10AM Hour: AI Trade Faces More Pain, Interactive Broker’s Thomas Peterffy, Citizen Financial CEO on Earnings 10/16/26

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1:03Good Friday morning. Welcome to Squawk on the Street. I'm Sarah Eisen with Carl Quintanilla and David Faber. We are live, as always, from Post 9 of the New York Stock Exchange. Stocks are looking for some footing after a wild up-and-down week of trading, though tech is still sharply lower since Monday's open, and CoreWeave is seeing more pressure in early trading. We'll talk to venture capitalist Eric Heppel, who just posted about the parallels between this technology build-out and the dot-com era of the late 90s. Also ahead, Interactive Brokers Chairman Tomas Pederfi is with us fresh off earnings.

1:34Read on what he's seeing from customers, retail investors, plus this renewed interest in options with volumes hitting levels last seen during the meme craze. And as pre-orders for the foldable iPhone begin today, we'll be joined by Tony Fidel, who co-created the first iPhone. It's considered the father of the iPod. First off, though, guys, all the talk is about artificial intelligence. and I've been focusing on the impact on the economy and what it's actually going to mean. I think one of the biggest questions for 2027 is what does the AI build out and AI spending look like? That will underpin earnings and the economy and the credit market.

2:13The Fed chairman, Kevin Warsh, is in Bangkok for the IMF meeting, speaking with the head of the IMF, and he talked a little bit about his expectations around AI and what it means for the economy. Listen. we don't know in the next 12 or 18 months its effect on employment. But if you believe like I believe, which is it will make economies and countries that put it to good use more productive, that it's going to make it so that we will have more wealth, then that has to be a very good thing. But the path from where we are to there is likely to be a very bumpy one. We got a taste of what those bumps feel, a feeling of that this week with the bumpiness.

2:58But overall, he's pretty optimistic, it sounds like, on the productivity growth side. Also wanted to snapshot some of the anecdotes from the Beige Book. The Fed releases, it's basically recording from all the different districts around the country. And there was a lot of talk about AI from Atlanta. Here's a good tidbit. Utility contracts describe sustained demand from AI-related infrastructure, including projects that were not expected to become operational until the late 2020s. This is an important indication that the infrastructure build-out could support energy demand for years. Thought that was nice and bullish.

3:29Philadelphia Fed reports manufacturing growth was being driven primarily by data centers, AI, and defense-related activity. Also, they say that air freight demand in North America is high due to semiconductor and AI demand. Look, I don't have to tell you it's been such a big driver of the economy of manufacturing. We just got a strong read on industrial production this morning. But it's interesting to hear and see the anecdotes. As we know, this economy is very much underpinned by what's happening in terms of the build-out right now. Yeah. I mean, what did Torsten Slock tell us the other day? If we're growing roughly two-ish on GDP, maybe without AI, we'd be growing one.

4:09Yeah, you said half. We have the chart on this. So this is the Torsten impact of AI on GDP, basically. And it sort of answers the question, like, where would we be without AI? He looks at the U.S., South Korea, Germany. Sharp reset in AI expectations could undermine, he says, corporate confidence, trigger a pullback in COPX, weigh on GDP. And this scenario, you know, he looks at different scenarios, which assume higher credit spreads, decline in investments, and South Korean exports, basically, to conclude that it's a really bad deal. And that leads you to what Larry Fink told us this week. Right.

4:48Which basically is that if the politics completely go against, which they're moving against, data centers and AI, that's potentially really damaging for the economy. He even used the recession word. Listen. There's a lot of rumors and fear about data centers. Most of it is on misinformation. Most of it is wrong. you know, whether it's use of water. I mean, you know, golf courses use more water than a data center. I mean, I can go on in all the different length. But if we have a moratorium of some sort in this country, we will be in a recession. So much of our economy, as you said, David, is based on the build-out of this CapEx.

