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about a lot. We all are because, man,

earnings officially off and running.

Three more of the big banks reported, as

you know, including the dominant US

bank, JP Morgan Chase. Shares though of

JP Morgan, they are trading lower today

even as traders there posted their

highest-ever quarterly revenue in the

first three months of the year. So too

are lower

shares of Wells Fargo as it missed

lending estimates. And then there's

City. Yeah, bucked the trend. Citigroup

logged its best returns in 5 years,

driven by a wave of market volatility.

Weighing in though on today's credit

cycle, a key voice in Wall Street,

somebody

that we know all of you listen to,

including us, JP Morgan Chase's longtime

CEO Jamie Dimon. Jamie Dimon, he talked

earlier on the call with analysts.

There will be a credit cycle one day,

and I think when there's a credit cycle,

losses it will be worse than people

expect relative to the scenario. I don't

think it's systemic. It almost can't be

systemic at that size relative to

anything else.

Well, Jamie Dimon said it. I mean,

listen, he's watching this, we know.

He's talked about cockroaches when it

comes to private credit and concerns.

That of course was Jamie Dimon of JP

Morgan Chase earlier with analysts on

their earnings call. Hey, let's get more

though on the bank results. We've got a

great key voice here, right here at

Bloomberg. He is Bloomberg Intelligence

senior analyst. He does cover the US

banks. He is Herman Chan. He's been up

bright and early this

covering the banks for us, and he's here

in studio. Good to have you here. We

know a long day. Let's start with JP

Morgan because it's always it seems to

be a benchmark for the world, for the

street. Traders there did great. JP

Morgan though did lower its full-year

net interest income guidance. That's a

key metric, we know. Why is that

bothering investors so much?

>> Yeah, I would contend that it shouldn't

bother investors that much because there

there are offsets to that NII guide, net

interest income guide, where

the the fee income stream will will be

higher to to offset the lower net

interest income on a reported basis.

Importantly, the core net interest

income of of 95 billion is stable and

has been over the past month over the

past quarter. So

all in all, we think the quarter was

great. You mentioned the strong markets

and trading results, and that was above

their their initial outlook. So Yeah.

really good strength across the board.

We'll talk more about some of those

other areas of the business, but you

know that I always go to you for

commentary about the consumer. And and

Bank of America's tomorrow, JP Morgan

was today. JP Morgan has a great view on

the consumer with with Chase.

>> Right. Any commentary about uh spending

and higher energy prices weighing on

consumers? Yeah, they they did mention

that. Wells Fargo mentioned that higher

gas pump prices are increasing the

spending on the totality of the spending

about 1%. So let's say it was 4%

previously before the issues in the

Middle East, now it's 5%. So

that being said, the the other spending

patterns haven't really changed much,

and the banks' management teams have

said that it takes a bit of while before

the consumers really react to some of

these exogenous events. So if the higher

energy prices stayed, then you could see

the consumers pull back more in other

areas. Let's go to City cuz definitely

the outlier. We saw City

rallying in today's session. I think

it's right now up about 3 and 1/2% here.

I mean, who'd have thunk? But we know

they've been evolving. What's

>> That's right. What's the City story

quarterly, the latest update, and longer

term based on what we're seeing right

now? Yeah, we saw strength across the

board in a

number of its businesses like services,

banking, markets, wealth, all up double

digits on the revenue standpoint.

>> Jane Fraser. Well done, Jane Fraser.

Their return on tangible equity target

is 10 and 11% for the year. They cleared

that 13% in the first quarter.

And then they they talked about their

ongoing transformation

working with the the governments making

sure their books are in order. That's

about 90% complete versus 80% last

quarter. So they're they're taking

really tangible steps of improving the

the business. So what, 100% complete at

the end of this year, next year? They

management did not give concrete

numbers, but

we have an investor day for City coming

up next month. So we'd expect more color

there in terms of

what they have done and what still needs

to be done. They did say the timeline is

really dependent on on the regulators.

So

they are a bit beholden and don't

control everything. So far, so good. 30

seconds left. We're on to what, Morgan

Stanley tomorrow?

>> Morgan Stanley and Bank of America

tomorrow and some regional banks as

well. We'd expect the continued strength

on trading across the board, but really

it's going to depend on some of these

puts and takes like like net interest

margin for Wells Fargo and then the

guidance for the upcoming year. We're

off and running, and so far though,

pretty pretty

good, right?

>> Strong [laughter] results all across the

board. The market's just nitpicking a

little bit in our view. They're always

so like, you know. It's always just, you

know, they want more. Something. It's

always something.

