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tv   Squawk Alley  CNBC  April 10, 2019 11:00am-12:00pm EDT

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. good wednesday morning welcome to "squawk alley." i'm carl quintanilla busy morning as you can tell we continue to monitor the proceedings on capitol hill where the major u.s. bank ceos have been taking questions from the house financial services committee. that hearing is currently in recess and we expect it to continue in a few moments. wilfred frost is in washington and has more on what we've heard so far wilf, good morning, again. >> good morning, carl. so far it's been less about bank
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regulations, the state of the financial system and systemic risk and more about socialist views like whether or not to lend to certain companies such as gun makers, student lending, lending to small businesses and forced arbitration there was this exchange on executive pay where congresswoman vasquez, asked citi's ceo michael corbat whether it was fair where he earned 486 times the median pay of his employees last year >> congresswoman, i don't think that's fair of me to judge i would say i completely acknowledge that i'm very fortunate and i started at our firm -- >> i'm just asking that if it seems fair to you, the ratio of the amount of money that you're making compared to the 49,000 other employees is making? >> my compensation is decided by our board and voted on by our shareholders. >> just unbelievable and this is why people that live
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in a bubble or ivory towers cannot understand why there is so much anger out there. >> now cyber security also came up as you guys were discussing at the back end of last hour and jamie dimon confirmed the group ofceos would be going to discuss that topic at treasury later today. the hearing itself is only just getting started. 60 members of this committee, we've only heard from about ten so far >> thank you, wilf wilfred frost on the ground. robert frank right now, one of the themes that seems to have come up in this hearing a few times is this question of socialism versus regulated capitalism this dynamic that particularly the democratic representatives were setting up that banks are large at the expense of the customer and the taxpayer, kind of along the lines of this
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income inequality, outcome inquality that's been a theme in the political cycle lately how is that playing out from your perspective >> there's no question we are in a populace season right now in terms of the elections coming up and the proposal from the democrats for raising taxes on the wealthy, the inequality issue, the issue of capitalism versus socialism came up a little bit a democratic congress person who is saying if we had done what the bankers recommended during the crisis, which is to buy some of the toxic loans, we would all be socialists right now. i thought this exchange between congresswoman velazquez and michael corbat was interesting and she asked him, you make 486 times what your average worker makes. they only make 49,000. if you were one of those workers making 49 k, how would you feel? he said, well i would hope that the bank has great opportunities for me to advance. that's when she said, see, you don't get it that's why there's so much anger in the world right now
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and again, i just thought that this sort of highlighted how there are really two different languages spoken on the left versus in the corporate world where the left just sees everything right now as a prism, as you're either wealthy and evil and part of the problem, or you're going to be part of the solution i just think there's no way to bridge that divide right now >> you know, wilf, given the fact that this is the first time since february 2009 that you have major bank ceos all appearing together, congressional testimony, given the job owning we've heard from president trump and his administration about the fed policy and the polarization of that, it's incredible we haven't heard much in terms of bank input on interest rates and state of lending and monetary policy >> yeah. i agree, morgan waevgs had a little bit of that, a little bit of student lending, little bit of small business lending but those were examples of the topics where the ceos weren't
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really given much time to answer or not to put significant meat on the bones of the topic as you rightly say, as robert was just saying, a lot of this has been a balance of socialism versus these banker ceos who embody, of course, capitalism, something jamie dimon defended last week i would say ranking member congressman mchenry did try to focus on the topic of systemic risk and spin things to look forward at the start interestingly focussed a lot on the topic of brexit and whether or not the bankers were prepared for that you're right, so far this has been something of point scoring and sound bites. i would differentiate this particular hearing from the one with in march where tim sloan faced the same committee, the difference being that he was in a weaker position within his own bank these ceos are pretty comfortable, pretty secure in the eyes of their board so it will probably take something more than point scoring and sound bites to lead to any
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drastic action and conclusion following the hearing. >> indeed. bill cohen, the thing about compensation and the ceo pay to median worker ratio, it's not specific to banking. we could turn to media executives, look at oil executives but i wonder what you think about 486 to 1, mine at what point is that number outside of the window of the reasonable >> you know, carl, this is like a fundamental question about capitalism, you know, writ large. you know, there's so many -- we like to aspire, this is so american, to be able to if you have a great idea, if you create a better mouse trap, if you create the next google or apple, you should get -- the sky should be the limit for what you can get paid i mean, is anybody questioning what jeff bezos is getting paid at amazon. had he's given up $35 billions to his former wife.