5:31That's why we keep warning about, you know, the backlash. With financing. Now, I will say we did spend a lot of our time with Larry. This was a few days ago, obviously, talking about the efforts being made to create a securitization market for GPUs and for chips in general. And I think that given the headlines, particularly from this last week, that focus is even more important because you can imagine when you're, you know, if you're a core weave and you're not able to finance at least a level that you want to pay in terms of what you're putting into all those data centers, creating a vast securitization market for all those GPUs.

6:14and the capital that will come along as a result will be very, very important. Fink spent some time on that with us, Carl, obviously. It's not clear exactly where that effort is right now, but he made it clear that they are assembling a lot of data to help enable what would be, you know, you need to create sort of the uniformity so that you can create this collateral that is kind of across the board, something that investors can look at for security. Yeah, we joked about collateralized chip obligations and compared it to the mortgage-backed securities, which he was there when that whole market began.

6:49He was. But a lot of that depends on the lifespan of the chip. It does, and that will change. But I could also make an argument, because I've since talked to some people about this also, that there may be some difficulty in terms of, well, if you own the chip or the chip is the collateral, well, are you going to pull it out of the data center? It's a bit different than some other markets. It doesn't mean they won't be able to figure this out, but you will need some sort of uniformity or something. Not like repossessing a house on a mortgage. But I think that's one of the things, you know, it's capital constrained.

7:19Like, is the capital going to be there? It's power constrained. Is the power going to be there? There's friction with the politics. And now there's higher borrowing costs. And all of those, I think, are leading to questions. The real chart to look at here when we look at the outlook for 2027 is the CapEx, you know, how much companies are spending to build out AI for 2027. Here's basically a combination of some of the major spenders, the CapEx spenders from the hyperscalers to the neoclads. This is Savita today? Yes. Yes. This is Bank of America. Basically, capital spending will continue to climb, exceeding a trillion dollars.

7:56But I think the debate now, guys, has shifted. This is the bullish story, but to how fast these companies can build from how fast these companies to build to whether they can generate enough revenue to justify the investment and whether they can finance it. Ultimately. Yeah. Well, that's that's why. Right. I mean, remember, and anthropic and open AI really are using everybody else's balance sheet because they can't. Obviously, they can't get all financing for the compute they need. They need others to do that for them. That already is happening and happened and continues to happen. But then it still comes back to, well, what are they going to be able to generate in terms of the revenues they have to be able to pay the oracles of the world for the data center that Oracle is now paying?

8:38for to put all the stuff in, which they're buying off from Dell and everybody else. Which is why we raised the circular question. Right, it's the circularity. And of course, NVIDIA being the key part of it as well. A lot has to go right. With their 75 plus percent margins at NVIDIA. Let's continue that conversation this morning about the AI build out with Eric Hippo, a veteran venture capitalist, managing partner, of course, at Larry Hippo, longtime friend of the program. Eric, good morning. Thanks for being with us. Happy Friday. Morning, Carl. So you've been asked, and you have written about analogs between what we're going through at this moment and what happened in the late 90s.

9:12Can you sort of tell viewers where you think we are? What's the same? What's different? Sure. What's the same is that we're spending a ton of capex ahead of full revenues. And as you were mentioning on the show just previously, financing is getting more leverage, more creative. That was the case back in the late 90s as well. And circular vendor financing, again, similar to what's going on today. And maybe the tip of the iceberg that just destroyed that broke the camels back in the early 2000s at the crash of the telecoms was that unit prices were collapsing. So in those days, I was on the board of a company called Global Crossing.

9:57And Global Crossings' mission was to build undersea cables that would link the globe with the internet fiber optics. And when the company started in the late 90s, it was predicated on a certain high price of broadband. By the time they finished the infrastructure in the early 2000s, that price had dramatically fallen, I'm not saying to zero, but it was dramatically different. So we're seeing a similar situation here today where the price of tokens is falling dramatically, mostly because of the advent of open source, open-weight models, of which there are dozens now. And you can basically run your AI on almost zero.

