Capital One, Amex Shares Sink on Trump’s Credit-Card Threat

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1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. I look at the Bloomberg terminal and the top story all morning long has been about shares of Capital One, Amex, Tumbling, along with some other banks that issue credit cards following President Trump's announcement that he is calling on these companies to cap interest rates at 10 percent a year, which could threaten their profits, billions in profits for the industry.

1:45Let's bring in now Nathan Dean. Nathan is our senior policy analyst at Bloomberg Intelligence. And Nathan, one thing that we need to make clear, President Trump calling for this is not the same as him actually having authority to do this. Is this something in which he has the authority to call for a cap on interest rates for credit card companies? No, it's not. And that should be the first question that these investors look at is how would President Trump implement this? Because, look, he said that in effective January 20th that there would be a one year cap at 10 percent. But really, there's no way that he can implement this.

2:17There has been legislation from Senators Bernie Sanders, the Independent, and obviously Josh Hawley, the Republican, to actually put in a cap for five years. But that legislation really hasn't gone anywhere. Now, the industry averages around 21 percent, going down to 10 percent. Obviously, you're going to see a significant decline in what the interest would be to these banks. And obviously, we're starting to see what the potential of that would be in the stock market. But, you know, our note that we put out to clients this morning has said, look, we only see a 30 percent chance of this happening in 2026.

2:46The more likely scenario is that President Trump uses the regulators. Ironically, it would be one of the Consumer Financial Protection Bureau, the regulator that they've been moving to get rid of. But they would use the regulators in the bully pulpit to pressure these firms to actually lower interest rates on their own. But absent that, you know, these credit card company banks, they can continue to operate as is. Let's say this policy actually did go into effect. In terms of timeline, how long would it take for some of these companies to actually cap their rates? So it'd be fairly quickly. I mean, obviously, it wouldn't be so much an operational standpoint of capping the rate at 10 percent.

3:22But the question would be, what are you going to do with the credit risk that comes out of that? Because, you know, a lot of these reward programs, think of those, you know, those fancy lounges at JFK and at DCA and Reagan. You know, a lot of that is paid for by the fact that you have high quality credit and you have low quality credit consumers as part of this. And so the note that we put out this morning showed that if you were to curve the tail disc down to 10 percent, banks would be a little bit more choosy about who they are offering credit to. You would actually see a decline in terms of the number of users or credit cards, which ultimately could have a small impact on Visa and MasterCard and so forth.

3:57But a lot of those reward programs that people enjoy would likely dry up as well, which is not something that I think a lot of the American populace would want to see, especially during an election year. Yeah, especially since they already paid the$895 annual fee and want to get something for it. Nathan, you mentioned that there has been legislation proposed to target these interest rate levels at these credit card issuers. Now that President Trump has made this something of a rallying cry, do you think that that legislation will have more of a chance of getting anywhere? So, you know, normally I would say more so in 2027, less so in 2026.

4:31The reason being is in an election year. And look, what President Trump proposed, there are a lot of Democrats on Capitol Hill that actually would be in favor of this. You want to cap credit card interest rates at 10 percent? You could probably get a significant number of Democrats that say, yeah, we're on board. But the problem here for the president is that there's probably an unspoken Republican populace. And I'm specifically looking at the House Financial Services Committee and the Senate Banking Committee at the moment that have bank allies that are completely against this move. And so what I think will happen is, is that if President Trump says that we want to push this legislation and if the folks on the Senate side say, look, we want to work on this legislation, the most step that you would have is have a hearing to talk about that legislation.

5:09So hearing plus debate plus negotiations plus an election year, that just isn't a timeline to get it done before November 2026. I think the real risk is if you see this in 2027. But by then, you know, this issue may be moot and off the president's mindset. Nathan, I'm just looking at the market reaction here from some of these credit card issuers. Capital One, American Express, just their share prices falling more substantially than some of the banks like J.P. Morgan. How much more significant would the impact be on these credit card issuers versus, say, the big banks that are also issuing credit cards?

5:43Well, it's a story of diversification in revenue. I mean, the Capital One, the American Express, you know, the credit card issuers, you know, it certainly drives a higher bulk of their revenue than if things like the JP Morgan's and Bank Americas, which have investment banking, commercial banking and other types of operations. And that's part of the reason why policy risk is hitting these companies more so than others is because, you know, if you look at Capital One and American Express in particular, you know, there's less of a deregulatory story to tell than what you're seeing in the bank, big banks at the moment.

6:11You know, when they say the deregulation for the banking industry is coming, they're most likely saying deregulation is coming for those big banks in terms of capital requirements of returning towards those banks. You know, Capital One and America Express have a different type of operating model. And as a result, this issue in particular is more exposed. But I would just say is that risk for these companies continue because it's a Republican issue. It's a Democratic issue. And as a result, this bipartisan issue is going to continue in the headlines. Nathan, before we let you go, just very quickly here, Senator Tom Tillis pushing back against this idea of the president targeting Jay Powell and the Federal Reserve.

