Catherine Chiglinski (2:53)

Well, it's really interesting because obviously, like Besant and Powell are always meeting with bank CEOs and sort of staying in touch with the financial system. But to have them both sort of, sort of in on this meeting in which, yes, they called the bank CEOs, many of which were in town for sort of a lobbying meeting. They called them in for this urgent meeting. And I think what's really interesting is it really is about this anthropic Mythos model and what it really portends for the industry. And I think that's key. You know, it sounds like obviously anthropic is trying to be very thoughtful on sort of releasing it to a select few companies to sort of be able to test their systems. And I think banks obviously are kind of a key source that we need to needs to make sure that they can sort of batten down the hatches and make sure they're ready for this next era of cyber risk.

Bloomberg Intelligence Host/Interviewer (3:39)

How unusual is this, Catherine, for bank leaders to be summoned on such short notice over the potential systemic risk of a private company to their industry?

Catherine Chiglinski (3:48)

Yeah, well, and I think it's interesting because they'll meet on macro events, they'll meet on larger, broader trends in the industry. I think this is a little bit interesting in that I'm not sure that there's exactly been like an AI prompt before that has spurred them all to, to come together and come together quickly. You know, AI has been like, definitely a risk factor that all the companies are talking about and have been talking about for many years at this point. But for them to sort of come together and say, listen, this is to get a warning from the Fed and the treasury that says this is a big risk and you need to be preparing is like a very big statement.

Bloomberg Intelligence Host/Interviewer (4:27)

What are the banks? Have the banks acknowledged this risk? Or how have the banks responded to some of these AI risks that may be out there as it relates to cybersecurity?

Catherine Chiglinski (4:35)

Well, I think honestly, in the past few years, banks have really ramped up their cybersecurity protocols. I think AI is a new challenge, obviously, because it makes it quicker that these attacks and these risks can evolve. So I do think that banks have been responding already and are already sort of quickly on this. Like you look at Project Glasswing, which is that sort of anthropic led limited release to certain companies to protect their defenses. And JP Morgan is already on that list. So it's clear that they're quickly trying to get involved and to make sure that they can sort of ready their systems as best you possibly can in this sort of new age. But, but I do think it's interesting that, like, this is enough of a, you know, as we're sort of questioning, you know, how good really is Mythos, I think, is a real indicator that regulators are taking it seriously.

Bloomberg Intelligence Host/Interviewer (5:28)

Have there been certain banks within that group that are more proactive about mitigating these AI and cybersecurity risks than others? Any kind of standouts in terms of what they're doing?

Catherine Chiglinski (5:37)

Well, I think you have all the, especially the big Wall street banks, I think, have been ramping up that a lot. And part of it is honestly cyber risk, you know, affect your reputation, and if you're JP Morgan, the top US bank, you've got it, you've got a lot to protect. I do think what's going to be really interesting is like, how regionals handle this. You know, a smaller bank that may maybe doesn't have as much of the flexibility and the capital to sort of support large scale sort of cyber initiatives. It is going to be really important how the big giants, J.P. morgan, Morgan Stanley, Citigroup address this because I think it'll sort of set the tone for the rest of the industry.

Bloomberg Intelligence Host/Interviewer (6:14)

Anthropic. Your reporting shows Anthropic has separately been battling the Trump administration. In court, the Pentagon had labeled the company Anthropic as a supply chain, a chain risk, a designation that Anthropic has opposed here. So the government's definitely looking at this stuff from a lot of different angles, aren't they?

Catherine Chiglinski (6:32)

Definitely. And, you know, I think right now, whenever anyone sees Anthropic in the government, you're grown, you know, you're thinking about this sort of political battle that they're in over the Pentagon's designation. And I do think, though, the fact that Jerome Powell was in this meeting, you know, he's obviously trying to be very careful. They don't want to be seen as a very political institution. But I think the fact that the Federal Reserve was in this meeting really understates the fact that this is less of a political thing and this is really more of a, you know, as a top banking regulator, the Fed is concerned about sort of cyber risks and how the industry is doing it. And the Fed knows banks well. I mean, they have the examiners who are going in routinely to sort of supervised operations. So, yeah, I think a little less of a political bent for this meeting in particular just really underscores sort of how cyber becomes a top topic for them.

Bloomberg Intelligence Host/Interviewer (7:24)

We have bank earnings coming up. We're going to hear from a lot of these executives on earnings calls next week. Do you expect that they'll address this at all?

Catherine Chiglinski (7:32)

It would be shocking if they don't. Mostly because we're always talking about, I feel like every earnings call, you know, everyone wants to know how are you using it? What does it mean for your employees? And I think a natural extension is sort of what are you doing for the risks of cy, especially you see with escalating global conflicts like the Iran war. We just had a fintech chime got hacked. I think there's definitely an impetus for them to address this next week.

Bloomberg Intelligence Host/Interviewer (8:03)

What is the expectation for earnings next week?