10:41Now, there are differences as well. The people who are spending on infrastructure today couldn't afford to do so. So the big hyperscalers, people like NVIDIA, etc they have strong balance sheets um but as as we've discussed the balance sheets are not enough they also have to go out and and create some financing for that um and then the other big difference is that um demand is is is is immediate right the more you build the the more the market expands um and and uh you know the the the other thing that's different is that the asset life is much shorter. So back in the late 90s, while the telecom companies like the one I mentioned, Global Crossing and WorldCom and people like that, basically failed and went bankrupt, the infrastructure was now in place.

11:29And that led to the advent of big, big companies like Netflix and Meta, who used to be Facebook, and Amazon and plenty of others that took advantage of the fact that the infrastructure built, it was cheap to operate. And so is there going to be a similar situation here? We at Larry Hippo are betting on this. We think that this is going to bring on the post-web environment, the post-web industry, which is basically an agentic world where you're not going to have to go to websites. You're not going to have to go to apps. you're just going to be asking your agents to do your bidding, your ordering.

12:15So you don't think these fears about dark fiber apply today? No. By the way, dark fiber got lit over time, right? So the difference between then and now is that dark fiber was still using the same fiber that was installed 25 years ago or 30 years ago. and that fiber will continue for a long time. The chips that we are building that make AI work don't have that kind of lifestyle. They have a five-year, call it five, seven-year lifestyle. They're going to have to be replaced by better, hopefully cheaper, faster chips. So this is a world that's going to continuously increase in terms of capacity, which is very different than what we saw with Telcom.

13:03That said, Eric, you know, there were also advancements in, I don't know whether it was algorithms or what, that allowed you to throw a lot more capacity through that very fiber. And nothing says that there won't be similar advancements that allow for chips to become more and more and more efficient over time as well. Absolutely. And we're counting on that, by the way. And this is going to solve, we think, it's going to solve some of the key problems that exist today. And when we talk about the trillion dollars in in capex you know um uh i just saw a note from gartner the other day that said that the seven trillion dollars is going to be spent by 2030 um you know it it the the the the issue is can you bring on revenues fast enough um to compensate for to make up for for this investment.

13:54And we think that the advance in chips is going to increase the demand, and, you know, demand is there. And as we see with companies like Anthropic, which just released its Q3 numbers, you know, they're the fastest growing revenue company in history because of demand. Yeah. I was just going to ask if it changes your view on things like different parts of the neoclods, for instance, because if now the question is who can finance in an environment of a rising cost structure, does it change the view on certain companies that have the ability to do so? Well, yes, you're right. If those companies rely on debt or creative financing or vendor financing, that's going to get tougher.

14:45But there's another theme in all of this. Are we really going to be able to build all of this in the time frame that we're talking about? You know, we're talking about spending in one year what it took 10 years to build the internet infrastructure. But in those days, we didn't have water constraints. We didn't have power constraints. You know, today, we didn't have the opposition of, you know, people, municipalities, locals. We have all of this today. So you have to be a little skeptical that all of this is actually going to get spent in the period of time that we're talking about. Yeah, I know.

15:19Even utilities are having to figure out who's real and who's a phantom project. That got written up a bit this week. Eric, we'll continue. I was going to say, we'll continue the conversation hopefully very soon. It's been great to have you. Talk soon. Good to see you guys. Thanks. Here's our roadmap for you for the rest of the hour. After the break, Interactive Brokers Chairman Tomas Pederfi is with us to break down earnings, what he's seeing from the retail crowd. Plus, shares of Tesla are up this morning. Elon Musk showing off the new rocket-powered Roadster. We're going to look at what the gravity-defying debut could mean for shareholders of Tesla and SpaceX.