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>> let's not mess with the founder element. >> of course not but right, these people are not founders, they are stewards, they are managers, and 450 to 1 does sound like a big discrepancy, but, you know, again, i think we're in a populous wave here, probably is too high a smarter answer on mike corbat's part would be yes, it's too high what are we going to do about it >> do i cut my pay no one with is going to say cut mypay. maybe that should happen maybe raise the pay for other people who work there. i mean, it's still the most lucrative industry on the face of the earth especially if you're not putting your own capital to risk. i mean, this is a problem of capitalism or issue in capitalism writ large. you have ray dalio and jamie dimon in the last few days addressing it trying to address it head on, but, you know, this is systemic, this is worldwide, this is the way the world works, and it's one of the flaws of capitalism and we should be
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trying to address it somehow and that's where government can step in and make a difference >> yeah. >> yeah. >> american enterprise institute with us as well. i'm not sure how much we're going to get specifically around policy out of this, but it seems we're certainly seeing some fault lines around the next political cycle forming, some narratives that the democrats are trying to push, the republicans in the house financial services committee as well jimmy, what are you seeing as far as how this issue of wealth disparity, this issue of economic policy is playing out in this hearing? >> well, clearly a lot of this is going to be framed through this sort of economic inequality issue. what i found interesting is that democrats have really focused on the idea that we have all these big companies in the united states and they have monopoly power and that they need to be heavily regulated or broken up
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we saw this is exactly the case with big tech. i did not see a lot of that, that case being made, that we need to break up the biggest banks in that hearing. if democrats cannot make the case that we need to break up big banks, which were involved in a global financial crisis, how the heck are they going to make the case to break up big technology companies which were not involved in a financial crisis and sort of give us lots of things that we really, really like if they're going to make that case, it needs to start there with banks and instead they are talking about, i don't know, pay discrepancy and guns and -- i did find out brexit is a challenge. we did find that out >> jimmy, that gets to a really fundamental question for me and that is, when you look at a hearing like this, whether it's big bank ceos or as you mentioned some of the testimony we've seen with tech company ceos in the past year as well,
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do lawmakers actually understand the fundamental business models for these companies? and this is just essentially a show of politics or not because that is going to be a key question when it comes to regulation moving forward. >> right if we want to have confidence that we're going to impose, you know, technology companies vast new regulations or perhaps new regulations are breaking up large banks, there is no way as an american citizen i would feel confident in any of that after listening to folks in congress who have very little understanding of the business model. i mean it was famous with the zuckerberg hearing, they didn't understand how facebook made money. they don't understand how these companies make money today versus in 2009 it's not like these companies don't send people out to brief staffers that happened. i know that happened before the tech ceos testified, but none of that actually seemed to be getting through and when we have
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these actual hearings, again, it seems to be a lot about, you know, pet issues, rather than asking the sorts of insightful questions one would hope to see. >> sara eisen, representative ann wagner from missouri seemed to be trying to get to this job creation and small business issue around banks this dichotomy you saw between the democrats attacking the bank ceos for income disparity and inequality, and issues around bank policy, and then a lot of the republicans presenting this question of, what are you really doing to fuel small business what did you think of their answers there? they in their statements seemed to come with a lot of information, ammunition around diversity, around building up local communities. did that hit did that get through >> i think so. i think your point is well taken this was a question that the bankers were prepared for, how they are serving their communities, how they are
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boosting small business, how they have -- how they treat relationships with customers comes in the wake of the wells fargo phony account scandal and the bad behavior in fact financial crisis this was a question that they were prepared to answer and have a lot of examples of ways they're engaged, many of the banks, big contributors, for instance, to college programs a and community programs the overall tone, the tense tone many of these lawmakers took toward these bank ceos, we saw it on full display yesterday as well when that committee questioned the treasury secretary, secretary steve mnuchin, that was actually capped off by what was a pretty fiery back and forth between the treasury secretary and chair maxine waters. watch this >> what i told you is i thought it was respectful that you would let me leave at 5:15. >> you are free to leave any time you want. you may go any time you want. >> please dismiss everybody. i believe you're supposed to take the gavel and bang it.
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>> please do not instruct me as to how i am to conduct this committee. >> quite an ending to the few hours of testimony from the treasury secretary wanted to mention it because we will be speaking with him exclusively today around 1:30 p.m. about that hearing yesterday, this hearing today, with the bankers, the tone they're taking, the questions they're asking and, of course, it is the start of the imf world bank meetings where he is meeting with his foreign counterparts around the world, his message on trade, in light of the new tariffs threatened against europe and on the global economy. it's coming up later on cnbc i'll see you guys later. >> can't wait for that, sara important interview coming up this afternoon bob pisani, for the impact of the hearing on shares of banks really a nonissue today for the most part. >> i would say that whatever little drama is associated with this meeting, it is not changing the investment outlook for