Herman Chan, thank you. Bloomberg

Intelligence senior analyst covering US

banks for us. Well, we're going to stay

on banks and more of what's coming at

investors and how to invest through it

or in it. Joining us now is Joe Hegner,

founder and chief investment officer at

the registered investment advisor and

alt investment manager, Astor Zoa

Capital. About 150 million dollars in

assets under management. Joe, good to

have you on the program. I want to

continue the conversation that we just

had with with Herman and talk more about

the banks. You're bullish on JP Morgan,

you're bullish on Goldman Sachs, Morgan

Stanley, which as we just mentioned

reports tomorrow. What makes these banks

attractive to you?

Sure. Yeah, thanks for having me. I

think both the cyclical as well as the

the secular, the longer-term setup is is

incredibly favorable for the large

banks, investment banks, and as well as

insurance companies, right? I'm

you know, we you guys just spoke about

it a little bit before as relates to the

quarterly financials.

Kind of from a macro standpoint, you

know, we believe that the yield curve

over the next 12 months, 18 months is

set to steepen you know, a bit further.

We'll get some rate cuts. The long end

of the curve might you know, go a little

bit higher from here. That's a net, you

know, huge benefit to net interest net

interest income and and net interest

margins for for mortgage REITs, for for

banks, you know, any anybody who borrows

at the front end of the curve and lends

at at the longer end of the curve.

And something that we think is actually

somewhat underappreciated on a secular

basis, a longer-term basis is

the incorporation of technology,

automation, and AI. And what that does

to improve margins across corporate

America. Right? I mean, an example that

I I give every once in a while is

uh Morgan Stanley spends 26 billion

dollars a year in payroll and benefits.

And

you know, I you know, in my sage ago, I

used to work on the institutional side

of the business at a couple of large

asset managers. And if just 10% of the

middle and back office function could

plausibly be automated through the use

of, you know, AI tools and and

automation,

then you know, what does that actually

do to the net net interest margins of of

some of these very profitable banks? You

mean, we're looking at potential 20% net

interest net interest income, or rather

net interest margins

to maybe 30. Right. [clears throat]

Well, 25, maybe. So hooray for them, but

Yeah, I mean, it's [laughter] all it all

sounds great if you're an investor in

the company, but if you're one of the

10% of workers whose task can be

automated, you're are you out of luck?

Yeah.

In a word. Unfortunately, I do think

that that is that is the trend. You

know, I'm definitely not commentating on

on a socioeconomic or kind of

humanitarian standpoint. I'm I'm purely

talking about corporate earnings and the

very significant secular tailwind that

exists behind, you know, an ex- what we

think is going to be an exponential

compounding of said earnings.

Okay. So

we're going to put the human element

aside [laughter] for a moment. If we

can, but listen, we're trying to figure

this out, right? And you know, if you

run a publicly held company, bank or

other, fiduciary responsibilities,

you're always looking at cutting costs,

and it comes in all different ways,

whether it's through software or

programs, AI, or what have or, you know,

shipping it out overseas.

Like this is not a new story, right?

It's a it's a long-time story.

We mentioned some of the names that you

like, Joe. Goldman, JP Morgan, Morgan

Stanley.

Do you have a favorite among among the

group? And is there anything that you're

seeing so far in earnings that maybe

changes your opinion on them?

I would say Goldman and Morgan Stanley

in particular. The kind of the wild card

with with both the investment banks,

right, is just the the profit potential

from the sales and trading department.

And that's a lot less predictable than

say wealth management or, you know, kind

of traditional lending business that

that like JP Morgan, for example, is is

so entrenched in.

The volatility we've experienced over

the last quarter or so, you know, it

could really break either way. It's it's

kind of my view that the FICC sales and

trading departments might have a

tendency to underperform and lag

relative to the equity business. You

know, just at a very kind of high level,

you know, anecdotally as as somebody who

participates in sales and trading with

various, you know,

sell-side banks,

FICC tends to kind of seize during

periods of volatility. You know,

corporate and, you know, securitized

products, those trading volumes tend to

decline during periods of volatility.

Whereas it's actually quite the opposite

for equities, right? So, like Morgan

Stanley, for example, has done a great

job of building out their equity sales

and trading department over the years,

and I would expect to see, you know,

kind of, you know, some some fantastic

numbers from that division.

Whereas, you know, there might be some

weakness at in FICC, but overall, I

mean, these are such well-run, you know,

very very efficient businesses that I

expect to see right solid earnings over

the next handful of quarters.

