go, Okay, yes.
Speaker 5 (11:11):
So not to say that a third of consumer spending
is nothing, but it is not the majority of where
consumer spending is really directed at. So that's one thing.
Second thing, these are not inflation adjusted, so when you
see these increases, you can kind of do a little
bit of the math, since we did just get the
CPI to see where prices were rising or not. But generally,
if you see a number that's up, it could be
(11:33):
up because prices are up, or because actual spending activity
is up, or both. So in this case, there's probably
a bit of a mix of that, and either way, though,
the takeaway from economists was definitely positive that, you know,
we just had two months of declines in retail sales
coming into June, so to see a rebound, especially of
this magnitude, was definitely reassuring in some ways, you know
(11:55):
that maybe tariffs are not totally sapping consumer demand at
least as of yet, but.
Speaker 6 (12:00):
Not the end all be all here, which you've clearly
spelled out for us here. What were some of the
highlights that you saw in this print.
Speaker 5 (12:06):
I think I don't know if I would call it
a highlights so much as a surprise that that motor
vehicle sales were up as much as they were, especially
because we saw the administrative data from Ward's Automotive groups
showed that car sales dropped again in June, and the
CPI report showed that car prices were down, So that
to me would spelled, you know, an overall negative for
(12:28):
car sales a commist you're saying, probably a seasonal adjustment issue,
because I'm not really sure how else you would get
a positive number out of that.
Speaker 2 (12:35):
But there was also this pull forward in the earlier
part of the year because consumers are very worried about
what tariffs would do to automobiles. Is that part of
this equation at all? Is that why it's surprising too.
Speaker 5 (12:45):
I think that there's probably still you know, there's been
so many obviously, as we know, whiplash with tariffs. Are
they on, are they not? Is it delayed?
Speaker 4 (12:53):
What date?
Speaker 3 (12:54):
So I think, you know.
Speaker 5 (12:56):
There was a bit of a pullback in June when
like we had, you know, put to rest the idea
of one hundred plus percent tariffs on China. You know,
that was like a pact that was reached in early May,
and that we've had a bit of this pause until
the now we had this announcement in the past week
that the real mayly more significant tariffs are going to
kick in next month. At least that's the plan right now.
So who knows, we could be going through another one
(13:18):
of those you know lulls right now with the tariff
talk that could be boosting spending and sentiment. In the meantime, Well, let's.
Speaker 6 (13:24):
Talk about the job market right now. Of course, we
got that weekly print that we always get, which is
jobless claims data that came out today. We saw that
the estimates were two hundred and thirty three thousand, but
it actually came in at two hundred and twenty one thousand,
So a slight miss here. But what are you really
seeing when we think about the broader economy as it
relates to jobless claims.
Speaker 5 (13:44):
Well, it's a good thing when we see a miss
on jobless claims froming a point that how these fewer
people are filing for unt employment, So that's a good thing. Plus, yeah,
assuming that we're in the camp of not wanting people
to lose their jobs, so that's good. And at that
level of overall claims of where the initial ones have
been coming in in this like two hundred and twenty
thousand area, that's very much in line with like the
(14:06):
pre COVID economy and would suggest like a pretty solid
labor market overall. Granted, where more of the concern is
happening is in continuing claims. So these are people who
are continually receiving unemployment benefits, whereas the other number is
just new filers. So the continuing claims number has kind
of been flirting with around like that two million number
(14:27):
for a while now kind of like up around the
highest levels. Since the end of twenty twenty one, that
one has definitely been trending in a worse direction.
Speaker 6 (14:35):
So for a while it used to be bad news
is good news? Where do we sit now? What are
we say?
Speaker 5 (14:40):
Oh gosh, I want to say that good news is
good news. I mean it's I think, well a lot
of it is because you're thinking from the perspective of,
like what happens to FED rates? Right, So I mean,
right now, all of this data is telling you that,
like the economy is solid and that this is all
also supporting why we're not expecting to see ray cuts
(15:02):
in July, at least July for now, who knows. September
still seems to be a wild guard.