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17:52Welcome back. Interactive Brokers reporting a revenue beat and earnings missed, though, for the third quarter. Also pointed to slower overall trading activity. stock volumes down as much as 24 % year on year. Joining us now is CNBC Explosive Interactive is Interactive Brokers Founder and Chairman Tomasz Petterfried. Tomasz, always good to have you. Let's talk a bit about the quarter before we get into some other things. Sort of, there has been a slowdown in activity. What do you think is behind that? Absolutely. So trading peaked at the end of the second quarter and it's been coming down gradually a little bit at a time all the way to today.

18:35And what is behind it? I think there is confusion about what AI is going to bring us versus what it's gonna take from us. And of course, I think the big question behind all this is the midterms, which could be devastating for the market. Yeah, go ahead, sorry. So people vote according to what they believe, and if they really believe that free market economy is their enemy, and they would do a lot better under a socialist system, then this market could unravel very, very quickly, because all the entrepreneurs and corporate executives will begin to focus on how to save their companies instead of trying to think about how to innovate new things and how to grow.

19:39I'm sure that Sarah wants to talk to you about the midterms. I don't want to be presumptuous. But before I do that, I did want to talk to you more about AI. I think you're letting as many as 3 ,000 clients run on autonomous AI trading. Tell me a bit about that effort, what you're seeing and why you're doing it, and what, you know, maybe the benefits and what perhaps may be, if you have any, sort of fears. Well, so, of course we do. So we have had automated trading for something like 20 years where people didn't have to be – we had algorithms that were doing the trading by themselves. And we didn't require people to sit by their screen zone.

20:32And – sorry. What?

20:40It's just background noise here. Sorry, Tomas. Go ahead. Yeah. Okay. So, yes, of course, we have fears because it's very possible that there'll be trades taking place that the people either did not intend to do or they will, if they are losing trades, they will claim that they didn't do it. on purpose. And so that is the big fear, right? It always happens that people lose money and then they look for ways to try to recover it. I wanted to follow up, as David expected, on what you said about the midterms, Tomas, because I think that there's a view out there, some investors and strategists that we talk to on Wall Street who say, even if there's a democratic sweep, it's not gonna impact any policy that much that would move the markets because most of the market moving stuff right now is coming from the presidency, right?

21:44The administration. Do you not buy that? You think that there's a real risk here? That is absolutely correct. So the problem is not what is going to happen in the next two years, but the problem is that everybody in the next two years will focus on what is going to happen in 28. And if in 28 we see a democratic sweep, then people will have to prepare for that during the next two years, because in 28, 29, it will be too late. What does that look like? How do you prepare for such a thing? Well, people will start to liquidate their holdings, try to put them in to hide them in places. I went through this in my life.

22:33We'll hide them in various places and try to figure out how they can survive a period of 5 to 10 or 20 years while people come to their senses. Yeah. You know, Tomas, when people talk about the longer term impact of AI, though, and even Elon Musk used this recently, he talked about universal high income. A lot of people focus on the high part of that, which is great, but not as much on the universal. That does not sound like capitalism to me either when you think about what the future may bring for AI. I am actually in favor of universal income because, you know, if people would be allowed to, if everybody would get a minimum amount to survive on and if people would be allowed to keep whatever they earn on top of that, that would be great.

23:25I think that must be the future. Oh, okay. Okay, but that sounds a little bit like socialism. Well, no, because the issue, the problem with socialism is that there is no incentive. Once we have incentive to produce, then we all have a great life because there is a lot of production. Okay, well. I guess you'd see a lot more stock trading if you had universal basic income. And a lot of time, although, yeah, it's a span. Yeah, but on the other hand, if you have socialism, there are no stocks because there is no private owners. What are you doing with your money, Tomas? I think you were buying land and you were talking about, you know, trying to figure out some of the risks around the political landscape.

24:14How do you look at it for yourself right now? So I'm buying land because the experience is that the land is the last thing that they take away and the first thing that they return. because you have a very clear record if it's agricultural raw land. If it's real estate, then it's not the case anymore because things happen in the intervening years and you may not have that same building there or whatever. Definitely, if your money is in companies, then forget it. We won't have anything left. Yeah. Well, when it comes to building wealth, you've certainly done that for yourself and for your many investors, Tomas, as we like to point out, given the incredible performance over many years of that stock, which, by the way, sometimes people get confused because I see a market cap of$39 billion, but the listed company only owns, what, about 26.5%, right, of IBG LLC.