>> Joe, we don't have a ton of time. We

want to talk private credit. No big red

flags in aggregate credit loss

provisions from the four banks that have

reported so far, including Wells Fargo.

You say not all is well when it comes to

private credit.

Um I think that the the sheer

volume of inflows over the years

inevitably leads to risk-taking that

that got over its skis. I mean, you you

can't possibly put $2 trillion

to work over the course of

7-8 years and do it in a way that's in

in my view, uh you know, responsible

from a risk-taking standpoint. And so,

there there are inevitably going to be

winners and losers here. The problem

with private credit though, right, is

that it is intrinsic it's sort of a

black box. You know, you know,

we really are only now starting to see

write-downs from from some of these

managers. I think that that trend, you

know, very much continues, and it's like

that old Warren Buffett saying, right?

You only really figure out who's been

swimming naked until the tide goes out.

Yeah, no, absolutely. And we highlighted

um a sound bite from Jamie Dimon on the

earnings call today that he said there

will be a credit cycle one day, and I

think when there's a credit cycle,

losses will be worse than people expect

relative to the scenario. I don't think

it's systemic. It can't it almost can't

be systemic at that size relative to

anything else. And I think there is some

perspective about comparing this to the

great financial crisis, and people are

pushing back, but I guess time will

ultimately tell in terms of exposure.

Um but we also have a lot of folks come

on and say, you know, you got to read

the prospectus.

It's very clear that these are not

liquid investments, and so, anyway, we

got to run. Good to check in with you um

Joe, and hopefully we can catch up uh

once again in the near future. Joe

Hegner, he's founder and chief

investment officer at the RIA and alt

investment manager, Asterosa Capital.

Stay with us. More from Bloomberg

Businessweek Daily coming [music] up

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You're listening to the Bloomberg

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live on YouTube.

Hey, uh let's [music] get to a view on

markets. Uh back with us is Ali

McCartney, managing director of wealth

management and private wealth advisor

with Alignment Partners at UBS. It's

just over a billion dollars in assets

under management. [music] She joins us

here in the studio. So, failed peace

talks over the weekend, yet uh a lot of

people thought on Monday we'd see oil

shoot higher uh and as a result, here we

are another day into the week, and

investors are essentially saying,

"Ah, wait a second. We're going to look

past this. We're optimistic about Yeah.

this." Stocks are erasing all their

losses since the war began. Plus, it's

likely that today we close at another

all-time high.

Um

I think the thing to remember is that

markets and pendulums tend to overswing,

and what we are seeing right now,

largely driven by a lot of short

covering, I think from a technical

perspective, is um a yeah, is a euphoric

mess mac uh market that seems to have

gotten the message that a 17% earning

season um is extraordinary and should

not be forgotten. But I think um the

conversation you just had and your uh

cautious tone in what you how you opened

with me, um I think that uh the macro

outlook is a lot more complicated than

this market momentum would suggest.

>> Allie, what do you mean though

specifically? Oops, sorry. Didn't mean

to jump in.

>> [laughter]

>> Again, you know, here we are again

having erased all of the short, medium,

and long-term anxiety and legitimate

macro effects that a clear uh change not

only in long-term regime of energy, but

a short-term price shock will have. So,

um you know, so although there are and

it remains we think the bull market

absolutely remains in intact, and there

are myriad tailwinds, there are also

some headwinds that we have to be

conscious of. Um so, having as we said,

having come back to now be positive on

the year, and having retraced everything

uh from this crisis is it is a point in

time just like the nadir was a point in

time.

>> But oil 60% still 60% higher than it was

at the beginning of the year.

Why is the equity market seeming to

ignore that? So again, I want to break

out the fundamental from the technical.

>> Okay. So, the technical is that um

markets from who owns them perspective,

let's put retail to the side,

professional money managers were under

invested. And they were largely short.

That was making up their gross. And so,

with this movement upward, they had to

cover. Look at how software is

outperforming, for example. That is a

clear short covering message as opposed

to fundamental long-term commitment.

>> point is investors were so negative

because of the war on the equity that

all of a sudden when things started to

improve or it looked like we had some

peace talks, and you started to see the

market run up, it was a ton of short

covering. Ton of short covering, but

again, you know, markets are fickle, and

we just had the banks report. And the

banks reported what one would expect to

see in a very volatile market, which was

a 5-year high in trading revenue. Right.

So again, there are there are a lot of

tailwinds. We have a lot you know, we're

expecting 11% earnings this year. Banks

are continuing to show resilient

companies, resilient individual

investors, resilient consumers, but you

cannot ignore a 60% rise in energy. I

would say you can

ignore it less or look through it less

for the US than you can Europe, than you

can China. So, there may be some

absolute tailwinds and some relative

ones to the US market as well.