Speaker 2 (15:07):
Okay, So on this I just want to end with
you on the FED and play some sound from one
of the Kevins who is a vying to be the
next chair of the FED. Kevin Walsh, former FED governor,
was on CNBC earlier today.
Speaker 7 (15:20):
I think the President's language is this could be a
golden age, and frankly, I think they.
Speaker 3 (15:24):
All could be right.
Speaker 7 (15:25):
Good policies could advance this US economy. What we'd call
AI in a couple of years will just call business,
and AI is going to make almost everything costs less
and the US can be a big winner. If I
were the president, what I'd be worried about is a
central bank that doesn't see any of that, a central
bank that is stuck with models from nineteen seventy eight,
(15:47):
governance from a prior period and don't recognize we could
be at the front end of a productivity boom, and
if I were the president, I'd be worried that they might.
Speaker 8 (15:55):
Not see it.
Speaker 2 (15:57):
Kevin Walsh, a former FED governor, on CNBC earlier today, Molly,
I want to ask you about this idea that a
central bank with this dual mandate, in Kevin Warsh's view,
might be stuck on old models and old priorities.
Speaker 3 (16:11):
What's your view on this.
Speaker 5 (16:12):
I mean, I still think the priority for the FED
is definitely the dual mandate, as you said, so that's
ensuring price stability and maximum employment, and I think those
are still good goals to have, no matter if you're
in nineteen seventy or if you're in twenty twenty five.
There are a lot of central banks that don't have
both of those, you know, they just have an inflation
mandate or an employment mandate, but not both. So I
(16:33):
think that, you know, and that's also something that for
us comes from Congress. That's not the Fed's own idea.
This is a mandate from Congress as to what they're
meant to achieve here. That said, I mean, yeah, the
economy is rapidly evolving. AI certainly has a lot of promises,
but I don't think that's really had any widespread impact
yet in terms of like taking out jobs that were
(16:55):
you know, at a really widespread level here. I think
it's just so far been like pretty concentrate and we
haven't yet seen all of that, and of course when
those things are going to be happening a bit more notably, Yes,
the FED wants to be acting forward looking, but like
you can't also be like, you know, acting in advance
of like if this is still perhaps years or decades
away from now, who knows our.
Speaker 3 (17:16):
Good place to end it?
Speaker 2 (17:17):
Molly Smith, Bloomberg News Economics editor joining us here in
the Bloomberg Business Week a studio.
Speaker 1 (17:23):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Apple Cocklay
and Android Auto with the Bloomberg Business App. You can
also listen live on Amazon Alexa from our flagship New
York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 6 (17:41):
Let's talk about commercial real estate today. We had pro
Lodge's shares that gained in yesterday's session. Those they're down today.
The industrial real estate investment trust industry and that company
in particular, that company delivered a beat and raised earnings
report for the second quarter and beat consensus expectations for
the second quarter. There, that's industrial commercial real estate and
that can certainly tell us one thing. For a view
(18:04):
on the office market, we bring in John Gates, CEO
of Leasing Advisory America's at JLLL. The offer real estate
and investment management services around the world, so it's got
a great view on different economies and if we're indeed
getting back to the office, talk to us John a
bit about what the landscape is like right now for
the office space in the United States. Are people coming
(18:25):
back to the office.
Speaker 8 (18:26):
They are thank you for having me by the way,
and good afternoon.
Speaker 9 (18:29):
Yes, unequivocally, we see increasing numbers of organizations ask their
people to come back and in fact tell them to
come back to the office an increasing number.
Speaker 8 (18:38):
Of days a year.
Speaker 9 (18:39):
It's been more of a step function, I would say,
than a leap, if you will.
Speaker 8 (18:43):
That's been happening and building for quite some time.
Speaker 2 (18:45):
John, where are we compared to let's say, January twenty twenty, though.
