White House Eyeing Chips Act Funds for Intel Stake

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0:47Bloomberg 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. So the Trump administration reportedly in talks with Intel to have the U.S. government take a stake in the company. What does this all mean? Let's go to someone who knows about it. It's Ryan Gold. He's Bloomberg deals reporter joining us live here in the studio. Ryan, thanks for joining us. What would a deal like this do?

1:25I think this probably should be seen as a way to potentially shore up Intel's balance sheet. I mean, it's a company that's been struggling. It's losing money. It's really got an ambition to return semiconductor manufacturing en masse to the United States in a way that we've not seen in years. It's all centered around the Ohio plant. The Ohio plant has been seen as a way for Intel to become a shining light across the world. They said by 2030 it was going to be one of the biggest and the best in the world. Obviously, that hasn't been the case. it's been delayed quite a few times. So this investment, this proposed investment, should probably be viewed as a confidence capital type of arrangement for Intel.

2:03You know, bring, give some confidence to investors that this is something they should stand behind because it has the backing of the most credit-worthy institution in the world. We don't do this very often. We being the US government, this is a monstrous change in industrial policy. What are folks saying out there about this? It is. I think, you know, certainly among the people I've been speaking to, this is something that, you know, it's a new dawn in a way. I mean, if you're a banker or a lawyer or anyone on Wall Street thinking about struggling US companies in quote unquote mission critical industries or industries that are sensitive to the United States, is the government now an option for you?

2:39I mean, we think back to the financial crisis, the crisis of GM and so on. I mean, that's years ago. I mean, the tide has turned since then, clearly. But it does seem as though just given some of these other transactions we've seen, like MP materials, like the almost pay for play in a way in video agreement with AMD as well, the 15 percent that Trump struck to allow China to have these chips. It does seem like a new time, a new dawn for how to think about the Trump administration's play with private industry. So who's going to pay for the stake? I mean, we're hearing the Trump administration eyeing the CHIPS Act.

3:13Is that right? Yeah. So far, I mean, we just ran a story this morning. Our understanding is that at least for now, the funding could come from the CHIPS Act. I mean, bearing in mind the CHIPS Act was passed in 2022, committing$280 billion in new funding for domestic research and manufacturing of semis in the United States. Intel was already poised to be the biggest beneficiary of the CHIPS Act. I mean, I think they were awarded$7.9 billion in grants for a commercial semi-manufacturing program. and they also struck an agreement with the Pentagon under their secure enclave program that was worth around$3 billion.

3:50So Intel's already seen quite a bit of this money. It remains to be seeing exactly how much or what size stake the government will take. Does Intel, do they welcome a stake by the US government? Have they said anything? They haven't said anything. I think one of the things that was kind of telling yesterday when we went to them for comment, they declined to comment on what they call rumors and speculation, but they did add that they were deeply committed to supporting the administration's efforts to strengthen U.S. technology and manufacturing leadership. I mean, make no mistake, Intel sees itself that it should be the leader in semiconductor manufacturing.

4:24It has always been in the shadow of TSMC as it relates to semiconductor fabs. I think they do feel as though this could be a potentially very good time for them to change course and return to the top of the channel. So do you see this as just another intervention by President Trump? We had the 15 % cut of certain semiconductor sales to China. You had this golden share in United States steel. I mean, can you dive more into that? Yeah, I think, you know, this is certainly, I just really want to draw a line under how unprecedented this is. I mean, this is a wacky suggestion, what we have here. Lip Boutin, by the way, who, you know, there are very few people who are as qualified as him in semiconductors.

5:07I mean, he sat on the board of Intel before he became the CEO. He left the board, then they ran a process, and now he's back as CEO. I mean, he was already making the point when he was on the board that Intel needed to sort out its manufacturing problem. The fact that the Trump administration is now coming in and suggesting that they could be behind essentially as a backstop in a way for what the company is looking to do there is turning conventional wisdom on its head for sure. I think to draw the attention again to the MP materials deal, that was really interesting because it's about, you know, loans.

5:40It's about outside financing. They mentioned as part of that deal that it could take the form of partnerships with other customers. I think it's really being seen as a blueprint for what the Trump administration is thinking about Intel here. It could work. I mean, it could be really advantageous because we see Intel investing all this money in this new foundry plant in Ohio, but they don't have any customers. Exactly. And if the U.S. government was now a part owner of Intel, I think I might want to do some business with Intel. Exactly. And I think you make a great point because we've been asking these questions since yesterday.

6:16If you're one of Intel's competitors looking across the way and thinking, okay, sure, we'd love to be in this business. What about us? That's the kind of scenario we're in now is, is Intel being seen to get preferential treatment from the US government? And what does it mean if you're another semiconductor company which has ambitions like Global Foundries? Global Foundries, a major backer is Mubadala, the sovereign wealth fund, but they're a semiconductor manufacturer. They have a few sites in the US, a few in Germany. you must pay for their thoughts. Before you go, the timing of this. Didn't the Intel's CEO just come back from meeting with the president at the White House?