25:17No, the market cap is actually under them$45 billion or something like that. Right. And when it comes up on our machines, it doesn't show all of that. Tomas, always appreciate it. Thank you. Thank you very much. And good luck. And you. Thank you. We don't own enough land. We all need it. I need to plant some some agriculture. Right. Get some fruit trees. Yes. Thank you. That'd be nicer. Farms. Up next, AI Lab Cohere making a big cybersecurity acquisition and a deal rumored to be worth around 20 billion dollars. Cohere CEO joins us after this. Plus, the CEO of Citizens also coming up on the show.

25:55Company reporting a mixed quarter drop-in mortgage fees, a possible concern for investors. We'll get the read on super regional banking. We'll be right back.

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27:31Head to myalloy.com and use code SXM20 for 20 % off your first order. Valid on products only. Welcome back. Canadian AI company Cohear announced yesterday it will buy cybersecurity firm Aisle as it looks to strengthen its foothold in Europe. Terms of the deal were not disclosed. And joining us this morning in a first on CNBC interview is Aidan Gomez, the co-founder and CEO of Cohear, which he started after leaving Google Brain. It is time at Google he co-authored the paper, Attention is All You Need, one of the foundational pieces for the AI industry. Aidan, it's so good to have you. Thanks for joining us.

28:07Yeah, no, thank you for having me. What's important to understand right now about the whole safety discussion we're having? Are there spaces where you think either society or the markets are just not getting what's coming? Yeah, I mean, cyber is one of the big ones, right? I think the OpenAI hugging face breach that's been widely reported on is a great example of how potent these models are and how capable they are at cybersecurity. obviously there's a broader discussion about uh risks to humanity and and sort of sci-fi stories that i i personally don't subscribe to but the cyber security risk is real these models are the best cyber weapon uh that we've ever had to face down and so you know that's a huge part of why we acquired i'll like they are an extraordinary company uh only two years old they came out of stealth one year ago and they've already found five over 500 cves over 200 of them high and critical which are like severe and not in some like esoteric small pieces of software but the fundamental backbone of the internet things like curl and open ssl uh so we're super excited to bring them on board one of the easy pushbacks on on a rogue agent story or piece of news is well, if it's dangerous, don't release it.

29:28Or this notion that somehow it's not rogue because you trained it. Is that missing something? Is there a missing piece of the puzzle in that argument?

29:40Sorry, I think I just lost the last part of that with you. Can you hear me now? Yes, yeah, you can. I think the majority of the question. So yeah, definitely on the rogue piece, I think there are some holes in that narrative, like the security of the sandbox that was put in, the task that it was set against, the specific story around the opening eye-hacking face incident is an interesting one to analyze, and it might have been overblown to an extent. But that doesn't change the fact that the models are extraordinary at hacking. That's what they did very effectively in that instance. So that capability exists and is extremely strong in these agents.

30:21Do you, you know, this comes up a lot, as you might imagine, when I have conversations with the leaders of financial services companies, and I would argue it's probably their number one fear. Because it won't take much and you could go down the stack of, you know, companies that are not necessarily in the top tier, but are still very interconnected to the financial services or the financial system. I'm just curious as to how you view that, how you view that risk, how you view the risk open models as well, not just the mythos of the world. mm-hmm yeah the risk is immense right like to critical industries i think the financial sector uh the telecommunications sector uh our grid our water treatment these are fundamental to the operation of a an economy like if the grid goes down and your pump for water in your house stops and you can't flush your toilet there's not a lot uh that's going to be more important than that for you and the economy can just stop if the financial system goes down and you can't pay for anything the economy freezes.