Speaker 9 (18:50):
You know a year if you said twenty twenty, we're
getting closer, but we're not in the same place. So
fifty four percent, I think of the fortune one hundred
have said you're in the office five days a week,
and that was probably ninety percent then. But hybrid policies,
you know, have people in the offices three to four
days a week. So it's you know, somewhere in between,
(19:12):
but far closer than we were a year ago.
Speaker 2 (19:14):
What about from the perspective of inventory and how much
leased inventory you have versus what you had back then.
Speaker 9 (19:22):
There's a lot of ways to segment buildings for that question.
I think the easiest way to do it is the
new higher quality product and then everything that's say pre
twenty fifteen, and the first category is leasing very very
well at record rents, and occupancy levels are very high,
and vacancy levels are low.
Speaker 8 (19:43):
We don't have a lot of construction. We're going to
run out of space.
Speaker 9 (19:45):
The older product is a different story, and leasing volumes
there are nowhere near as high, and that's where the
majority of any increasing vacancy is coming from older product.
Speaker 6 (19:58):
John I cover commercial real estate stock for our US
equities team here at Bloeberg News, and we talk a
lot about the bifurcation in quality office space in the
United States. You have the Class A buildings, You've got
buildings that are lower tier, and of course you see
a lot of these big corporations going for the higher
quality buildings. As we look at the broader country and
what it looks like for the office real estate space,
(20:20):
where are you seeing areas for opportunity?
Speaker 9 (20:24):
Well, I think well positioned assets that are a little older,
meaning a good location and good bones and a good
footprint because they would trade at a really meaningful discount.
So you have in the old days we called that
neurovalue ad play. But you invest some money, you're below
brand new replacement cost and you've got a very leasable
building because you've spent a lot of money on us.
Speaker 8 (20:44):
I would view that as an opportunity.
Speaker 9 (20:47):
And then I think at the high end, well located sites,
you all would be familiar with the all street phenomenon,
a lot of financials moving jobs here. As an example,
if someone were to break ground on a top of
the market off US building, my belief is in Dallas
it would lease quickly. So some of us where you are,
New York is very solid right now, and in general,
(21:07):
the cities across the south are very.
Speaker 6 (21:09):
Solid, and I know Park Avenue in particular. Here we
are seeing a bit of a tailwind here in New
York City. But let's talk about the West Coast. Of course,
we have a lot of those remote workers. We've got
the tech industry that started going a bit more virtual,
not paying as much. They're not seeing these companies forcing
people as much back into the office as other industries.
What is the West Coast office demand looking like right now?
Speaker 9 (21:30):
You know, location, location, location has always been a thing
in real estate, right and we call that sub markets
in our space.
Speaker 8 (21:36):
Some markets matter a lot.
Speaker 9 (21:38):
In Northern California, dramatic change really started a year ago.
And it's not necessarily big tech driven, but it's AI
spawned industries and organizations at startups. So absorption of space
has been very healthy in the Bay Area. LA is
highly concentrated on the west side of LA if you
wille Orange County would be more typical. And then SEE
(22:00):
has been lagging, but we're starting to see recovery as
Amazon and Microsoft and other great big name companies have said,
we're coming back to the office. You just don't see
the job growth right now in the largest tech companies.
It's more in the startup community, so that's overweighted to
Northern California.
Speaker 2 (22:16):
You know, John we you mentioned that New York is
strong right now, and that's where Nora and I are located.
That's where our headquarters is here at Bloomberg, and I
wanted to ask you a question about this region, specifically
in regard to the mayoral election that's coming up. There's
been some concern, especially from business leaders, that Zorroon Mamdani
(22:40):
might drive away business as a result of wanting to
raise taxes on the wealthy and wanting to raise taxes
on businesses.
Speaker 3 (22:47):
And he did meet with.
Speaker 2 (22:50):
A bunch of leaders Hunter business leaders from the Partnership
for New York City earlier this week to.
Speaker 3 (22:54):
Talk with them.
Speaker 2 (22:56):
Are you looking at that at all as being a
risk to New York City commercial real estate?