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banks. banks are generally lower today among those banking executives who testified. all the banks are down a little bit. i think there are other reasons besides that, so if you look at citigroup, jpmorgan, all the usual banks, down slightly bond yields were a little lower today and i think that's probably the more important issue here the other thing i think is important it's fairly typical for banks to be weaker going into earnings season we'll often see a little bit of dip in the three or four days prior to earnings season starting and jpmorgan and wells fargo, that will be on friday. you see here, yields recently moving to the upside and banks have been doing pretty well, ever since yields bottomed towards the third week of march. they have generally been outperforming. the bank etf kbe is up about 15, 16% on the year as i recall and that's about in line with the s&p 500. there's the bank index which is the white line there you see it moving down in march
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as bond yields kept plummeting and rallying as bond yields started doing better towards the end of march the banks are certainly yields sensitive overall. the s&p 500 you can see, essentially, up about 15% a year in line with the s&p elsewhere, carl, i want to point out that the dow took a dip in the middle of the morning and it wasn't because of the bank hearings it was because of the industrials. once again, we saw big names like boeing and united technologies and 3m just shortly after the open move rather aggressively to the downside and that is what took the dow jones industrial average negative. the s&p almost went negative, not quite as turned around a little bit since then. again this whole issue about the problems with boeing individually, but also on global trade, weighing on things. finally we're going to go into the earnings season on friday and the big question is, can we actually turn positive for earnings right now, according, they are
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expected to be down 2.5%, the first negative quarter since 2016 you see revenues still quite strong and the gap, the fact that you're having lower earnings and higher revenues is a bit of a concern to people because that indicates that there might be some margin pressures out there, cost pressures, overall and that's something we're going to you can -- talk about a lot in the coming days. >> thank you very much one final question to bill cohen, bill, i'm reminded because some german newspapers have headlines today about the difficulties apparently in putting together deutsch and commerce bank. deutsch is getting close to $8 again. haven't heard much discussion about the strength, the relative strength, of u.s. banks to those in europe right now. >> carl, it's a slam dunk victory, touchdown, dance in the end zone for u.s. banks. the strongest financial players coming out of the 2008 financial crisis absolutely were u.s. banks. you know, for reasons that, you
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know, are kind of a morphous an not clear. they don't have a lot of competition anymore. a lot of competitors went away they got a lot of very inexpensive money from the fed for a very long time other banks around the world did that as well i mean they were reek question tized better, higher capital requirements and ratios. the u.s. banks have just now completely dominant worldwide i think. not to say that some banks in europe and asia aren't also players, but these u.s. banks, why do you think jpmorgan is making $8.5 billion a quarter in profit they are the dominant bank in the world these days you know, so are their brethren. it's a great time if you want to be a u.s. bank or a u.s. wall street banker. >> bill cohen, i hope you won't go too far same for wilf and robert frank, sara eisen, bob pisani as we wait for the hearing to
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resume while we have the time shares of levi strauss are up. the company swings to a quarterly profit in its first earnings report since coming back to the public markets the ceo joins us exclusively this morning from san francisco. welcome back congratulations on the first public print >> thank you it was a great quarter. >> walks us through sort of the dynamics right now that you're seeing, at least in your core business >> thanks, carl. it's great to be here. yeah, this was our sixth quarter in a row of double digit, top line growth and constant currency we grew 7% reported, 11% in constant currency, six quarters in a row, double digit constant currency growth. the bottom line grew at an accelerated pace, 21% growth in constant currency, 14% in reported what's most pleasing about the quarter, though, is growth was really broad based we grew our men's business,
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women's business, tops, bottoms, all three regions and all three regions grew top and bottom line double digit in constant currency so the growth was really broadbased, real strength in the levi's brand which was up 10%, but all four of our brands also grew this quarter. barely a weak spot in the quarter. really strong broadbased growth, demonstrating that our strategies are working >> chip, morgan here, in terms of that broad based growth, just to drill down on one market in particular, europe, i know it's been a real bright spot over the last couple years and we had ecb this morning and comments from that central bank about increased risks to the downside, slowing global growth, all this uncertainty that continues to swirl around brexit and, of course, those retaliatory tariffs in europe on american-made denim, how do you assess that market right now and how are you planning for what could be potential slow down there, further slow down there
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this year? >> year heurope has been a brigo for us, it grew 20% over the last two years, so we're really defying gravity over there when you consider the headwinds the business has been facing, that's in an economy that's growing a couple points a year we've had really good success in europe and that continued into this quarter we grew 10% comping, 30% growth, first quarter year ago you know, the numbers are actually pretty staggering it really speaks to the strength of the levyi's brand. having said that, one of the things as we did our call yesterday with analysts, we did not change our guidance for the full year which we guided mid single digits. there are still a lot of headwinds throughou headwinds out there, not just in