31:20All of these systems are so deeply dependent on software. That's the fundamental truth. And with the advent of these, you know, cyber capable agents, we now have a tool that you can essentially point at a piece of code and it will find every vulnerability possible. It's extraordinary. Like for example, these two pieces of software I mentioned, OpenSSL and and curl. They're the backbone of the internet. They've been around for like 30 years and they've been sitting there. That code has been sitting in front of humans and cybersecurity experts for decades. And through aisle, they've found tens of critical vulnerabilities.

32:01Like it's, it's an extraordinary tool. Yeah. All right. So we've said many times, you know, the attackers only need to be right once. And obviously the defenders need to always. So, I mean, is the defense, do we have the ability to continue to defend? And what is going to enhance, in your opinion, the ability to defend? We absolutely have the ability to defend. We actually have an unfair advantage to defend because when we work with an organization, we have full access to their code base. It's not a black box. It's, you know, in cybersecurity terms, a white box. You can see inside and you can analyze it much deeper than the hacker can, than the adversary can.

32:39So you have an advantage. The barrier to this has been access, right? Like the glass wing program, etc. They're closed down, invite only. Only a few companies can get access. And so for us and what we're doing, we're trying to put this into the hands of every single critical industry organization that exists inside, you know, the U.S., Canada, allied countries to ensure they have the tools to defend themselves. Is that your value proposition? I mean, is that how you win against the open AIs and Anthropics and Microsoft when it comes to enterprise business that you're pitching that it's more secure?

33:18It's more secure and we trust you more. We're willing to actually give you the model. We're willing to say, you don't have to send your critical infrastructure to us. This super sensitive code that controls grid routing algorithms, this type of thing, You don't have to send that over to Cohere and trust it with us. Instead, we'll bring our software, we'll bring our models, and we'll give it to you so that you can defend yourself. So that level of trust. How good are your models relative to what they're doing? I think you need to look at the results from Aisle. They speak for themselves. In terms of number of CBEs, recently in the latest Curl release, the maintainer of Curl for the past 30 years said Mythos found zero, but Aisle found, I believe it was, 29 critical CBEs.

34:05So the proof is in the pudding. Finally, Aiden, you have argued that this notion that we somehow are at risk of extinction from AI, you've called that absurd. sorry i lost you again there you've called that absurd the notion that we could die from all this yeah i mean i don't want to say there is no risk with the technology like i've said with uh the cyber capabilities of these models they're the most capable cyber weapon we've ever seen but in terms of the extrapolations that get um pursuit on that front in terms of these machines becoming conscious and wanting to take over, I think that is a very remote risk and something that, you know, is very much, it's causing a lot of fear in the public, right?

34:55And if you heard the same thing, you would be quite scared. But as someone close to this technology and someone who's been a part of developing it for quite a long time, those sorts of risks are very, very remote. We have real risks directly in front of us that are national security concerns like cyber. We should stay focused on those and address those while, yes, there should be academic discourse about long-term tail risks, that type of thing. But that shouldn't be the set of risks that dominate our public conversation. All right. Good discussion, Aiden. Really appreciate it. Please come back.

35:31Yeah, thank you so much. Good to see you. Aiden Gomez, co-founder and CEO of here. We'll be talking about another cybersecurity deal in the next hour with the CEO of Proofpoint, a company just announcing plans to acquire Verona Systems. Yeah, a fairly large deal, actually. Tomo Bravo, obviously, the owner of Proofpoint, but almost a$6 billion deal at some hefty multiples. But of course, you do get that when you're talking about security for, well, the reasons we were just talking about. Let's get a CNBC News update now. Contessa Brewer has that for us. Contessa. Yeah, David, we're following the updates here out of Bend, Oregon, where there was a candlelight vigil last night.