Speaker 9 (23:02):
Yes, I mean would be the one word to answer.
I'll draw I think a direct comp for you. Last
fall in San Francisco, in the city proper, we had
a local election, as you too would be aware, and
we had some of our agency professionals, people who represent
the owners of the buildings, had leases ready for signature,
and the tenants said, I want to see the outcome
(23:23):
of the local election, and based on the way it
went there, they ended up signing the leases and putting
their people in the city.
Speaker 8 (23:29):
And I know, I.
Speaker 9 (23:30):
Do believe that could happen in New York, but that
doesn't mean it will as a certainty.
Speaker 8 (23:35):
I would take people at their word, though.
Speaker 2 (23:37):
Well.
Speaker 6 (23:38):
Talking a bit more about this mom Donnie and the
impact that it's having on markets here. Of course, we
know that part of his campaign has been to freeze
rents in New York City, so we did see apartment reads,
especially that have exposure to New York City falling after
the news. But I want to talk about office conversion
because of course, we are also dealing with the housing shortage,
(23:58):
and a lot of the conversation in the real estate,
in the real estate industry has been about whether or
not we're able to convert some of these office spaces
into multifamily apartment properties. Is that something that you all
are thinking about and what is the leatest status with that?
Speaker 9 (24:11):
Oh, it's accelerating, and it's happening at a pace we've
never seen in the commercial history.
Speaker 8 (24:16):
You know.
Speaker 9 (24:16):
Again, as you know, Nora, absolute real estate is not
a new thing. People see houses torn down that are
old and build bigger, shinier ones, and so that can
happen and all the asset classes, and we see that
happening now. Now, as you know, not all office buildings
lend themselves to being multi family. The floor plate configuration
matters a lot, and obviously the location in a given
(24:38):
city matters a lot. But we do see unprecedented amounts
in terms of numbers of building and total aggregates square
footage that are being converted to another use hospitalities and
other likely candidate that's probably the two most meaning multifamily
and hospitality. And we do have an affordable housing challenge.
Speaker 3 (24:55):
So that's good John.
Speaker 2 (24:57):
You guys are with a two q US office market
Dynamics report, and one thing that you argue in the report,
based on the data that you found, is that there's
essentially this turning a corner for the US office market.
What's the evidence that you have for that.
Speaker 9 (25:14):
We're just looking at the data and statistics and watching
aggregate industry decisions. As an example, law firms have very
broadly said we're working out of the office, and they've
been expanding their footprint for a ear taking more space,
and the data is very clear that it says that,
and you see office leasing volumes increasing on a quarter
over quarter basis. There's also anecdotal data. If I walk
(25:37):
down the hall here where I sit with the real
estate brokers, they're positive when they're in a better mood.
It means volumes are good and they are in a
better mood, and they will tell you they're busy. They'll
tell you they're chasing more opportunities and people are making
decisions at a greater pace, which is also cycle times
is something we always measure and pay attention to here,
and they're shrinking, which means people are making decisions.
Speaker 8 (26:00):
So all good news.
Speaker 3 (26:01):
And it adds out, John, good to see you. Thanks
for joining us, John Day.
Speaker 8 (26:06):
Thanks you for having me. Great to see you.
Speaker 2 (26:09):
Whenever the jail folks join us, they're always joining us
from the office, which I.
Speaker 3 (26:12):
Guess makes sense.
Speaker 2 (26:12):
Nobody's ever working, nobody's ever working from home. I can
tell you that John Gaates, CEO of the Leasing Advisory
America's services over at JLL. They offer real estate and
investment management services all over the world.
Speaker 1 (26:26):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eastering. Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 4 (26:41):
Mac.
Speaker 3 (26:42):
How about you let me drive?
Speaker 1 (26:43):
Oh no, no, no no, this is not a twin, Honry.
Speaker 3 (26:48):
Please, I'll do the travels ease. Great, I want to drive.
Speaker 8 (26:52):
It's a good question.
