Bank CEOs Say $134 Billion Trading Record Is Just the Start

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1:39Carol Massar:Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Businessweek 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 news as it happens. The Bloomberg Businessweek Daily Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio. So looking at shares of Goldman Sachs, up about 4.5%. And then let me bring up Morgan Stanley on the Bloomberg. It's up almost 5.7%, so almost 6%. So surging, both following earnings this morning. You had Goldman blowing through expectations for equities trading revenue, posting an all-time Wall Street record of$4.31 billion in the final three months of last year.

2:32Carol Massar:Morgan Stanley's debt bankers increased revenue 93 % in the fourth quarter. By far the biggest jump on Wall Street, capping a record year for that business. Sounds pretty good, Tim. It does sound pretty good. And look at the way that the investment community is responding right now. With What You Need to Know, Bloomberg News Chief Wall Street Correspondent Srinath Arajan joins us in the studio. We're going to talk about what Carol just mentioned, but I think what both of us are interested in. David Solomon. Is what David Solomon said about prediction markets on this call. This was really fascinating to me.

3:00He's met with, in the last couple of weeks, he said he's met with the leaders of the two leading prediction markets platforms, Polymarket and Kalshi. Is what we lose. Is what we think? Unless we have no idea of how the rankings work. Okay, I'm just thinking in my head that would be logical. Why? Well, it is fascinating, right? When you just think about the prediction market space, which is just betting markets, if you had to really simplify it, and how it has gone from the shadows to the mainstream now, you don't have to go that far back. 15 months ago, the FBI was knocking down the door of Bolly Market CEO Shane Copeland.

3:37Since then, a platform that was banned in the U.S. has seen all its legal troubles disappear, is making a big splash in the U.S. CalShare is already there and there is just a much greater embrace of these platforms, especially as they get into the sports wages. The question for us is on Wall Street. What is the value to this? And if you talk to a lot of executives out there, they point a, or at least they paint a picture that tells you that this could be a platform that has very interesting benefits. If you see institutional investors jump into the space, tomorrow you could see some of these wages acting like a good tool to hedge your positions.

4:21Because the bets right now are, will Joe Biden make a gaffe before the end of the month? Or will Donald Trump tell us how whole milk is spelled again before the end of month?

4:30Carol Massar:Will Tim eat a banana during Bloomberg Business Week daily? But you can easily see it evolve. But would you know, because I'm going to do it, and nobody will know. Only if I say it. Exactly. Well, my point is like six months later, it could very well be, will the unemployment rate inch up? Will the Fed cut rates by 25 basis points or 50 basis points? And then when it becomes derivatives that are regulated by CFTC, you know you can attract institutional investors. And then what's the difference? You can make it behave like any other financial instrument these people are used to. And when that's the case, you can see why people like Goldman Sachs are interested in perhaps other market makers like Citadel Securities has been out there talking about how there could be value to a tool like this.

5:09Well, as you were talking about the challenges that at least Polymarket and its founder faced in the last two years or so, it just occurred to me, the New York Times has a story out about how both Kalshi and Polymarket have this commonality. And it's that Donald Trump Jr. is an advisor to both companies.

5:26Carol Massar:Okay, so interesting. Yeah, just interesting. No, listen, I was thinking, was David Solomon watching the Golden Globes? Because Polymarket was a part of that broadcast. and talk about having a global audience. So I'm curious that there are concerns about transparency. There are concerns about insider trading or, you know, manipulation. Would a Goldman owning one of these platforms make it perhaps more legitimate? You're not owning. You're joking. You're joking. Goldman owning one of these platforms. Well, they already have a partnership with one of them. Well, I'm just saying that if they were involved, I mean, these are smart firms.

6:02Carol Massar:They understand regulation in a big way. They remember the financial crisis in a big way. So, careful. So, two things. What actually... You guys both came at me. Sorry. What I'm really trying to figure out is when the Goldman Sachs or, say, eventually, Citadel Securities or Morgan Stanley, JP Morgan, get into this space, are they looking at partnerships with the Polymarkets and Calches? They are the rails and then run their trades on those systems? or could they actually be a competing product? That's one thing I would like to figure out. But also what we cannot forget is what David Solomon said towards the end of his comments, which is, while it's good to be all excited about it and all the pundits are talking about it, this kind of change and embrace will take time.