36:07The four people killed at an elementary school from a school shooting. Police say a 16-year-old gunman went in and killed three children, ages 5, 8, and 11. A teacher, two others were critically wounded. An armed community member actually followed the teenager inside and then shot and killed him. Bend's mayor calls this a dark day. Federal authorities are investigating letters containing suspicious substances sent to several Democratic senators and election offices nationwide. That mail was addressed to Senate Minority Leader Chuck Schumer and Senators Chris Murphy and Alex Padilla. At least some letters were intercepted before they were delivered.

36:47The FBI, the Postal Inspection Service and Capitol Police are investigating. We don't know right now whether those substances have been identified as dangerous. And my Milwaukee Brewers are going to the World Series for the first time since 1982. Milwaukee rallied from four runs down to beat the two-time defending champion Dodgers, who, by the way, this time last year, beat them to go to the World Series. Six to four last night, completing an NLCS sweep. Garrett Mitchell's sixth inning homer put the Brewers ahead for good. Game one of World Series is October 23rd. 23rd. And no, I'm not just a fan because of my last name.

37:26In case you were thinking that. Are you from Milwaukee? Yeah, because, you know, I did my tour of duty in Milwaukee. And in Milwaukee, if you don't become a Packers fan, a Bucks fan, and yes, the Brewers fan, you're kicked out of Wisconsin for good. And since I married a Wisconsin boy, that would not be good. Oh, yeah. I've been stuck in an airport during a football game. I'm not stuck. You got the opportunity. Right. They're Syria. By the way, if I can, congrats to Marco Tanasio, who our viewers may know, one of the founders of Aries. He's the owner of that team, which has just been incredible in terms of its success, given where its payroll is.

38:05Yeah. The salary cap has been, you know, something that we've talked about before in team scores and whether it levels the playing field. But here's a team that has come forward and just season like last season had a great season. This season has just been stellar. Yeah. All right. Quite a turnaround. Thank you, Condessa. Condessa Brewer, a fan of the Brewers, CEO of Citizens Financial coming up next in an exclusive interview. Revenue missing on the quarter, a drop in mortgage fees, maybe adding to some concern. We'll get the state of the economy and the business with the CEO next. Come back. Citizens reporting a mixed third quarter before the bell today, missing on the top line, beating on the bottom line.

38:41company facing some challenges, including a decrease in banking fees from mortgages and higher operating expenses. Let's bring in Citizens Chairman and CEO Bruce Funzon. First NBC exclusive interview. Bruce, I mean, I heard the way you characterize the quarter, credit, loans, all sounds relatively healthy. How do you explain the revenue miss and the fee issue? Yeah, I would say overall, it was a very strong quarter and our earnings per share was up 34%. and our return on equity got up to about 15%. We missed certain revenue items by a tad, but overall, the overall revenue growth was still good.

39:23We compensated with very good expense management and very good performance on credit. So feel good about the quarter. What about as you look into 27, how are you thinking about the outlook for net interest income, which has been sort of the big question around rates and sort of more of the specifics of your business, fixed rate asset repricing, terminated swaps, which all play into it. Yeah. So this year, our projected net interest income growth is over 12 percent. The street has us over 9 percent next year. And so we have some structural tailwinds from legacy swaps rolling off, which is positive.

40:04But also the dynamics around growing low-cost deposits, we've done really well at that. Our private bank is growing a very strong deposit franchise and a loan franchise as well. So I think the outlook for our net interest income is positive. We also, the way the balance sheet is positioned, we benefit if rates go up. And so there's likely another hike or two, which also should be additive to our net interest margin. And what's it all doing and mean for credit quality, which has generally been a good story, right? But there are some pockets of worry emerging in the market, commercial real estate, maybe AI borrowing consumer.

40:45What do you see? We're still in a really good position in terms of credit. So I think that the economy fundamentally is strong, you know, running probably two and a half percent GDP growth this year and next unemployment rate is in the low four, so people have jobs, consumers still spending money. We don't see migration into delinquency buckets across the consumer book. Most companies are having very good years, and so there's no real air pockets there yet. I think the one thing you've got to kind of start to pay attention to is if rates continue to go higher, does that stress the more levered sectors of the market.