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europe, but continued door closures in u.s. wholesale in europe we have brexit and a slowing economy across europe, the risk of needing to take pricing because of currency, so there are a lot of uncertainties still. china tariffs is another one since we were still early in the year, this was just our first quarter which we've reported there are downside risks as well as some upside opportunities for us it's too early to change our guidance. >> give us some color on direct to consumer specifically and the higher end of your brand offerings. how is the growth in those in particular compared to those overall numbers you're reporting? >> so direct to consumer is one of the three legs on our strategy, jon. it's a really important part of buildings this brand i'm a brand guy as you know, and, you know, in our own stores and on our own e-commerce site
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we can control how the brand shows up our dtc business has been growing double digit for 12 quarters in a row and it's growing consistently around the world. when we can control the brand and how the brand shows up as a true lifestyle brand, we can win. our mainline business, which is the more premium part of our offerings around the world, is really strong across the world in fact, the strongest region for mainline right now is in europe, having just talked about europe strong growth across the board in dtc, strong growth in brick and mortar we don't give comp store growth, but we did indicate in the call we comped positively on a global basis, and really strong growth in our e-commerce business up over 20% last quarter. >> chip, is this true, your first visit to a foreign market following the ipo is to china? >> it is, indeed, true china is one of my top priorities, carl
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it's a huge -- >> what you don't to get done? >> what do we got to get done? we got to get a lot done over there. it's only 3% of our business today and when i look at some of our peers, it's up to 20%. nike does 20% of their business today in china it's a real big opportunity for us we just hired a new managing director about six months ago for that market. she's chinese, which helps a lot. but we've got a lot of work ahead of us. we do have a really strong brand, so we have a foundation to build on there. but we've got a lot of work to do to really turn that business into the growth engine that it should be. >> chip, amazon, friend or foe >> both. they're a real value xhefr our ours they're in our top ten customers and a fast growing customer at that i also acknowledge and recognize that every transaction that they're transacting selling a
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pair of jeans they're collecting a lot of data on our consumer that they could turn and use against us they do have a private label denim women's denim business right now, which so far hasn't seemed to negatively impact us but, you know, it's -- every one of our customers has a private label business that's not something new to us we've been dealing with private label for much longer than i've been around with the company for 30, 40 years there's no question, they are the main on-line shopping site they've become kind of the google for shopping, and we've had a presence there and we have a really strong relationship with them, with the strategic business plan on how we accelerate our growth there. we value that partnership and that relationship. >> chip, there's been headlines over the past couple days over beyonce and this deal with adidas there's a different dynamic with celebrity endorsements and partnerships with brands than
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we've seen in the past and i wonder if that's an area that levi is going to explore a different way than it has in the past you talk about hey, this celebrity or that one is wearing our brand without a formal relationship do you need more formal relationships or different kinds of formal relationships? >> well, i do think, jon, the best advertising still is word of mouth authenticity is such a big part of what this brand is all about. you know, when beyonce jumped up on stage at coachella last year wearing a pair of 501 cutoff shorts and it was posted on instagram broadly all over the place and that just happened organically, that's the bests kind of marketing we can possibly do. that's one of the great things about levi's is so many things do happen organically, but having said that, you know we have had celebrity endorsements in the past. alicia keys when we relaunched our women's business, alicia keys did the advertising for
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that that was successle not just in here in the united states but that ad tested best in china believe it or not right now haley bieber is showing up at coachella doing a lot of work for us right now on levi's 501 you know, celebrities to do have a role to play they're important in other markets outside of the u.s. as well really important in china as a matter of fact but the best thing we can do is just having the brand show up organically worn by people of all different backgrounds and that's what's really worked for the brand the best over last couple of years. >> interesting chip, you're a brand guy to have an organic moment like that is insta the platform that you choose to have it on if you could? >> say it again, carl. i'm sorry. >> is instagram the platform that you would want to see moments like that happen
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>> i'll take any social media that generates a lot of eyeballs at this point. >> yeah. >> whether it's instagram or snapchat or facebook, the best thing that happens for this brand is when consumers post their moments of living in levi's, which is our selling idea live in levi's you wear other jeans but live in levi's the best marketing that can happen is when things happen organically in social media for us >> chip, i want to shift gears for a moment and talk about manufacturing and where all of these jeans are made i mean, you have the tax reform here in the u.s. that tries to incentivize more activity taking place. here in this country, in the meantime all the tariffs and trade tensions playing out around the world, have you considered changing, shifting or expanding those operations based on the current conditions? >> well, we have a global supply
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chain, morgan. we've got a big global business and operate in 110 countries we manufacture in about 23 countries around the world today and no one country represents more than 20% of our manufacturing base we do kind of diversify and play a portfolio of countries and suppliers if you will. we have been working on technology that postpones finishing of jeans using lasers. i've talked about it before on the show, it's a project we call project flx. it actually started as a sustainability play as a way to remove a lot of chemicals from the supply chain, which we've done very successfully, and we have a lot of ip around this project flx, we filed for over 30 patents, nine have been issued what that allows us to do is postpone the finishing of the denim until the very last moment and that way we will actually be finishing jeans much closer to market today, we're finishing about 20%