6:47So don't get too impatient. So it's not something you're expecting to see in six months, especially for the challenges you mentioned, because there are questions about transparency. There are questions about the rules-based system we have on these platforms. Those need to evolve. Those need to become more standardized. That is when you can get the biggest financial institutions to play. All right. We got to run.

7:09Carol Massar:Sorry. But we know there'll be more on this. Oh, there will be. Shree, thank you so much. Really appreciate it. Bloomberg News, Chief Wall Street Correspondent Shree Nadarajan joining us right here in studio. We're going to stay on financials. We've got to talk a little bit about BlackRock because it pulled in$342 billion of total client cash in the fourth quarter, pushing the firm to a record$14 trillion of assets as it integrates a string of recent acquisitions to become a force in private markets. We want to dig a little bit deeper into their results. Shares up 6 % right now. Following BlackRock over at CFRA Research is Kathy Seifert, Senior Vice President and Equity Analyst of CFRA Research.

7:44She joins us from New Jersey. shares rallying big time. Highlights for the quarter, what were they? Well, I think one of the things to take away from the quarter was the breadth of the strength this quarter. You mentioned that asset inflows were$342 billion. Equity ETFs kind of paced that rise, but they also had fixed income inflows, alternative asset inflows. And so, you know, I think the thing that encourages me, and I have a buy recommendation on the stock, was the breadth of the strength this quarter.

8:25Carol Massar:So specifically, so, okay, because it's interesting how much they, Kathy, are transforming themselves, right? Stocks, bonds, public markets into one of the largest firms when it comes to private credit and infrastructure markets globally. Private markets, I'm just curious about that impact. What read-through did you get on that and kind of where it's going? You know, there had been some criticism that perhaps they might be late to this party, that maybe they overpaid for some of their acquisitions. I mean, I've kind of heard you know some of that chatter but I think the results this quarter should offer a little bit of relief to those who were worried about that because you know all of the firms that they acquired certainly contributed to the quarter and to the quarters asset inflows and then the technology you know Aladdin and And Prequin also posted significantly higher revenues as those systems are becoming more and more embedded in this ecosystem, if you will.

9:33Carol Massar:Well, speaking of that ecosystem, Citigroup is kind of part of that ecosystem. And I think this is really interesting, you know, kind of an outsourcing deal. Citigroup handing BlackRock about$80 billion in the bank's wealthy clients' investment assets to manage. How big a deal is this for that firm? And are more deals like this to come? Um, that's that was a pretty typical deal, if you will. You know, and again, also encouraging because BlackRock had in previous quarters lost some mandates. So it's nice to see not only, you know, retail inflows, but large institutional deals like like the city deal.

10:15And so, you know, again, it was just another component of what was a really strong, solid and encouraging quarter.

10:25Carol Massar:Yeah, and we certainly see it in the share prices. We continue to watch this stock trade, really some outperformance in today's session. Kathy, thanks so much. Kathy Seifert, Senior Vice President, Equity Analyst over at CFRA Research, joining us on this Thursday. Stay with us. More from Bloomberg Businessweek Daily coming up after this. They told us to expect change. They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. LifeMD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, LifeMD helps you feel your best for the best years of your life.

11:10Carol Massar:LifeMD, it's just getting good. Visit lifemd.com slash goodlife.

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12:18Carol Massar:You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. I'm taking a look at what's going on with oil right now, Carol. We're seeing WTI down close to$3. ICE Brent down close to$3. $59 for WTI. Brent crude at 63.60. Yeah, I mean, I think it's safe to say with maybe the president pulling back a little bit when it comes to Iran, that has certainly helped the energy markets, but it's certainly something we keep a watch on. So shale billionaire Harold Hamm said oil companies need guarantees that their assets won't someday be seized by Venezuela if they help revive the nation's crude production.

13:07I want to remind everybody that President Trump has called on U.S. oil companies to invest at least$100 billion in order to revive production in Venezuela after years of corruption, underinvestment and neglected, ravaged output.