Catherine Chiglinski (8:05)

Well, a blowout quarter for trading. It's going to be potentially across all the five biggest trading desks. We're expecting stock trading to set records and fix income trading. Good. Most of the banks, I think that'll be up M and A. It's kind of interesting because you would think that geopolitics really put a damper on it. But most of what we've seen so far and what they've been signaling is that it's really held up. So that'll be interesting. I think another wild card in addition to sort of how they address the AI though is private credit. Like how do they address it? Investors are very want details on what are their exposures and so we'll be monitoring that pretty closely. Stay with us.

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Let's talk about the consumer. Let's talk about the consumer. What are they buying? And one of the great places to look is sneakers. And you look at Nike and you can do that with Punam Goyal, senior US E Commerce and Retail Analyst at Bloomberg Intelligence. There's so many puts and takes for the Nike because I mean it's a product, everybody knows it's a global product but that has pluses and minuses. Put them what's the, what's the Nike story here? I know they've had a lot of challenges with China. They've had a lot of challenges managing their inventory tariffs like a lot of other companies. What's, what's the Nike story right now?

Poonam Goyal (11:12)

Yeah, so Nike is basically going under a turnaround. There's a lot of things that they need to fix, but there are things that they have fixed. So let's start with the biggest piece of the business, which is North America. In North America, since Elliott Hill has taken helm, they have made improvements. In fact, sales have turned positive there and that's a sign that the initiatives put in place, getting the right product back in, working on speed, clearing out old product, reducing inventory, it's all paying off and we expect that to continue. The challenge, however, has been China. You know, as we know we spoke about this earlier, China is a market that not just Nike but every athleisure company is eyeing for growth, for long term growth. And in China, Nike has had major hiccups. So the playbook there is to repeat what they did in North America to fix the business. But it's not going to happen overnight. It is going to take time and, and I think it's just about being patient and watching them execute against China as well.

Bloomberg Intelligence Host/Interviewer (12:13)

Chinese consumers broadly have just been shifting to more local brands. What will it take for Nike to recapture their appetite?

Poonam Goyal (12:21)

Poonam I think it's building brand heat. Right. The first thing they have to do is get the Right. Product in. So when you look at the product that's being sold in China, it's heavily discounted. In fact, Nike is perceived as an off price label in China so they need to flip that image, they need to move the discount discounting because, because that's clearly not good. They need to introduce premium product into the Chinese marketplace and then have local ambassadors, local clubs really, you know, validate the brand for them. And all that will start with product first and then after and, and we do think it's possible but it's, it's just there's so much old inventory there still right now that needs to be discounted. It's going to take I think at least 12 to 18 months

Bloomberg Intelligence Host/Interviewer (13:06)

if I'm an investor that 12 to 18 month time frame, I'm not sure I'm that interested in it. How's the company trying to position its turnaround here to appeal to investors?

Poonam Goyal (13:17)

I mean look people, investors are not being patient and we can see that with the reaction in the shares. Shares are down year to date and Nike is just reiterating exactly what it's doing. It's talking about its playbook, lowering inventories, taking out discounts, getting the right product in. I think the next catalyst for Nike in my mind is going to be its analyst day. It's a day that we've been waiting for for years. They postponed the last one they announced a few years ago. It'll take place in the fall. And we think that's when Nike will be able to really highlight the success it's had and also show its path forward with new inventory, new product, new collaborations, etc.

Bloomberg Intelligence Host/Interviewer (13:57)

Poonam, how does this war and any disruptions from it, higher oil, the risk of inflation, make Nike's turnaround even more difficult? What challenges does it pose?

Poonam Goyal (14:08)

You know, the risks of the war are not specific to Nike. I think it's across the consumer space. Higher oil prices means higher gas prices. It impacts low income consumers more than it does high income consumers. Thankfully, Nike is a brand that probably leans more towards the mid to high end than the low end. So they do have some buffer compared to a low end retailer. That said, you know, if things prolong for a long time and inflation continues to tick higher consumers will pull back and the first place they pull back is on discretionary goods and sneakers is a discretionary purchase.

Bloomberg Intelligence Host/Interviewer (14:44)

Put them, just step back a little bit. What's the competitive landscape for athleisure? Because there's so many, I mean Nike used to be just to me at least a dominant brand, but it seems like it's gotten more and more competitive. I'm seeing brands of sneakers around here that I haven't seen before.

Poonam Goyal (14:59)

You're absolutely right. Nike is still the dominant sneaker player globally. It is the largest footwear brand in the world. It remains that. But it has lost share over the last five years to other brands. Some of the brands that you may be referring to include on Hoka, Asics, New Balance, all these brands and some others have gained traction, especially in the lifestyle and running space. That said, when you look at the size of those brands against Nike, there's still a wide gap. So we run a sneaker survey twice a year. And when we ask consumers, you know, what is the choice of brand when it comes to sneakers, Nike's still number one. So when you look at broadly, Nike still the favorite brand, but when you look into niche markets, you are seeing the rise of some of these other brands, which is obviously why Nike has been losing share.