6:46He says he will oppose any of Trump's Fed nominees, including the chair, until this issue is resolved with regards to the criminal indictment that's been threatened against the Fed. You think that will have an impact on the president, on the White House? It will if Senator Thomas falls through with it, and it will depending on what his definition of resolved is, because the Senate Banking Committee is 13 to 11, and he can effectively jam that nomination up. Stay with us. More from Bloomberg Intelligence coming up after this.

7:31Live on YouTube. Scarlett, it looks like we have Lululemon rising as holiday sales show signs of a rebound. To explain that, we have Poonam Goyal. She is senior U.S. commerce and retail analyst at Bloomberg Intelligence Poonam. I'm not a big Lululemon shopper, so it was only recently that I discovered that they actually have a membership, which is really interesting. I can't help but wonder, what is this loyalty program? How does it influence repeat purchase behavior and margins for the company? Yeah, so the loyalty program is not something that Lululemon has had for a long, long time, but it does help just like with any other loyalty program.

8:10You know, it gives you perks. You have access to Lululemon merchandise. You have access to Lululemon events, etc. And it does bring the member who enjoys the Lululemon experience to keep coming back. It's an added reward for those who have been loyal to the company. But make no mistakes. That is not what's going to drive the turnaround. Their turnaround needs a lot more than that. Yeah. And loyalty programs are something that most brands have. And Lululemon has some more structural issues. Let me just jump in here because we have a headline showing that Alphabet, when it rose as much as 1.7%, it actually surpassed$4 trillion in market value.

8:51This comes after Apple reportedly has chosen Alphabet's Gemini to run its AI-powered Siri this year. That's according to CNBC. Poonam, let me get back to you here. When it comes to Lululemon, separate from the loyalty program, Lululemon has pre-announced fourth quarter sales, and it comes in at the higher end of its guidance. This is kind of surprising because Lululemon has struggled to connect with shoppers the last couple of quarters. Yes, you can say that it's surprising, but at the end of the day, the sales are still down. The estimate was for sales to be down negative one to three percent.

9:24So maybe you're close to minus one. That's still not where we expect Lululemon to be. This doesn't tell me that the turnaround is, you know, has started and is underway and things will begin to improve quarter after quarter. I think it's good, but I need a lot more to be confident that the turnaround will begin to take place. What are some of the macroeconomic trends that are driving Lululemon's customer base? Is it inflation? Is it just an overall change in discretionary spending patterns? What is it? Yeah, so the macro economy has been, you know, good and bad. The luxury consumer has been doing well.

10:02Lululemon, you could argue, sits in the affluent space of activewear. But that said, it's not that the customer is pressured and that's why their sales have fallen. It is that they have lacked innovation and execution has been weak. So the key here is a company-specific issue that they need to resolve. And they are working towards it. We will be getting a new CEO, hopefully, at some point in 2026. And it'll really be then where we can see who comes in, what's the strategy, and how does Lululemon re-engage its core customer that probably still loves the brand, but just hasn't found enough new to keep going back and back.

10:43Yeah, absolutely. I think about the competitors that Lululemon faces in this space. It ranges from Dory to all the other big names out there, including Nike, which offers perhaps similar athleisure wear, but at a lower price point, too. When it comes to this new CEO, Calvin McDonald, the current CEO, is set to step down at the end of January. And I know Elliott has been a big player in pushing for Jane Nielsen, the former CFO at Ralph Lauren, to replace him. What's the latest on that? Do we presume that Jane Nielsen is going to be the next CEO? I mean, we don't know yet, right? So it's definitely one of the contenders and could be.

11:19And I think as long as they get a product led executive, which he is, Lululemon could be in good hands to continue this turnaround. So founder Chip Wilson is also kind of involved here. That's another name that we haven't heard from in a while. He founded the company. He no longer sits on the board, but he still owns about 9 % of the stock. How much do you pay attention to what he says, Hunam? We definitely look at it. Look, what he says is important. He counted the company. The company was grounded on innovation, on products. And I think he makes fair points that the company needs to kind of really re-engage the customer and go back to its roots, which is, are you still ahead of the competition?

12:04Like, you know, you mentioned earlier competition has increased and it has, but competition was always there. But where is Lululemon ahead of it? Can you get similar at leisure pants or leggings at Viore or at Aloe or at Leta? How does Lululemon stand out today? And that's the big question that they need to answer. Poonam, what might be the next drivers of revenue growth for Lululemon? It's all product. I think, you know, they are engaging in new product innovation. And as we see that roll out and see that resonate, we think that is what will drive back traffic. Lululemon was a store in the mall that for me was like Apple, right?