41:26It may crimp new activity a little bit. And then in certain pockets of real estate, if they have to refinance at higher rates, does that put more stress on certain sectors of commercial real estate? But at this point, with one hike and with long rates where they are, don't see that manifesting itself in stresses yet. And I think another hike or two, we'd still have a pretty good picture overall for credit. Bruce, if I could just take us to a different direction for a moment. It's David. Our last guest we had, you probably didn't hear it, was all about cyber security, the enormous power that has been put in the hands potentially of nefarious actors in terms of being able to exploit deficiencies in defense at firms like your own.

42:13How much time do you spend thinking about and or us. How much money do you spend making sure that your systems are defended? I would assume it's got to be a very important part of the overall decision making at the bank these days. Yeah, I'd say it's very dramatic the amount of time that CEOs like myself now are spending just in terms of, you know, A on offense is how do we deploy AI, but then also how do we defend the bank from the nefarious actors who also have the advantages that come with AI. And so the time I spend making sure that we've got the best people in cyber, we've got access to the best tools, that we build out the teams that we need to do the testing.

43:04It's not just like scanning for the vulnerabilities. You have to really accelerate how fast you can patch and test them so that you can you're going to uncover a lot, but then you've got to clean them up fast. But I think net net, this will be a positive for the industry because, you know, we'll deploy these tools. We'll get better. We'll get sharper. And so over time, this will be a really, really good thing. But in the short term, you worry that perhaps you haven't built everything out sufficiently. If the if the attackers come, maybe maybe they can can get there before you're fully ready. One of the things that banks do, though, is they have layered defense.

43:50So even if an attacker can exploit a vulnerability, what can they do with it? And so you're trying to make sure that you kind of lock that down. And so they really can't go very far into your shop and they can't exfiltrate data and do the things they're trying to do. All right, Bruce. Well, thanks for painting that picture for us. We appreciate it. It's good to talk to you about earnings and everything else. Bruce Fonson, CEO and chairman of Citizens. OK, good to see you. Up next, the debut of Tesla's Roadster has options traders placing some big bets on Tesla's stock. We'll cover that after the break.

44:28When we come back, Netflix making some key management changes and layoff announcements this week. We'll look at what it signals about the company's strategy next. Welcome back. The debut of Tesla's Roadster. We never get tired of showing you this video. It may be driving some action in that stock in the options market. Let's go over to Oliver Rennick in Sebo in Chicago. He's got a look at what's being signaled. Oliver. Hey, David. Overlap between options traders and flying car enthusiasts, it seems. Trading in Tesla is elevated this morning after its dramatic display of that rocket-powered Roadster.

45:03The stock opened with a long string of call buying across the tape. And just three bearish put trades among the top 20 transactions by dollar amount. It's the most heavily traded single stock today with as much volume as the S &P 500 index by contracts. And ahead of NVIDIA by about a quarter of a million contracts. Of the almost 1 million trades in the first 45 minutes, 70 % of them were tied to calls with quite a bit of action in the 375 strike expiring today that needs just under a 4 % rally to work. Many of the bigger trades utilized call spreads, including one trader who spent about a million dollars buying 2 ,000 of the 380 strike calls expiring next Friday and sold the same number of 395 strikes against it.

45:50That trade needs Tesla to get to 384 to pay off. By the way, not to overlook, next week earnings are on Wednesday and market makers are pricing an over 6 % move. That's much bigger than the stock's average 4.5 % swing after reports the past two years. For bulls, the big question will be if Tesla can extend its 20 % plus rally off August lows and reclaim the$380 level it lost last quarter on that big sell-off, guys. Yeah, going into today, the only Mag 7 that's down 20 % for the year. Oliver, thanks. Next week's going to be busy. Oliver Renick at SIBO. When we come back, the co-creator of the original iPhone, Tony Fidel, with his reaction to the duo, reportedly selling out in minutes today after opening for pre-orders this morning.

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