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of the denim that we're selling this season is being finished close to market and being finished using these lasers. we have lasers in our distribution center outside of las vegas right now and we finish product for macy's and all the way through to our own main line stores and out of that facility it's not all of the manufacturing, but it's the last stage in the manufacturing and that gives us agility and speed to market and the ability to respond to moves in the marketplace much, much quicker. >> finally, chip, i don't mean to put you in a tough spot but those who watch ipos over the past month are comparing yours to lyft's, which is down 15% in four days. i just wonder, any advice ta you have for companies coming to market what do you think you did that worked relative to the lyft ipo? >> well, i mean, one of the things i like to say, carl, you
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know, we've been around for 166 years. there aren't going to be a lot of stories like ours we've been around for 166 years. we've got an amazing brand with a big global footprint we generate profits, we generate a lot of cash flow we've got lots of cash in the bank a really strong balance sheet. by the way we paid dividends of $110 million this year we're a very different story than a lot of the tech ipos coming to market i think that's one of the things that investors saw in our proposition, one of the reasons the stock, you know, we priced it above the range that we had on the s-1 and the stock opened 22% higher than that and has kind of stabilized in about that range. our story is a very, very different story than a lot of the tech stories and i do think the strategy that we have from a pricing standpoint worked. we were able to attract the kind of investors we really want in our stock, which are, you know, long term, they really understood our story, they asked
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a lot of good questions, you know i kind of viewed them almost as partners in the business with us now. they really do understand us and i think they're going to help us be a better company over the next decade or more. >> chip, we hope to talk to you many times over that period and beyond thanks again >> thanks again, charl good talking to all of you. thank you. >> we mentioned shares of lyft of course at the lowest level since the ipo broke 66 earlier in the day, and really has not looked back. >> it really hasn't. lyft, this action in lyft, post-ipo, has changed the tenor of the conversation around ipos in general whether it's people looking forward to uber. i mean even if you just talk about levi, two days ago levi was 20% lower. it was trading at 2130 a couple days ago it's bounced on these results, but clearly this lyft -- it went
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down as lyft went down i think is the story there we see uber kind of coming to market at 90 to 100 billion valuation potentially where some people have been hoping around 120. there's this new sense of caution, new sense that numbers, metrics really have to bear out in line with what these companies are saying ahead of ipos it's going to be an interesting season. >> the lyfts and ubers of the world would say we're not profitable but the other key metrics around growth you should be focusing on right now, nonetheless, when you're looking at a pinterest that has narrowing losses, levi's which posted its first profitable quarter last night, we just had that conversation, when you are looking at a zoom that's going to go public next week, those profit numbers are exceedingly important in a market like this that's ten years into the bull run. >> yeah. and speaking of uber, from a
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recent ipo in lyft to this upcoming one we are getting news on uber. we have the latest on that deirdre? >> hey, jon. we are expecting uber to officially kick off its ipo tomorrow by making its prospectus public. a source tells cnbc the company will seek to sell around $10 billion of stock and list on the new york stock exchange. this timing would put uber on track to debut in early may, just over a month after lyft's debut. perhaps you guys were just talking about this, some caution, perhaps uber is taking a note from lyft's ipo and its subsequent choppy trading. reports say uber may be looking for public valuation of 90 to 100 billion. john mentioned the expectations before, 120 billion was discussed, but keep in mind the 90 to 100 billion is much higher than its last private market valuation of $76 billion we have been getting partial financials from uber from many quarters so we have an idea of
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how the company is doing like lyft its approach is growth at all costs but that growth is slowing and losses are narrowing. according to self-reported financials uber saw $1.8 billion in losses in 2018 on $11.4 billion in net revenue and $50 billion in gross bookings. remember, uber is global very diversified there's still tons we don't know plenty to dissect in the s1. of the bigger questions center around its business efficiency what that looks like compared to lyft's ride sharing business, legal issues, market share and i think this is going to be very interesting, the value of its stakes in other ride sharing companies around the world whom it also competes with in many cases. remember that it has merged or sold off businesses to dd in china, yendeck in russia the scooter businesses the company is heavily investing in. guys. >> deirdre, we talk about lyft as more of a pure play ride
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sharing company. when you look at uber and just laid it out, you have the picking up and driving consumers around, the food piece of this, uber eats, the freight piece and then all these stakes and investments in other companies, how are investors going to or what's the expectation in terms of how they pitch to investors given the fact that they are more of a conglomerate versus the chief rival? >> that's a very good pint i know you track uber freight closely and they have a flying car business, uber elevate there is a lot to unpack while lyft's ipo has ramifications certainly for ride sharing, for how uber will be valued, it's certainly not just ride sharing these uber eats which is a huge business that can be compared to door dash and grub hub the stakes i just mentioned. the biggest ones will be ride sharing and uber eats and also this self-driving car unit which uber has been building out for a long time under the current ceo.