12:45No matter how dead the mall was, the store had people in it. Today, when I walk in, that is not the case. So to see that come back is going to be driven by two things in my mind. One is execution and the other is product. Stay with us. More from Bloomberg Intelligence coming up after this.

13:05You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. I'm Scarlett Fu, and we've got some news about the top AI company, kind of the poster child for AI, NVIDIA, teaming up with the top pharma name, Eli Lilly. The two are going to work together with NVIDIA investing a billion dollars into an AI drug laboratory. What does that mean? What are they going to use it for? Let's bring in Sam Fazelli. He is Bloomberg Intelligence's Director of Research for Global Industries and Senior Pharmaceuticals Analyst.

13:44He always gives us his read on the biotech sector. Sam, good to speak with you. How do you make sense of this headline, NVIDIA investing a billion dollars in an AI drug lab with Eli Lilly? Garlit, very nice to talk to you again today. Well, look, I think these are the trillion-dollar club getting together. A billion dollars is probably a drop in the ocean for both of them. It's over five years. And what I think the aim of this at the end of the day is to try and automate and speed up as much of the, partly the drudgery of doing lab work. because lab work, just like as if you were a doctor in a clinical setting, you need to take a lot of notes, a lot of details.

14:27But at the same time, I think they're investing in what appears to be automating, 24-7 experiments, things that human beings can't do. And I know, having been a scientist, that sometimes your life is on hold because you have to go back and deal with your experiments, your cells, or whatever it is that you're running. And so a lot of these things, I think, could speed up and also make the life of the scientist a little bit easier. At the end of the day, though, I think the aim here is to try and get scientific discoveries translated to drugs quicker and get them to market quicker. Sam, what does this mean for Eli Lilly's rivals?

15:05Do you expect that we'll see some of its competitors also ramp up their AI endeavors, given its partnership with a company like NVIDIA? well a lot of pretty much all pharma companies and i just want to point you to a recent survey that bi bloomberg intelligence has done that looked at 10 different industries one of which being the pharmaceutical industry asked executives what are you doing with this what are you trying to get to what is the aim at the end everybody is at this this is not something specific to Lilly. And, you know, Google, for example, has, through DeepMind, has created an agentic AI called Google Scientist.

15:44It's like, I think, four agents or five agents who interact with each other and check each other's hypothesis. So, a lot of this is going on in all companies. But, of course, here we have Lilly, one of the richest pharma companies around in terms of the amount of cash flow that it's got, really being able to spend the money without really impacting its balance sheet and cash flow. And I'm pretty sure everybody's at this, but clearly this is the news du jour, if you like. Absolutely. Like you said, it's a drop in the bucket for both of these companies. But when you have a number like$1 billion and these big brand names, it gets people's attention.

16:20What also gets my attention, Sam, is Moderna. Moderna, obviously one of the vaccine makers during the pandemic, but it's had a rough go at it recently because it's so dependent on these vaccines. And we have an administration that is kind of anti-vaccine right now. Yet, Moderna pre-announced at the JPMorgan Healthcare Conference that its U.S. COVID business did better than expected. Is Moderna starting to stabilize? Well, one would hope so. They've stuck with their aim of growing 2026 by 10%. But, you know, if you look back at the beginning of the year where the company in 2025 started with guidance, and where we ended up, we're a good$500,$600 million short of what the hope was at the beginning of the year.

17:07So everybody, I think, knows that this is a very difficult market to call for exactly the reasons you just highlighted. There is a constant change in the way that the administration in the U.S., and not just the U.S., elsewhere, is also dealing with vaccination, particularly in the COVID side of things. Other vaccinations are still pretty much well settled, at least outside the U.S. The problem also that Moderna is going to face or has been facing is that there are lots of people. There's I think my patent colleagues say there are at least 20 various directions of legal cases or trials going on.

17:45Different groups saying you're infringing my patents or you infringe my patents and you need to. Because there was billions and billions of dollars that have revenues. So some of that is coming potentially in the March timeframe, very likely against a trial coming up against Arbutus, another company that's listed in the U.S. So some of that is, I think, something that might keep people from getting too excited about Moderna's guidance today. Sam, very quickly, obviously the end of the pandemic has made it hard for pharmaceutical companies, U.S. officials curbing the people who are eligible for them.

18:19What then are the next growth catalysts for vaccine makers? Oh, well, I think a lot of these companies are trying to use the technology, which is the mRNA technology, at least those with an mRNA technology, to develop cancer therapies. Remember, at the end of the day, what you're trying to do is get an immune response, which is what vaccines do, against something relatively foreign. In infectious diseases, it's a virus. In cancer, you're trying to get cancer cells killed and recognized by the immune system. That's where these guys are going. Stay with us. More from Bloomberg Intelligence coming up after this.