13:20Carol Massar:Now, as we know, and we've done a lot of follow through and reporting since that event in the East Room of the White House last week, crude producers, however, are moving cautiously. Exxon Mobil's CEO Darren Woods telling President Trump at the meeting that the country is currently uninvestable. And I remember on that day, on that meeting, I think we saw Chevron shares higher, but ExxonMobil under pressure. And whether or not that had to play into it, who knows, but it was kind of interesting to see that dispersion. Curious what Andreeka Bernatova thinks about all this. She's a founder and CEO of the blank check company Dynamics Corporation.

13:51It focuses on companies in natural resources, digital infrastructure, and power. Early in her career, she's been at companies including the oil field wastewater management company, Good Night Midstream, the power gen company, Enchanted Rock. She joins us from Texas. You've also done investment banking when it comes to energy as well. So you have an idea about what it takes to actually make this stuff work. First, I just want to start big picture before we get to sort of your thesis about the smaller companies benefiting. Is Venezuela uninvestable, like Darren Wood says? Yeah, Tim and Carol, thank you for having me.

14:28First of all, good to be back on. And, you know, I think thinking about Venezuela, essentially there are two components of that story. Number one is historical component. And, you know, obviously Exxon, Conoco and super majors had had significant losses as a consequence of the nationalization in the kind of 2000s by Hugo Chavez. And those losses are, you know, in the range of 30 plus billion with Conoco itself, you know, about 10 to 12 billion as a single company. So obviously. That's real money. That is real money that is still being subject of negotiations. And I think companies, supermajors, by definition, have to be cautious in entering back into a country like that.

15:14So that's thinking about sort of the historical component. Now, the current component, and I know you all mentioned, you know, meeting at the White House, some of the oil and gas companies, you know, there needs to be sort of a framework set of the companies going back into a territory like Venezuela. And, you know, I know there was some ask about, you know, U.S. guarantees in terms of some of the supermajors specifically going back into Venezuela. into Venezuela. Obviously, Venezuela, it is the country with the largest oil resource on this planet with about 300 billion barrels, you know, even before Saudi Arabia with about 260 billion barrels.

15:55So very significant resource. I would say the other piece that's going to play a role is obviously oil prices themselves. I mean, right now we are right about, you know, 60 bucks. If you think about, you know, the history and again, some of the very similar examples, I would say Exxon, for example, their operations in Guayana, you know, they entered the country securing their position in 1998. And it really took them until 2015 to drill their first well. And that was in an oil price environment that was at 140 bucks for, you know, periods of time. So oil price is certainly going to play a role because if you want to take that risk and go back into a country like Venezuela, you really need to see a sort of higher sustained oil prices.

16:44Carol Massar:Andrika, one thing, yeah, that's what I want to get to, the smaller players, because if some of the big players, the major integrated oil companies are a little suspect and cautious because with good reason, some of them have been burned. And we're talking about billions of dollars already at risk that they've seen. How is it that smaller companies who I think it's safe to say their balance sheets are more fragile, that they would be in a position to benefit maybe in this situation when it comes to Venezuela? It's a great question, Carol. Well, you know, we have really good sort of examples in the region itself in the form of Colombia and Argentina, for example, where, you know, in Colombia, you did see some of the smaller players entering the country and really, you know, showing the ability, one, to be more entrepreneurial, to, you know, find sources of capital that may be more of a sort of, you know, willing to take some of that risk, you know, like large, you know, family offices, etc.

17:47And we are certainly seeing that in the market, you know, from our perspective today.

17:51Carol Massar:You're seeing family offices that are willing to risk exposure to building out the Venezuelan energy infrastructure. We have seen that for a while at this point, Carol. So, yes, you know, obviously, you know, a lot of the oil and gas or natural resources or mining specific family offices that, you know, have been in the territory of historically, you know, putting money on the line and taking significant risk. and frankly, you know, building ultra large family offices as a consequence of that sort of exploration or counter risk are, you know, going to be probably very interesting and maybe unexpected, to your point, players potentially, you know, sort of scooping the territory and maybe being, you know, even the first entrance back into Venezuela.

18:38But it sounds like it sounds like. Yeah. Oh, I'm sorry. Please go ahead. You know, one more component that's interesting, obviously, Venezuela, this is a figure that's been quoted a number of times in the past couple of weeks, but 8 million of the population of Venezuela is outside of Venezuela. You know, a large portion of that population is highly educated, you know, engineers and geologists and finance people, et cetera. So, you know, you have a very competent workforce that knows the region, has worked in the region before, maybe outside of the region and may have the ability to attract capital.