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they've take an more partnership approach versus travis kalanick when he wanted to do everything himself. maybe we'll get more clues about what that timeline looks like and thus the path to profitability. that's, of course, what it always comes down to, that path to profitability with $1.8 billion in losses last year. >> deirdre, how much do you expect that investors will want to hear and maybe even uber will be willing to say about autonomous and how that fits into this profitability picture? lyft got into it a little bit, but there's all kinds of perspectives on how long it might take for autonomous to be real and have an impact on operations like this >> i think uber loves to talk about autonomous driving because they've made many investments in it the question to nail them down on how soon do we see, fully autonomous vehicles is a tricky one. they might say it's further off than might have been thought a
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few years ago. but there's also kind of a hybrid model uber and lyft both don't want to get rid of drivers there may be certain routes that are autonomous it is a big question and investors are going to want to know about that. i'm not sure there's any good answer at the moment and that will play into the valuation, of course >> deirdre thanks. what a story we can't wait for the road show in a few weeks deirdre covering uber for us today. we expect the hearing on capitol hill to resume at any moment house financial services we'll go back to will fred frost here i was curious since you were in the room as it happened, so to speak, what the tone was like in there? what cameras might have missed >> i think the tone was one of sort of prepared resoluteness from the ceos who as we know from our reporting and others' reporting have prepared heavily for this hearing for two of them they've been
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there before, dimon and moynihan you can say they haven't made any clear errors yet, though some points have been scored against them on certain topics at the top of the hearing chair maxine waters said that these bankers should not be rewarded for taking risks something she said had happened under the trump administration because of parts of deregulation and the corporate tax cut. here was the jpmorgan chairman and ceo jamie dimon defending the rationale for that corporate tax cut. >> the american government reduced tax rates on businesses to make america competitive. we have been sending trillions of dollars of capital overseas -- >> how can we make america competitive when there is large number of young people that are graduating and they see no future. >> this group pays all their employees well including medical, retirement, minimum wage $18, $37,000 a year, something like that, competitive
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business will drive wages and jobs over time what we do in the individual side is separate on that same letter i supported expanding the earning of tax credit -- >> conversely at the top of the hearing republican ranking member congressman mchenry said, quote, this is a hearing in search of a headline likely the biggest headline from the morning session, was that of executive pay, in particular, the ratio of the ceos' pays to their median workers mike corbat of citi got most of the focus, his ratio, 486 to 1 partly he's the highest because of a large international workforce. the stats don't look good for any of the ceos, it ranges from 486 to 150 times it doesn't look good for all of them probably the biggest area they've been hit on in the morning so far, but only ten or so of the 60 members of the committee have spoken, so we're just getting started here, carl. >> yeah. well if we're going to be
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hunkering down, only ten of the expected expected 60, in terms of expectations or what you would anticipate as somebody who follows these banks and the sector so closely, you would anticipate to still be asked based on the lawmakers that have yet to question the ceos, what would it be? >> i think in terms of tone, morgan, more of the same certainly there's been a divide between republican and democrat congress members in terms of what they want to go after as we've discussed at length over the last hour, there is this capitalism in question theory which these bank ceos certainly represent. also some topics about what the best steps forward are in terms of regulatory steps. of course there are potential fireworks that come, the likes of congresswoman porter, congresswoman ocasio-cortez still to come and we'll wait to see what they have in store. >> wilfred frost, thank you.
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want to bring in mike santoli. we've been talking about the bank stocks and financial services in general holding up just fine today during this testimony and it's been doing well overall what do you expect the impact there to be? >> i would say holding up fine today, although if you look at valuations of the very large bank stocks the ones represented there by their ceos they are trading at pretty steep discounts relative to where they used to trade. the takeaway is this is the fact that these hearings are happening these institutions are still playing defense and any kind of premium that was going to be baked in by investors for a deregulation benefit, longer term, seems like it is -- has basically been zapped out of the stocks i don't think the stakes are particularly high for their businesses right now with what's going on today, but it does reflect the broader environment, part of which i think is that playing defense means not participating as aggressively in a credit boom in this country and arguably people have said look, a lot of the risky aggressive stuff is happening outside of the big banks, that's
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probably good in terms of the safety of the system long term, but it does make them less profitable the return these banks have earned on their capital in the cycle has lagged what used to be the case i do think that nothing is happening today is much going to change that picture. oh, by the way, part of the case for bank stocks they can buy back an enormous amount of stock. you have to wonder if that's the kind of thing that starts getting scrutinized as well. >> jimmy, if you could ask any of the ceos one question what would it be today? >> if i could turn it around i would ask the republicans on that economy, what happened to sort of the anti-bank stance that we saw from candidate trump in 2016, the republican platform in 2016, called for breaking up the banks and called for reinstating glass siegel what happened to that? you can imagine alternate reality where republicans maybe followed through on that where
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this hearing looks different, you would have republicans going after these ceos from still -- for the banks being bigger, too big to fail, but that is not the reality we're living in. >> yeah. bill cohen, still with us, what about that i mean it seems like not too many years ago, there at least was the sense that pitch forks were out for the big banks, the anger from the financial crisis was still palpable it feels to me, granted i'm sitting here on wall street, but i don't spend all day here, seems to me like the edge is off of that and that shows in this hearing. no really clear narrative, anti-bank narrative, has stitched itself together yet there's still plenty to go >> well, you know, as wilfred said correctly, we still haven't heard from aoc and still haven't heard from representative porter i suspect that they'll have lots to say and you know, sort of a way from this house financial services hearing, i mean, certainly
