US Allies in Persian Gulf Exasperated as Iran War Escalates

25:05California resident loans made or arranged pursuant to a California finance law license and MLS number 1353190. Klarna balance account required to be eligible for cashback points. Limitations, terms and conditions apply. Ask yourself, what are your best people spending their time on right now? Expense reports, receipt chasing, month end close that takes weeks. You become what you spend on, and that's not what you're building toward. Brex is the intelligent finance platform that eliminates that work before it starts. AI agents that handle the manual stuff automatically, so your team can spend their time on what actually compounds.

25:39It's time to get Brex AF. Learn more at brex.com slash AF. 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. Charles Schwab reported earnings that topped estimates as retail investors continued to jump in and out of the market amid volatility sparked by geopolitical uncertainty. The company reported a record 11.9 million daily average revenue trades in the second quarter, a 57 % increase from a year earlier. Tim, trading revenue also rose, climbing 28 % to$1.2 billion.

26:20Net revenue of B2 up 21 percent. Revenue per trade missed the Bloomberg estimate. Second quarter total net new assets hitting 118.7 billion dollars. That was a significant beat. Yeah. And in terms of the stock reaction, we saw it rally earlier, but now we're looking at it down about 1.6 percent. We caught up just a short while ago with Rick Worcester. He's the president and CEO of Charles Schwab. He joined us here in studio to talk about the latest financial update. It was a really strong quarter. And what gives us a great amount of pride and satisfaction is that our clients continue to trust us with more and more of their wealth.

26:54And they continue to trust us to do more and more for them. So they're not just coming to us for investing and trading. Certainly, they're doing lots of that. But they're also coming to us and asking for help with their wealth. And they're helping for tax planning. And they're asking for lending, for us to help them with lending. And so we're doing more to help our clients' financial lives. Their wealth is at an all-time high. and it's a great time to be in this business, to support our clients and help them thrive. Rick, when you say that clients are trusting Charles Schwab with more of their wealth, where is that wealth coming from?

27:26I mean, it is essentially a zero-sum game. So are they moving it from other platforms to you, and sort of how do you measure that? Well, first, I think a lot of our client wealth is being delivered by the returns you're seeing in the market. Over the last year, the market's up 21-ish percent, I believe, through June 30, and our client assets are up about 22%. So they've really participated. Their wealth has grown. I think where their additional dollars come from is their employment activities. Maybe they sell a house, other investment activities outside of Schwab. But with employment so strong, it's not surprising, and the market doing well, not surprising that they continue to bring us a fair amount of assets.

28:03The other place we see it is that we do a lot to serve independent advisors. And independent advisors as a group are really taking share of the advice market. And so as they win and they bring more assets to us, we benefit from growth. What are they trading and what are they continuing to trade? I'm always curious about what exactly you're seeing across the platform. Yeah, it's been pretty interesting, actually. I'll highlight a couple of things. Number one, which is fascinating to me, is that we saw three and a half times more volume on down days in the market, which means that they're buying the dip.

28:35Okay. The other thing we've seen is a rotation. So they went from really interest in the MAG-7 to more on the AI trade. And that's been a driver of interest for our clients. And then the final thing I'd say is that because of some of the geopolitical risk in the markets, they are more actively trading. So we see more frequent trading, but the trade sizes are often smaller. And so they're making more incremental trades because they're not exactly sure what's going to happen with the geopolitical situation. So those are three of the themes that we've seen with our retail traders. How sustainable are these themes?

29:07I mean, the Wall Street Journal, I think the headline was the stock trading boom is here to stay, citing you and your comments earlier today. Why do you believe it's here to stay? Why do you think it's sustainable? Well, a couple of things. I think they're great for our country because the more people invest at a young age, I think the better off they are over the long run. And we have seen a real increase in young investors. Gen Z is 45 percent more likely to invest by the age of 21 than the prior generation. So we have that. I think the second structural change is when we went to zero on commissions and then all the other major brokers followed.

29:43It just took away the last barrier for investors. For people that were wealthy and trading in hundreds of thousands, the$5 commission didn't mean much. But for the person who had$5 ,000 or$1 ,000, that was a barrier. And now that's no longer a barrier. I also think AI is helping people get more comfortable researching stocks and taking positions and being an investor and learning about the power of compounding. So I think it's all adding up to just more engagement. We've seen the highest level of stock ownership of stocks that we've seen in the last 20 years. So it's great to see that kind of interest in markets.