Speaker 3 (26:59):
This is the drive to the clothes plunks.
Speaker 1 (27:01):
Your thing well up on Bloomberg Radio.
Speaker 2 (27:06):
TikTok, everybody. Just about eighteen minutes to the close. We've
got a special guest for our drive that close. Today
we're talking regional banks. We've got Herman Chan with a
senior analyst for US regional Banks at Bloomberg Intelligence. Herman
joins us here in the Bloomberg Interactive Brokers studio. I
just want everybody to remain calm. Okay, despite the fact
that Herman is in our studio. Nothing is collapsing, Nothing
(27:30):
is collapsed. The reason I say that is because we
got to know you so well a couple of years
ago during the regional banking crisis.
Speaker 3 (27:37):
It's my claim to fame each and every day. We
spent so much time together.
Speaker 2 (27:41):
So it's nice to see you on a day when
we don't have to talk about the FDIC.
Speaker 3 (27:45):
That's right.
Speaker 10 (27:46):
Actually, banks have been pretty good this far in the
earning season. Actually it's been pretty interesting because banks universally
have have been estimates. But the bar's a bit higher
because just because of the run up over the past.
Speaker 3 (28:00):
Okay, so let's take a little step back.
Speaker 2 (28:01):
Because we've gotten earnings from I think it's fair to
say the majority of them, M and T Bank, First Horizon,
P and C Financial, Citizens Financial Group, fifth third in
US Bank Corp. We're going to get tomorrow, truest Co
America and Huntington Bank shares. Right, you would say if
there is a through line to sort of tie all
these companies together, at least the ones that we've heard from.
Speaker 3 (28:24):
Things are good.
Speaker 10 (28:24):
Yeah, things are good universally. The banks have beaten on credit,
So the fears of tariff uncertainty and potentially worsening credit
quality and higher loan losses, that really hasn't been apparent
so far, and banks have been able to deliver some growth,
which is interesting because you've seen some corporate clients and
(28:48):
business clients front run some tariffs and build inventory ahead
of higher costs, so that's actually been helpful for regional banks.
Speaker 6 (28:58):
How are we thinking about this earning season more Brolby?
Who are the out performers here?
Speaker 3 (29:02):
Yeah?
Speaker 10 (29:03):
So P and C has done probably the best so far.
They've been able to deliver loan growth and also improve
their nand margins, which is they're spread between lending and deposits.
That's the one that has been the belt weather, and
you've seen that performance from yesterday. Some of the other
ones have been a bit more mixed because they've either
(29:23):
haven't grown their loan portfolio or their not just margins
wasn't as robust.
Speaker 6 (29:29):
Are you How do we think about just leverage right now?
When we look across the industry what are you seeing?
What are the main takeaways?
Speaker 10 (29:36):
The main takeaways really is I was trying to preference earlier.
There's a higher bar for performance given the thirty percent
run up in stocks over the past three months.
Speaker 3 (29:47):
And on the back of that, the largest.
Speaker 10 (29:50):
Banks like JP Morgan and Bank of America, we're showing
strong deposit and loan growth, so there's a higher bar
for performance. And where things really stack up is can
the banks really drive top line revenues in the form
of an interesting come work fees.
Speaker 2 (30:08):
When we talk about the six big banks, we often
talk about Bank of America being a good bell weather
of the consumer because they have so much consumer access.
We talk about JP Morgan in a similar way. A
lot of the focus of our coverage is about the
trading revenues, and they were certainly good during volatility. The
regionals serve somewhat of a different group of folks. We
(30:29):
speak to Bruce Vansn a lot over at Citizens Financial
and he reminds us that construction small business, they're the
ones who are powering their loan books. Is that every
regional bank.
Speaker 10 (30:44):
The regional banks that I cover, which are the tier
below the Bank of Americas and the JP Morgan's we're
talking about P and c US bank truists all the
way down to OZ King.
Speaker 2 (30:56):
And when you say tier below you just mean an
assets in assets, right.