6:56Was this kind of discussed during that time? That was Monday. We're now on Friday. It's crazy what difference that we can make. But yeah, these plans were talked about on Monday between Trump and Lipputon. And you'll note that Trump put out the Truth Social post after that meeting and said that he described him as an amazing man with a really interesting backstory. You know, it was an about face, given that he just a day before called for the guy to be replaced. I think another point I'd note just on the politics of this, Paul, you mentioned Ohio. Ohio is a massively sensitive state for Donald Trump.

7:32It's where he has a very deep base of, you know, Marga Republicans. and he's won there three times. So J.D. Vance, the vice president, is also from Ohio. Big, big, big source of tension for them. Stay with us. More from Bloomberg Intelligence coming up after this.

8:07You'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. So, Paul, my daughter and I have these matching bracelets. They're Pandora bracelets. They're really cute. They have these little charms and everything like that. But I think we might stop at one because the price of them might start to go up. That's according to its CEO, weighing potential price increases due to higher tariffs. But we want to go with someone who knows more about it.

8:40It's Deborah Aiken. She's Bloomberg Intelligence Luxury Goods Analyst. Deborah, thanks for joining us this morning via London, coming in from Zoom. So what do we know about these price increases? I mean, how much is this going to affect the consumer? I think, well, the price increases are still very much to go through the market in the jewelry industry. We have already seen the higher-end brands, Hermes and others, popping through prices of around 5 % to 6%. And then on top of that, with their spring-summer collections, an extra 4 % into the U.S. So, we would expect, when we did some deep analysis and because of the different tariff situations, we would expect maybe 4 % pricing additionally to come through from Pandora, for example.

9:30and that's very much a difficult play when other prices are going up and in a value-orientated offer. Well, how about in the watch business? Because that's one I'm interested in. I mean, Lisa and her daughter have the bracelets. I get it. I get it. I'm kind of a watch guy, not a crazy one. But boy, the tariffs are talking about 39 % tariffs on stuff coming out of Switzerland, little old neutral Switzerland. That could be a problem for the watch manufacturers. What are they saying? Yeah. So I think, you know, and the watch manufacturers and the retailers, too, because I think they'll take a bit of the brunt, a lot of the brunt of some of the biggest names.

10:07So Richemont and its brands, Swatch and all of its brands, Swatch's brands were all produced on the watchmaker side of Switzerland. Richemont on watches and also its Cartier brand, a lot of that out of Switzerland, mostly out of Switzerland. So the idea there, when we did our analysis, they're not saying anything on numbers yet. But in order to try to manage EBIT margin, we would say that they would need about 9 % from Richemont. They do have very high gross margins, so low cost of business. That is one thing that will help them. But even so, we are going to see mid-single-digit prices expected to be passed on to the consumer.

10:47And the big thing coming from the numbers this morning from Pandora were very much that actually they haven't been passed on yet in key categories with jewelry being one of them because they're gifting occasions. And so a lot of that inflation has to come into the U.S. market. So is Pandora's U.S. exposure lower compared to its rivals? If we think about it from a global perspective, no. But if we're looking at the US consumers, then yes, it's one third of sales for Pandora globally, but it is its biggest market. And it has been the engine for growth through the first half of this year. It's of 8 % on a constant currency, 12 % including the store opening it's doing.

11:34And that's versus 8 % overall for the business. So it is the key driver. But then otherwise, if you think about the business overall on the jewelry side for branded business, it's still hugely fragmented. So Pandora only has a 2 % market share and it's one of the leaders. So a lot of pricing to come through, lots from India and others also with those tariffs coming into force from the beginning of August. So Deb, you cover all of global luxury here. What are your companies generally saying about the U.S. market and the tariff situation? Are they suggesting that makes the U.S. market less attractive to them?

12:16And what are their policies for actually dealing with the tariffs? Yeah, I think twofold or threefold, should we say. One of them is cost-saving. All of these companies are working avidly on cost-saving. They're also adapting portfolios, which does take a little bit of time. So we'll see more of that in the autumn, winter. their widening price points. So, Prada, for example, had said, we realize we need to be more at the top of the price point, but equally, we need to be further down the architecture. So, they're going to be one of many companies that will do the same into the US market. But generally, I would say actually the market from the mid-luxury upwards has been particularly robust.

12:58And we've seen the consumer confidence is still very much at a low, but it is picking up in the higher-end income brackets more quickly than others, and that's typical. And a trend that we've seen over the long term from the different income bands in the U.S. Deborah, we've got about a minute left. How is the luxury market doing in China? That's been kind of a sticking point. It has. It's very, very slow to recover. To the things we discussed just this week, we're thinking about the fact that there's an extension between US and China on the tariff situation until the 10th of November. So, another 90-day pause, so to speak.