30:16You all get to participate in this. The power of compounding is a great thing for investors. And the more and more people that do that, the better off our country is. So you talked about what clients are asking for, Rick. So do they want more sophisticated investments? Or are they doing just fine with stocks? Are they pretty happy with it? Yeah, what's great is we've got clients of all stripes and all different wealth sizes. One of the real themes that we've seen from our more wealthy clients recently is a high degree of interest in tax-related strategies. We've got a lot of clients that have built up large positions, often concentrated positions, and they're wanting to manage the capital gain associated with this.

30:53The other thing we're seeing is a real increase in pledged asset loans. So people have built up wealth in a small number of stocks. They want to buy a house. They want to put their kid through college and they don't want to have to sell that position. What they're doing is they're taking out a pledged asset line. So they're not having to sell that position. So between tax aware strategies and pledged asset lines, we're really seeing people be thoughtful about not paying big capital gains. Let's talk a little bit about SpaceX, because in your commentary today, you said you had a record trading day on the day of the SpaceX IPO.

31:25I'm just wondering what you learned from that to sort of prepare you and the team for what many think is the day that Anthropic will go public in the near future and OpenAI will go public. See, and I thought you were going to ask him about the unlock, but we'll get to that next. SpaceX, it's so interesting to have been a part of this. We've been around for 50 years and we've seen lots of bear markets, lots of bull markets, the Internet boom, all this stuff. The heaviest day of call volume we've ever seen in the history of the firm was SpaceX. Were you surprised? Was your team surprised? We weren't surprised.

31:58We knew it would be a busy day. But to be a record day in the top few days we've ever had in terms of client interest, it's pretty remarkable over one company. So that's great. It just shows how engaged the retail investor is. And our clients bought it. They tried to buy as much as they can. What they received relative to what they put in probably wasn't what all of them wanted. And that's probably our learnings is really to be really clear about. Like demand was higher from your clients for the IPO and they weren't able to get it all. Demand was far higher. The level of retail interest. I've never seen a level of retail interest like this in an IPO or anything.

32:32It was off the charts. And as a result, not everyone got the allocation they wanted. Now, one thing we did do is we made sure everyone got something. And so everyone walked away with some shares. And with the action in the stock, people had a chance to buy it actually below the stock price. So hopefully those that didn't get filled have been out there buying if it's of interest. Are they still buying? Because, you know, we've seen certainly the share price go below the IPO price for SpaceX. We've got the unlock coming August 6th. That's going to be two days after the company reports earnings. How are you thinking about that or preparing for that?

33:02Yeah, the retail investor is still buying SpaceX. We still see volume and it's largely one-sided. So lots of activity and interest in SpaceX. And I don't know, maybe we should move our headquarters to the space. Might be good for evaluation. He's working on it. You know he's working on it. Or go all in on AI, right? Prediction markets. We always ask you about prediction markets. And sort of, you know, you've talked to us about the difference in what you see as gambling versus what you see as being useful prediction markets. Can you give us a date on when and what Schwab clients will see? Yeah, we're working with the CBOE to make binary options available, which would allow you to take a position on the S &P 500.

33:42It's possible that may extend into other financial-related events like KPIs or certain macroeconomic indicators. I think we're open to anything that you can make a link to a client's portfolios. We serve a lot of active and very engaged traders. We want to make sure what they have and need to be successful. So that's what we're looking at. We don't have a timeline. We are actively working on it. The CBOE is as well. We will follow them. And we're excited to be in that marketplace. but don't look to be able to bet on Taylor Swift's first child when, when that's, when that child's born on our platform.

34:15But when we speak to you in October, do you think they'll have launched yet? Well, we'll see in October. I mean, we're working hard at it. CBOE's we're still dependent on their timeline. So I can't get, I'd love to give you a timeline, but I really can't at this point. What if Taylor has an idea for the S and P 500 by the end of the year, would that be a bet? That would be, but if it's related to the S and P 500, we can make it work. What about crypto? What can you tell us about the early reception to the spot crypto trading rollout? What do you guys see in? Well, for us, you know, crypto is an important part of being able to offer everything that our clients want.

34:45And our clients are already engaged in crypto in a big way. They've bought the ETF. They participate in futures. They are invested in crypto in many different ways at Schwab. We're excited for them if they have crypto outside the firm to be able to bring it in. We'll make crypto available for transfers by the end of the year. You can buy spot crypto now with cash on our platform, and we're excited about that. You know, the level of interest in crypto right now, I think, is lower than it has been. It's really declined. And, you know, some of that's related to the price action. I'm sure there's other reasons.