Speaker 10 (31:00):
These banks really tend to cater towards the middle market
commercial customer and small businesses. Those are the bread and
butter customers.
Speaker 2 (31:10):
For what was the commentary that they offered around those customers.
Speaker 10 (31:14):
Yeah, so it's a bit more mixed if you talk
about the small the mid market commercial. They're saying that
they're still transacting, but on the other hand, there's not
a lot of you know, key capital spending that drives
a lot of loan growth for the regional So depending
on what we're seeing. Some banks are talking about higher
(31:38):
commercial line usage, which means they're just tapping their existing
commercial lines for gross purposes like a good sign. So
that's a good sign, but it could also mean that
once the terraff costs really start to pull through in
the economy, those line usage will be paid back.
Speaker 6 (32:02):
Were there any concerns that stood out to you at
all through these prints.
Speaker 10 (32:06):
Yeah, there's hasn't been a lot of real concerns. It's
really about if we get further loan growth or if
that can be persistent in the back half of the year. Right, So,
if you take a step back last year, there was
not a lot of loan activity for the regionals. A
lot of it was due to the uncertainty with rates
(32:28):
with the election, et cetera. And then perversely with tariffs.
You've actually seen more loan growth and if that continues,
that would be great for the regionals.
Speaker 3 (32:39):
But that's still a question I'm.
Speaker 2 (32:41):
Wondering about exposure to commercial real estate. One of our
viewers listeners getting in touch about Historically people have been
petrified of commercial real estate exposure, right when it comes
to at least that was in twenty twenty four.
Speaker 3 (32:56):
Is that still happening.
Speaker 10 (32:58):
Yeah, So the commercial really state exposure that is been
in the spotlight has been office commercial real estate exposure
in particular, and for these larger regional banks, it's the
smaller and exposure. We're talking about on average, about two
percent of their entire loan book is off a CRE
and they've had a lot of time to really build
(33:19):
their bad debt reserves on these loans. So it's a
known risk that they've been managing, and you've see charge
offs come quarter after quarter, but because of the smaller exposures,
it doesn't really move the needle that much. And they've
been really conservative with building their reserves. In fact, you
mentioned citizens they actually reduce their reserves, which means that
(33:42):
they're just letting the reserves flow down as they incur
more charge off. So that's just a sign of strong
confidence that the portfolio can perform going forward.
Speaker 6 (33:54):
So we know that US lenders really came into this
earning season trading at or near record highs and looking
at the KBDS Bank Index that's ticker BKX up twelve
percent year to date. So essentially we're hearing some people
saying that high valuations among the big banks really is
what tempered some of the enthusiasm surrounding the results. But
how are you thinking about next steps? Where do we
(34:14):
go from here?
Speaker 10 (34:15):
The next steps really is there going to be a
catchup trade? So for the KBW index, the largest banks
are really driving the boat here, with JP Morgan and
Bank of Mary City Group showing out performance for the year.
Speaker 3 (34:29):
Whereas the regional banks have lagged a little bit.
Speaker 10 (34:31):
Right, So because the regionals don't have the markets and
trading exposure that you mentioned earlier, are they going to
be able to catch up, and is the catchup trade
going to happen. That's what we're waiting to see, and
really that's really dependent, as I mentioned before, on growing
the balance sheet and improving the manager's margins.
Speaker 2 (34:51):
Herman, always good to see you, especially on a day
where we're not talking about a regional bank collapse. So yeah,
thanks so much for hanging out with us.
Speaker 10 (34:57):
You.
Speaker 2 (34:57):
Herman janis senior analysts for US regional banks at Bloomberg Intelligence.
Check out his research and the research from the entire
team on the Bloomberg Terminal.
Speaker 3 (35:06):
He's here in the interactive Brokers studio.
Speaker 1 (35:09):
This is the Bloomberg Business Weekdaily podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from two to five pm Eastern on Bloomberg dot com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
(35:30):
and always on the Bloomberg Terminal
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