13:35And we think that's negative because both the US and China are running on very low consumer sentiment, with China four years in the doldrums. And the numbers that we're seeing now today on kind of CPI on different retail analysis highlights that the Chinese consumer is really resolute on holding on to their money or shopping very high end or finding something that's local. So there's a lot more localized competition and they're not traveling the way that they used to. It's all held off until they really know what's going on. So difficult outlook for the first half of 2026 for luxury. Stay with us.

14:14More from Bloomberg Intelligence coming up after this. 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 one of the stories in the mortgage market that really got my attention is potential ipo of fannie mae freddie mac because i'm just thinking about my finance group bankers on Wall Street. What a boondoggle that would be for them. But also concern here what it might mean for mortgage rates out there. So let's check in with Ben Elliott, consumer finance analyst, Bloomberg Intelligence.

14:55So, Ben, talk to us about Fannie Mae, Freddie Mac. Is there going to be an IPO of these companies? And if so, when? Well, Paul, it wouldn't really be an IPO since the companies do trade over the counter. But, But, you know, Treasury is talking about different options, maybe selling some of the shares that they currently own, maybe raising some new equity at the market. But I think the core of the issue here is we don't know what Treasury is planning to do. And so they're talked about timeline, which was by the end of 2025, seems to be very optimistic because as far as we can tell, none of the work has been done.

15:31So what does this what could this mean for for mortgage rates? I mean, how much higher could they go, if any? So there are different estimates out there that, you know, they could go up 20, 30 basis points. Some people suggest maybe a percentage point. If you sort of think about agency MBS, most of the premium there over treasuries that investors get today is because people can prepay their mortgage and they have negative convexity, but not because of credit risk, right? So if you reintroduce credit risk as a result of making the companies private and cutting off the federal government guarantee, then that could add relatively substantial price there.

16:10So just like a rewind back to the terrible time of the great financial crisis. The government basically bailed out Fannie Mae, Freddie Mac, and they now have significant equity ownership of those two entities. And the question is, is now the time to sell down some of that equity interest? Is that the story? Yeah, that's part of the story. So they own warrants to purchase 80 % of the common stock. But they also own a senior class of preferred shares. And that has a par value around$200-something billion. But it also has a liquidation preference, which rises each quarter along with Fannie and Freddie's earnings that's hovering around$350 billion.

16:53So when you hear different people on the street talk about the potential to raise$300 billion, from writing down the senior preferreds, that's actually not enough really to pay back the stated value or the liquidation preference of the senior preferreds. So a lot of the uncertainty here is what will Treasury do with its senior ownership stake as opposed to just its commons. Hey, Ben, can you dig into what are some of the pros and cons of making these companies private? Yeah, sure. So, I mean, the obvious con, right, is that Fannie and Freddie work extremely well. They're providing a ton of liquidity to U.S.

17:34homebuyers. We have a unique financial product in this country, which is the 30-year fixed rate mortgage at incredibly low rates. The credit quality is fantastic. It's better than really it's ever been. And so you have to ask yourself, what is the benefit of disturbing that and going back to sort of the pre-2008 status quo that led to what occurred with the companies in the financial crisis? But if you sort of take a sort of 30 ,000-foot view as a more theoretical observer, right, maybe there's some benefit in getting the government out of private capital markets. Maybe introducing competition could increase innovation, but it would have to be done in a really careful way that ensured that we never sort of return to the risks that were inherent in the business model prior to the financial crisis.

18:26So, Ben, you cover the consumer finance industry. What are the companies that you cover? What are they telling you about the health of the consumer? There's a lot of places I like to go to get kind of firsthand information. Restaurants, for example, like talk to Mike Halen and he gives you a view. But also for you, like the consumer finance companies, because they bank everybody and not just the big blue chips. They bank, you know, the small and some of the more questionable credits. What are they telling you? Yeah, so our credit card companies put out a really interesting data set every month with their delinquencies, their net charge offs and their loan growth.

19:01And the story is sort of two part. Loan growth is slowing. People are spending less money on their credit cards. Maybe consumer confidence is declining a little bit at the margins. But credit is still fantastic. It's still right at about 2019 levels. It's trending sort of down as though it might eclipse those levels. And by and large, borrowers are very resilient. But if you sort of look down into the weeds of some of the more marginal lenders who are doing things like store credit cards, those companies say that they see some of their consumers struggling and managing through things like inflation.

19:41And so there's a potential at the margin of the economy worsens for that to create some trouble. But the question is, are they paying off the credit card debt? They're paying it off. Oh, they are? Okay. And delinquency, importantly, which is a leading indicator of charge-offs, is still improving. And that gives you about a six-month view into charge-offs just because of how they work and how long it takes. And so right now, if the trend were to continue, credit would keep improving over the next six months. This is the Bloomberg Intelligence Podcast. Available on Apple, Spotify, and anywhere else you get your podcasts.

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