35:13But the main point for us is if our clients want it, we want to have it regardless of what the interest level is. I've got to ask you a question. We kicked this around in the newsroom because while we're talking about crypto, a lot has come up with the president and his financial disclosures. And Schwab is one of the investment accounts along with UBS and JP Morgan. And I'm just curious, as people kind of look at this, do you think at some point Schwab might be asked to either testify before Congress about the president's accounts or anything? Has any of that come up? You know, we can't talk about who our clients are.

35:47But what I will say is what's been reported is that he uses a tax strategy himself, direct indexing, where you can use, you basically replicate an index by owning, say, 300 stocks that are going to give you the index return instead of holding, say, one position in ETF. And so if the market goes up 20 % a year, but you hold 300 stocks and some have gone down, you can sell those and replace them with another. If Coca-Cola went down over a short window, you sell it, you put Pepsi in there, you're still tracking the index, but you've harvested a loss. It's a very thoughtful strategy for a wealthy investor to use.

36:23And I would just say some of the commentary around this idea that he's timing the markets in some way because he sold a stock before or after he met. These strategies are run on a discretionary basis by professional money managers with no influence from the account holder. And the level of trading in them is very high because they're constantly trying to pick up any loss in a security and replace it with another one. So I think some of the reporting that tries to link this to nefarious behavior, I think is just misplaced. And to be fair, I kind of I feel like I left out an important line. It does feel like it's a lot of political backlash.

36:55And as we see kind of things make their way through the news cycle. One of the things that we were pleased with was how the reporting might have shifted from, I think, the original intent of that the reporting was seeking to when the facts came out and things were explained. I think the reporting was pretty accurate in terms of explaining what these strategies do and why you might have active levels of trading in a strategy like this. Appreciate that. Just to wrap up here, we're in this environment, Rick, where it feels like FOMO in terms of a lot of the trades and kind of chasing certain things.

37:28It also feels like there's a lot of nervousness out there. When you look at the environment net-net, I mean, coming off of this quarter, how would you describe the environment right now? I still think clients are bullish. Okay. But there is some caution. And you do see them taking smaller positions than they normally would and maybe being a little more anxious about it. But all in all, they're still bullish. They're buying on the dips. They're going into the AI stocks, areas of the market that certainly have higher valuations to them. So they're not shying away from risk and they're bullish, but they're doing so with an element of caution.

38:00That, of course, is Rick Wurster. He is the president and CEO of Charles Schwab. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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40:49Or watch us live on YouTube. Eli Lilly was up 2.5 % today. ADRs of Novo Nordisk fell about half a percentage point. Novo sued Eli Lilly, accusing its rival of misleading advertising as competition in the U.S. market for obesity drug ratchets up further. Madison Muller is a Bloomberg News Healthcare reporter. She joins us here in the Bloomberg Interactive Brokers Studio. Can't we just all get along? It's a big market. Not if you're the two biggest makers of these. What's going on? Century-old rivalry. Is it Ozempic versus Wegovy, right? It's Wegovy versus Zeppown and Monjaro versus Ozempic. Lots of different drug names involved.

41:26Hold on. Wait, did I just name two that are made by the same? Yes. Ozempic is Novo's diabetes drug. Wegovy is the obesity drug, which I know you know. You know it. There's just a lot. There's a lot that's happened today. Hold on. Does it matter? It does matter because Ozempic is actually lower doses and Wigobi is higher doses. And is that at the heart of the lawsuit? It's kind of. So Novo recently got approval for an even higher dose version of Wigobi. So that's sort of what's at the heart of the lawsuit is that Novo is upset that Lilly is in its advertisements. you represent like sort of representing it they say wrong by using the dosage that was available for a long time that most people have taken the higher dose wagovi was only recently approved and the fda and the companies themselves typically warn against using cross-trial comparisons in advertising or in the way that we talk about these drugs so that means using different trials that weren't done together with both drugs to talk about the efficacy.

42:29Which sounds like the right thing to do. Right. You're supposed to use trials where both of the drugs were studied at the same time. Okay. And that's what Lilly's done. So what Lilly is doing is technically fine in terms of how FDA and the companies usually think and talk about these things. By the rules. By the rules. But Novo is saying that because now there's a higher dose version available, that study is outdated. These numbers are outdated and they should be updating those. Is Novo right? I mean, I guess we'll see what the court thinks. But I mean, I think clearly from the market reaction today, investors are probably on Lilly's side a bit.

43:08The fact that Lilly's up on this while Novo sort of dropped. It's interesting. Why would they do this? I mean, isn't litigation a normal part of American life? Well, I was going to say American, but it's not. I mean, it's corporate because, you know, Novo's based in Denmark. Oh, that's true. Sorry. But, but, um, global life. Yeah. Or, or, or capitalism. Yeah. Well, and Novo also, I mean, they said that they tried to go to Lilly first. They sent them a cease and desist a few months ago. Didn't get any reaction. So they felt like this was sort of the thing that they had to do next because Lily didn't change anything or pull its ads.