19:11Again, you know, maybe some of those ultra large family offices to get back into the region. So having the combination of the risk appetite of some of the large family offices and a workforce, you know, that may be able to attract that capital, knows the region could be very interesting combination. As somebody who follows the oil market closely and has worked in the industry, I'm just curious about just general demand trends and what you think they will be. When does demand peak, in your view? I mean, 20 years ago, we were talking about peak oil. We obviously didn't reach that, and a lot has shifted since then.

19:45When do you think demand peaks, and when are we sort of on the other side of that hill where we see, like, less demand? Because these investments, these are decades. Yes, 100%. And it's a great question, Tim. And we think about this deeply. I mean, I remember being a young analyst, you know, at Blackstone, and we had conversations 20 years ago about peak demand. And really, you know, nothing has materialized to your point. You know, in our opinion, what's interesting trajectory is kind of the interconnectivity of oil and gas. And obviously, you know, one of the biggest topics right now globally is pushing the boundaries of inventory and the cost of actually, you know, extracting oil being pushed obviously upwards.

20:26So, you know, our thesis is, you know, slightly, I think, differentiated. We are on both sides of the story on oil and gas side, as well as the renewable side. And so naturally, as you guys are going to see renewable pricing coming down and oil extraction prices, break-even prices coming up. That's sort of where we see the territory where demand for oil and gas is going to slow down and we're going to see the intersection of those two. So whether it's five years or 10 years or 20 years, I don't know that.

20:58Carol Massar:Andraika, we've got to run. Andraika Bernatova, thank you so much. Appreciate it. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from two to five Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube. I'm looking at the terminal pulling up the ADRs of TSMC. Yeah. 5%. I know. Out of the gate. Yeah. Yeah. Everybody's been talking about this overnight into this morning. And we've seen, if you look at the socks, it's also rallying. They were up as much as 7 % earlier in the session. The chip makers results and forecasts were seen as a strong underscoring that demand trends related to AI remain robust.

21:40I want to bring in Mandeep Singh. He's Bloomberg Intelligence Global Head of Technology Research. He's back from Las Vegas. He's back from CES. He joins us here in the Bloomberg Interactive Brokers Studio. The key number here seems like$56 billion. It's the high end of the range on how much the firm is earmarking for capital spending this year. It's up about a quarter from last year. A sign that everything's good? Yeah. Yeah, and look, the trickle down that you're seeing in terms of hyperscalers spending the money, the CapEx for Microsoft, Meta, all these companies will be north of$100 billion.

22:15Now you see that trickle down in terms of the fab companies spending CapEx in terms of building the fabs. And so clearly the narrative around the AI super cycle is being validated by these kind of numbers and TSMC not only printing great numbers, but raising their capex. So, yeah. But, but, the company CEO saying, quote, I'm very nervous about whether AI demand is real or not. How do you how do you sort of square that circle? Well, I look at the numbers, the advanced nodes make up 77 % of their revenue now. Now, what that tells you... Explain what that is. Yeah, so basically TSMC is generating almost 80 % of their revenue from 2 nanometer and 3 nanometer.

23:04And that is where all that data center chip demand from NVIDIA, which I wouldn't be surprised if they're the largest customer now for TSMC. So Apple used to be the largest customer at 25 % of TSMC's revenue. Probably NVIDIA surpasses them this year. So that just goes to show. And look, Apple is also using the advanced nodes. So it's not as if a smartphone chips are made on a trailing node. But it just goes to show the concentration we talk about for all these companies. TSMC has it as well.

23:34Carol Massar:I guess, logically, this makes sense to me that they have to build out. We keep talking about demand that's out there. We keep talking about demand that's not met because they just can't make them fast enough. And so ultimately, it was going to have to come to TSM eventually, right? Yeah. But I agree. Like, when do we know this party? It's just like this almost hamster trail of like just keeps going. How do we know that this is all still real? Right now, there is a demand spillover to Intel and Samsung because TSMC cannot fulfill all the demand themselves. So think about this. They cannot make PC chips or some other type of auto chips because they don't have the advanced node capacity.