Bloomberg Intelligence Host/Interviewer (15:46)

Putin very quickly. What else stood out to you as some of the key differences in this report compared to prior quarters? Any metrics that caught your attention?

Poonam Goyal (15:55)

I think, I think the biggest metric that caught my attention was the inventory levels. They have been dropping and that's a really good sign because that just shows us that the efforts that the management team is putting in place is bringing in new product. And the new product results are actually quite impressive. If you look at the sales of their new products, they are up nicely and that reflects that anything that they're putting their mind on is working.

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Bloomberg Intelligence Host/Interviewer (17:40)

The war in Iran is creating obviously some logistic concerns, particularly in the energy space, but also in some, some of the metals that get that come out of that part of the world. And that's a little bit of an issue for the auto industry. Checking with Steve Mann, Bloomberg Intelligence global autos and industrials analyst. Steve, talk to us about the global auto companies and are they facing any challenges by the unrest, the war in the Mideast?

Steve Mann (18:05)

Yeah, definitely. They are facing a lot of logistic issues. You know, gasoline prices are high, but we published a piece of research today focusing on aluminum because aluminum is a critical metal for the auto industry. It's a substitute for steel and it's supposed to be, it's used to make the vehicle a little bit lighter. It's used even More so on EVs because, you know, they, they want to, you know, reduce the weight of the vehicle. So the driving range is longer and extends the battery life. So EVs typically use about 75, 80% more aluminum, around 800 pounds per car. Gasoline cars a little bit less, it's about £400 to £500 per vehicle. Doesn't seem like it's significant, but it is a big cost for the auto industry.

Bloomberg Intelligence Host/Interviewer (19:05)

Steve, how quickly does the spike in aluminum costs feed through to production costs and does that eventually get passed on to the consumer?

Steve Mann (19:13)

Well, fortunately, the, the, the aluminum cost is more of an inflationary, you know, the aluminum supply chain issues that we're seeing, it's more of an inflationary for, for the automaker, less so of a supply crunch. Now aluminum coming from the Middle east, it's about 15%. Coming into the US about 15% is significant. But if you look at the auto industry alone, actually most of the aluminum is actually produced locally in the US and about half is coming from, from Canada. Now, even though there it's, it's, it's locally produced, it's under the USMCA realm. But the prices, the global prices is rising and that's, that's what's causing the inflationary impact on, on the automakers.

Bloomberg Intelligence Host/Interviewer (20:06)

Steve, can you give us an update on tariffs? Where are we with tariffs of the auto industry? Quite frankly, I can't keep track.

Steve Mann (20:13)

Yeah, and the tariffs has a huge impact on aluminum. The fact that it's produced in the US and in Canada, there's actually no tariff impact. Remember, aluminum, there's a tariff of 50% on aluminum and steel. But because they fall under the usmca, the United States, Mexico and Canada Free Trade Agreement, the exchange of metals between the two countries is not part of that 50%. So look again, we estimate the per vehicle cost is around as much as $385 for EVs, less for ICE vehicles. So again, I think the automakers can actually pass on that cost to the consumer or somehow do some cost initiatives to absorb those costs. Higher costs.

Bloomberg Intelligence Host/Interviewer (21:09)

Steve, you mentioned that Tesla and electric vehicle makers specifically are most at risk from higher aluminum costs. Are there any automakers that are more insulated from the switch companies?

Steve Mann (21:23)

Yeah, Tesla, Rivian lucid. Any, any actually anybody that makes EV is going to face higher costs for those EVs. But because you know, Tesla Rivian lucid are pure plays, they're going to face, you know, bigger impact than say the GM and the Ford. Now EV do use a lot of aluminum, like I said earlier, help cut down costs. There's a lot of aluminum. You'll find a lot of aluminum in the batteries, you'll find a lot of aluminum in the motor and the motor housing. So the intensity is much greater on EVs.

Bloomberg Intelligence Host/Interviewer (22:00)

So you know, who I haven't heard of a lot from recently is Elon Musk. What's he up to these days, Steve? Is he getting ready for a SpaceX IPO? What's up? What's going on with him and Tesla?

Steve Mann (22:10)

Yeah, there's a lot of rumbling rumors for Tesla specifically. Obviously he is very busy with SpaceX. There's a lot of headlines around SpaceX IPOs. But within Tesla, it seems like based on social media and other media reports that Elon Musk is actually revisiting in launching a smaller vehicle. And that would be great especially for emerging markets. We are seeing a lot of sales improvement over in South Korea and Japan. They're expanding the network retail network, they're expanding their service network there. So launching a smaller vehicle will be really helpful. The other thing that the investors are very focused on is the robo tax. The rollout is a little bit slower than we initially thought. But we are hearing they're testing, you know, they're putting cybercaps in multiple cities across the US to validate the vehicle.

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