43:49But it also illustrates something about this market, which is that it is it is it fair to call it a duopoly? Yes. Yeah, definitely. And that people are choosing between a product from one company versus a product from another company. So now in order to advertise, these companies think they have to compare to one another. Right. It's highly competitive. And Novo has been, as we've talked about on the show, really looking to be more aggressive to claw back market share from Lilly. I mean, Novo was the one that sort of created this modern weight loss drug market. But in the last couple of years has lost a lot of share and fallen behind Lilly.

44:23So they have a new CEO who's been in the role for a little over a year. And he's definitely been more aggressive, trying to do more, trying to be on the offensive a bit more. And what they've said is that they have evidence that consumers, customers have been, I guess, misled or confused about the results of these trials based on Lilly's advertisements. And they're trying to correct that. So, you know, I mean, doctors, I mean, this is, is this for people who just request and buy the drug on their own? Is this doctors prescribing one over the other? Because we've talked about with you, like, what's the difference, right?

45:02And they do work differently, right? And sometimes a patient can react to one and so goes to another. And I've seen this with people I know where they kind of move around. So is this for diabetes or is it just the weight loss? It's both. I mean, I think mostly for the weight loss. The weight loss, okay. There is definitely a consumer perception out there that Lily's drug, Zepan, is better than Wagovi. And so we've heard from a lot of doctors, Novo also admits this, that people go into their doctor's office and they ask for Lilly's drug because it's supposed to be more effective. And until now, I mean, to be fair, it still is.

45:44I mean, even compared to the higher dose, it's less of a difference, but it's still more effective. And so they're really trying to change the perception and the narrative out there doing everything that they can because this perception has led to more people asking for and wanting Lilly's drug over Novo's. I want to go on, go into a point that you mentioned about the, and there's a great chart in your piece about Lilly and Novo's diverging fortunes, year over year change in revenue. You mentioned some executive turnover. over it was interesting because for a time just a couple years ago this was the Danish economy here's the chart if you're watching on on YouTube or Bloomberg Originals right now the white line is Novo and then the orange line is Eli Lilly and you can see the difference of the the white line and let's just say you want to be Eli Lilly in this situation over the last couple of years what what happened with Novo's lead I mean a few different things one of the the things is that they rested on their laurels a bit with Ozempic and Wigowi I mean Lilly was coming from behind They had to move really fast.

46:48They had to out-innovate. They knew they had to come to market with something better or they would never really catch up to and then eventually overtake Novo. At the same time, I mean, Novo is a Danish company, a little bit different over there. Historically, it had a much slower lane culture, tended to move a little bit slower. Lily is an American pharmaceutical company, a little bit more aggressive, even though they're based in Indianapolis and have sort of Midwest a little bit. I can say that because I'm from the Midwest, a little bit slower lane culture as well. But Novo has really had to sort of like supercharge things.

47:22They've laid off a lot of people. They have a new CEO. They've kind of had to revamp their entire culture in order to get things back on track now. One of the other things was that Lily recognized sooner that there was a huge consumer and cash pay market here. And they had solutions. They had this direct to consumer website that they launched and sort of were like the first ones to do that. cut the price of their drugs for cash pay patients. So they were able to innovate also on that direct-to-consumer front, which was a really smart decision and has helped them sort of get in front of much more people.

47:53Does this market still continue to grow for the obesity side, for people who want to lose weight loss? It continues to grow. Yeah, I mean, it had stalled a little bit in the insurance market because commercial insurance companies are still not really paying for these drugs as widely as they do for other chronic health conditions. We've actually seen some big employers walk back coverage recently just because the expenses are really high because potentially so many people qualify for these drugs. So in terms of insurance, it's like sort of stayed flat, which is interesting. You would think it would be growing.

48:27However, we just had Medicare open access to obesity drugs for the first time. So that's something that's going to help that, you know, help it grow in that population. but it is, it's really interesting in terms of the insurance landscape. That's been a real challenge. Although you're waiting for that study where someone's like, if you get all these ailments and what it's going to cost to take, whether it's your heart, you're like, you know, uh, but that's a story. Didn't even get to talk about other peptides. Which ones do you want to talk about? Oh, we don't have time. Lots of all of them. We need to have you back on that.

49:00Medicine Muller, Bloomberg News, healthcare reporter. Check it out, everybody. This is the Bloomberg Business Week daily podcast. Available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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