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presidential candidate and senator bernie sanders has a lot to say about the banking system as, of course, does presidential candidate and senator elizabeth warren have a lot to say about the banking system and its flaws and what needs to happen don't forget elizabeth warren has repeatedly tried to introduce legislation to break up the big banks, to return to 21st century glass steagall. maxine waters has a view of the banking system and rightly so and she's going to be holding hearings, she said she would, on deutsch bank and its relationship to president trump and they've subpoenaed all of that information or asked for it and it's making its way to capitol hill you know, so yes, while the rhetoric has sort of died down among politicians because probably, you know, we're not in a banking crisis, but we might again be soon, and i still think one of the big issues that needs to be focused on here is the fed
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and what is going on with -- now that president trump is job owning again, the fed chairman trying to put steven moore and herman cain on the fed who may or may not be well qualified to be on the fed. i think you're trying to gut one of the important institutions in our country that frankly could be fair, saved us last time around in 2008 that's their job by the way to save us in the midst of a financial crisis >> indeed. we're a long way at least so far from getting questions about fed nominations, fed independence. you know these ceos have opinions about those very things there's corbat, moynahan, dimon, reverend jesse jackson is there as well, introduced by waters early in the session mike santoli, dimon did mention in one of his answers that after this hearing, the bank ceos will meet with regulators as a group and talk about cyber
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it would be good to get a discussion about things they're doing collectively for systemic safety. >> yeah. for sure i do think it certainly is in their interest to seem as if they're going to try to be proactive about trying to get ahead of some of these big issues that obviously are important to the industry and really are not partisan and don't really strike any of those hot buttons. makes all kinds of sense just to the point, though, in terms of what the market would be interested in today about comments on these fed nominees, they certainly have opinions on them will they ever utter the opinions in this context, i don't know >> yeah. i wonder, mike santoli, to what extent the banks tend to vocalize around those specific issues in the fed and does it affect the stock at all? seems like the things that banks say about their own results and the economy have more of an impact. >> yeah. without a doubt. i think that's the message out
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there. can the banks capitalize on a good economy we know the ceo comes out and say our consumer business is doing great, credit card charges, debit card charges is all to the good, but the market looks at that and says that's fine that's the base case we're not necessarily going to give the stocks a ton of credit in advance for figuring out how and when the cycle ends and when they're best positioned in this world. the market also views them as a little bit of a disrupted industry you wouldn't want to say they're the new retail paypal and square stock are doing, people think there's disruption happening in financial services and these guys are the incumbents. >> mike, were you surprised to hear david solomon say it's not unthinkable to say goldman gets into mortgages >> i don't think it's totally stunning that he would say that, simply because of the direction the overall business is going. goldman has made that calculation and they have the financial infrastructure, they're creating a brand name on
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the consumer finance side, so leaving that option open not that surprising. is this the right moment for that does the goldman shareholder base eager for that, i'm not sure. >> jimmy p., casual dress, mortgages, i mean if we narrow this down to the goldman story the evolution of that firm is fascinating. >> casual dress. listen, i think that's a bad civilizational sign. if i was looking for -- if i want a red flag about america in 2019, goldman sachs going to casual dress listen, i hate to say that's a screaming sell signal, but that worries me one other thing, i would look forward to the aoc testimony there's been a lot of pushback among progressives who think obama blew it back in twine and 2010 a lot more prosecutions, these banks should have been
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nationalized, dodd/frank didn't go far enough. i would look forward to see if that makes it to her questioning. >> and do you think it's relevant at all, jimmy, she was 19 at the time of the crisis >> well, i think she would say that her generation has felt the impact of that crisis with a, you know, a very slow recovery if you came -- listen, there's nothing worse for your long-term earnings potential than coming out of college into a very bad economy. yeah, you could say there are plenty of people who are still feeling the impact, you know, from the financial crisis and the great recession. >> yeah. bill, to that point, key things you're looking for this afternoon as we get more questions from lawmakers >> well, i mean, jimmy is absolutely right i mean, you know, aoc has proven to be able to ask the exact right question when everybody sort of counts her out
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representative katie porter i would expect to be looking to score some points, maybe to disrupt the jamie dimons of the world from his per he muchch a bit. this i unfortunately, more about show than dough i mean, i just don't think they're -- the format allows for the tough questions and the meaningful answers that should be asked that need to be asked, that need to be addressed that really hasn't much changed since the financial crisis >> bill cohen, mike, jimmy, thank you so much. let's get back to house financial services >> according to the federal reserve bank of new york, community banks and community development financial institutions achieved net lender satisfaction scores of 73% and 76% respectively, which measures the overall experience of small businesses have with their
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lenders. that compares with only 49% satisfaction rate for large banks. reasons for this discrepancy include unfavorable repayment terms, higher interest rates, and issues related to consumer complaints while you have modestly been increasing your small business lending, last year, your banks accounted for only 25% of all loans to small businesses, which frankly, is not good enough. as drivers of our economy, we must promote small businesses and any impediments in access to credit can undermine the business leading to job loss mr. moynihan, cfpb has not collected small business lending data that is supposed to -- that it's supposed to do under
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section 1071 of dodd-frank, unlike the mortgage market, we have far less information about what is happening in the small business space, including potential discrimination to ensure we have a fair marketplace, shouldn't policy makers have access to that kind of data? >> i think just on small business lending, generally, as i said earlier, we did $8 billion of origin nices last year, our portfolio is small loans defined by the fdic data which is public. it is a major business for us and i would say that our as fast as level runs 84% by our surveys, so we're heavily involved in small business and not all that data is perfect but that data is publicly available so i'm not sure what the consumer bureau is going to collect but i think the data at the fdic has been delivered for years to give them loans outstanding to a million dollars