18:56you're listening to the bloomberg intelligence podcast catch us live weekdays at 10 a.m eastern on apple carplay and android auto with the bloomberg business app listen on demand wherever you get your podcasts or watch us live on youtube you know the bonnie rate song i don't i can't make you love me you have to sing it for us well no i'll spare you that i feel like that's how uh Paramount Skydance is feeling. This drama just is never ending. They made some new moves to try and get Warner Brothers to dump Netflix and choose them. And Geetha Ranganathan with Bloomberg Intelligence is here. She's going to try to sort this out for us.

19:34Do I sense desperation on the part of Paramount Skydance? It seems like it's not the cost of getting Warner Brothers, but the cost of not getting Warner Brothers. That's the big issue. Yeah, absolutely, John. You're absolutely right. and this is this is the truth this is the hard-hitting truth for really all of these legacy media companies right uh you know how much are they going to lose out if netflix actually does go up you know end up winning this whole uh bidding war for warner brothers and that's really what we see today from paramount uh basically uh you know uh the whole letter to shareholders as well as uh the the legal uh the lawsuit that they've that they just filed basically threatening a proxy fight.

20:18So things are kind of getting very, very interesting, somewhat, I would say, even somewhat ugly. If I'm just reading this report, it says that the lawsuit is aiming to force out into the open more details about Netflix's takeover agreement. What exactly is this lawsuit alleging? What is it supposed to do here? And is it just posturing, perhaps? it's a yeah i think it's all of the above uh alex so really what what we're you know so we have one number which is there for the streaming and the studio assets so remember the whole warner brothers transaction is about two different uh units really so one is the streaming in the studio assets and for that we already have a deal from netflix for about 28 a share now what is a share what is really so to speak in the air so to speak is the remaining part of the business which is the TV network business, what is called the global networks or discovery global.

21:13And here is where, you know, there is a lot of questions about where exactly that should be valued. So Paramount pretty much has come out and said that it should be valued at zero dollars a share. And they based their argument on the recent trading debut of Versant, which is the cable network spinoff from Comcast, which has fared really, really poorly in its first week, the stock off almost 30 percent. And so that, you know, Paramount kind of using that as their defense for valuing these Warner Brothers networks next to nothing. Warner Brothers, on the other hand, obviously internally has a number for those networks.

21:47They, you know, according to reports, think it's worth about three to four dollars a share. So that's really where a lot of this discrepancy is kind of stemming from. And what Paramount is asking in this lawsuit is to really clarify all of these aspects. What is the stub value? What is, you know, what are all the different financial details in the Netflix deal? And what is the risk adjusted uncertainty that Warner Brothers is ascribing to the$30 offer from Paramount? So they say they're really asking WBD to kind of spell it all out and come out in the open. So, I mean, are they doing this on the cheap?

22:21Why not just pony up more money, Paramount? yeah so you know right now their you know offer is obviously 30 a share which warner brothers has called inadequate and inferior to the netflix deal um of course you know paramount keeps arguing that their offer is all cash versus netflix which is you know partly cash and partly stock and you know the stock is obviously has been uh really like uh it's it's been going down in value so again And that part of it is a little bit of a question mark. But really, this is, you know, I think ultimately what's going to happen is they are going to have to sweeten the deal.

22:59There is no doubt about that because we haven't seen a whole lot of action in terms of the Warner Brothers shareholders actually tendering their shares. And that's really what it's going to come down to. So only about 2 % of the shares have been tendered, which means that the shareholders are really waiting for a higher bid. So Paramount, I think, has to, you know, raise the offer ultimately. Keetha, it kind of feels like this bidding war has no end in sight. We get some new escalation every day from a regulatory perspective, perhaps. Is there any limitation for how much longer this can go on?

23:32And what does it do for the terms of the deal for, you know, if it keeps dragging on much longer? Yes, definitely not good for anybody, right? It just kind of keeps adding to the uncertainty here. But in terms of the dates and what we know so far, January 21st so far is the deadline that Paramount has set for the Warner Brothers Discovery shareholders to tender their shares. Now, they can very well come back and extend that deadline or, you know, they may not. They may choose to walk away from the deal or they may, you know, choose to raise the offer. So, again, a lot up in the air at this point.

24:07Just it's we're kind of playing a waiting game here, Alex. What would a proxy fight, what would that look like? That is going to be really ugly. And I don't think, you know, obviously that kind of changes a lot of things. You know, I think the Warner Brothers Discovery shareholders, however, do believe that the board, the management is doing the right thing. I think they do believe that the Netflix offer is actually superior. And I think that they do believe that the TV networks are actually worth something, something much more than what Paramount is suggesting. So, again, I don't necessarily know that a proxy fight would be productive for Paramount.