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and that was what i was citing to you, sir. >> how much consideration is given to the bottom line of your bank when you make these decisions on how much you invest in small businesses? >> well, it's a major part of our franchise. it's a 9 million small businesses directly, 3 million customers that also have small business we do through the consumer side and so we do it, it's a competitive business with all the participants, the 7,000 banks that are out there, 40% of our small business are women owned business, it's a robust discipline and practice for us all over the country and a team that leads that share, miller that leads that for us does a fantastic job. >> thank you for that response since the financial crisis, citi group has had a troubling pattern. in march of 2019, the occ fined citi bank $25 million for violating the fair housing act the bank had a program to provide discounts on closing costs or reductions in interest
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rates to certain eligible customers seeking a mortgage the bank failed to offer these benefits to all eligible customers. some customers were adversely affected because of their race, color, national origin, or sex the bank agreed to provide 24,000 customers impacted by the bank's discrimination approximately $24 million in redress. why didn't citi bank have appropriate policies and procedures in place to ensure that it did not illegally discriminate when it implemented the program to provide benefits to certain customers seeking a mortgage mr. corbat >> congressman, first off, i would like to apologize to those of our clients who were affected and didn't receive that as we would call it relationship pricing benefit. it was a incident or an episode that we self-identified and self-reported to our regulators
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and came up with our remediation to go back because it's our full intention and it's in our interest to make sure that our customers receive the benefits to which they're entitled. our own work would say that of those 24,000 people, there weren't race, ethnicity, gender biases in the data that we compiled and we would say that in there, our shortcoming or our error really was one of not having our employees properly trained. >> the gentleman's time has expired. the gentleman from michigan is recognized for five minutes. >> thank you >> very quickly, mr. corbat, i'll let you finish your sentence at least. so finish that >> thank you it was that we hadn't trained our employees properly to actually execute and implement the relationship program that we had in place we've now remedied that and look
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forward to the opportunity to do better >> reclaiming my time on that, i'm going to try to move quickly, gentlemen, sorry it's a very large panel and i would note, too, one of my colleagues earlier who talked about the tax relief that you all corporately have received and that america has received to try to make us more competitive, there was some lamenting about that not being permanent for personal income tax rates. all we need to do is actually get the democrats to engage on that and they could have voted to make those permanent, i might add, so that's not -- i don't expect a comment on that, but someone who -- as someone who was publicly opposed to the bailouts that had happened under dodd-frank, i was not in congress at the time, but i'm dealing with the echo effects of it yet today the -- i was -- i was very frustrated to see that and having to explain to colleagues or, i'm sorry, to constituents about why that had gone on, and
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i have had a chance to express to at least a couple of you, personally, that you cannot count on this congressman to ever allow that to happen again or to vote for a situation like that again, but part of the action here and what we are trying to do is to make sure that it never happens again on anybody's watch, but i do have one main line of questioning in this, and i would like to have all of you answer very quickly, yes or no or just briefly, are you properly capitalized, properly sized, and stable so that you can survive without hardworking taxpayers americans' dollars having to be put back into the system and having a taxpayer on the hook so, mr. corbat, are you properly sized, capitalized, and stable >> we are properly sized we are scaled to serve our clients. >> okay, great mr. dimon. >> yes >> mr. gorman. >> absolutely. yes. >> yes, we are
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>> scharf. >> yes >> mr. solomon >> yes, we are >> i appreciate that there had been a lot of discussion about whether you were too big to manage and whether you were really stable and whether you were properly capitalized and i think the numbers do speak for themselves on that. i want to quickly move to brexit because this is -- this is of some real significance we're two days away from a hard exit the london is -- is the center of the derivatives market. there's nearly 2 billion contracts that were written there in 2018 alone. hundreds of trillions of dollars that flow through there. the uk has been dominant in the space and because of the regulatory regime imposed by the bank of england and the financial conduct authority, in fact, every globally active financial firm maintains a presence in london i assume you all do. does anybody not everybody does
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okay well, the chairman giancarlo highlighted he has a quote here that, "london is and will remain a global center for derivatives trading and clearing" and he also added that the package of measures will "provide a bridge over brexit through a durable regulatory framework upon which the thriving derivatives market between the uk and the united states may continue and endure." and so i'm very concerned about whether regardless of whether the brexit outcome is, whatever that is, are your institutions going to be needing to do more direct trading with continental banks through those regulated by the bank of england or how are you planning on having this happen i'll take mr. corbat >> as i stated earlier, we have set up a vehicle now that encompasses our uk operation we've separated our european
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operation from that. >> okay. >> we have banks we are brokerages in both jurisdictions and at this point -- >> are you going to be dealing more with the continental banks, then, directly >> i don't believe so. >> okay. all right. anybody else care to weigh in on that but you feel prepared and i think mr. dimon or somebody earlier had said uncertainties but we have put the planning in place, correct is this actually -- is this an area that you need to be in? what are you doing for the world economy? mr. gorman, mr. dimon. >> we need to be in europe, absolutely listen, we collectively finance the largest institutions in the world, predominant number of which are in the u.s. so we absolutely need to serve them globally >> thank you and i will be submitting some questions earlier and i do want to say thank you, mr. dimon and mr. corbat for your involvement in detroit, coming from michigan, very important work that you have been doing >> the gentleman from texas, who's also the chair


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