>> I I think what's so challenging for a

lot of people, Allie, looking at what's

happening between the US and Iran, is

the amount of of distance between

the objectives of these two different

countries. One is about no nuclear

enrichment, or maybe no nuclear

enrichment for 20 years, according to

the latest reporting.

The other is, let us enrich.

How how do Like I just don't understand,

and and we're talking about this from a

the perspective of of markets, and this

is certainly, no question, a

humanitarian crisis in so many different

ways. But but how, if the negotiations

are that far apart right now, how are we

even talking about some sort of

resolution?

So, I think that the way markets are

looking at this, which may be very

myopic, and certainly is from a

long-term infrastructure, humanitarian,

and ideological perspective, is that

both regimes want to negotiate.

And so, that in itself becomes a

de-escalation and takes of the entire

curve of what could happen here, best

case to worst case. From a market

perspective, worst case is off the

table.

And and so, that optimism, in addition

to short covering, in addition to

earning season, seems to be driving

price action. But again, I truly believe

that this momentum is masking some long

and medium-term economic issues. Well, I

love that you go there, and it's

something that Tim and I talk a lot

about, cuz we've spent so many com- so

many conversations, I feel like over the

last few months, especially with the

war, but even before that, about the

grab for I keep going to this raw

materials, natural resources, supply

chains that have to be secure,

redundant, um and I think about this

with energy. Yeah, US is in a good

position, but the whole world is

rethinking, "Wait a minute. I got to

make sure I'm not in a tough position

going going forward." I feel like that

is going to just drive prices higher on

things, because you have maybe double

supply chains, or you're doing things

domestically at home that, you know, you

do stuff in the US, it's going to cost

more. This is a continuation of a lot of

trends that we've talked about with the

beginning of the Trump administration

and a sort of re-stacking of the rules

of the road and the geopolitical deck.

One is general self-sufficiency

and security, whether that's

cybersecurity, whether that's energy

security. The other is the removal of

the peace dividend.

So, I think what you are about to see in

the upcoming years is a seismic shift in

the way countries and companies think

about energy. And so, if I look at it

from a short-term perspective, yes, even

with the run-up, I would continue to own

energy.

And if I look at it from a medium-

>> in all its forms?

>> if I look at it from a medium to

long-term perspective, it makes me more

bullish on solar,

on nuclear,

on any sort of like everything from the

fact that most of our solar

paraphernalia comes from China, and so

we need to rethink all of that. And so,

as you think about the changes of the

rules of the road and how we act as as

police of the world, as you think about

the the tariff concept, as you go back

again to 2020 and 2021 and the pandemic

and the necessity to have local control

and ability to manipulate your own

supply chain, all of those things go to

increased onshoring and industrial

production in this country and every

other country.

>> On that, Oracle agreed to buy as much as

2.8 gigawatts of fuel cell power from

Bloom Energy to supply data centers for

AI. And this is um someone that works in

nuclear energy, right? Like we've had

these guys on and I mean it's not

happening yet, but they're working

towards it. Yeah, there's so much of

this going on.

Hey man, I think last time you got there

was so much going on we had to like

reschedule. Thank you for coming in.

>> Absolutely, good to see you both. Always

good to have you here. She's Ali

McCartney, managing director of wealth

management and private wealth advisor

with Alignment Partners at UBS. They've

got just over a billion in assets under

management.

Stay with us, more from Bloomberg

Business Week Daily coming [music] up

after this.

You're listening [music] to the

Bloomberg Business Week Daily podcast.

Catch us live weekday afternoons from

2:00 to 5:00 Eastern. Listen on Apple

CarPlay and Android Auto with the

Bloomberg [music] Business app. Or watch

us live on YouTube.

Well, let's talk oil. The Wall Street

Journal reporting that quote European

countries, and I'm reading right from

the journal here, European countries are

putting together a plan for a broad

coalition of countries to help free up

shipping through the Strait of Hormuz,

including sending mine clearing and

other military vessels. But the plan

would only come after the war and may

exclude one country in particular, the

US. Meantime, a US sanctioned tanker

linked to China sailed out of the strait

and into the Gulf of Oman testing

President Trump's naval blockade. For

more, we're joined by Bloomberg

Economics senior geo-economics analyst

for Asia Pacific Adam Fehr, joining us

from the Bloomberg News Washington D.C.

bureau. Adam, one thing that's been at

least puzzling to me is prices today,

given that there's a blockade,

that the US is pushing forward this

blockade, we're still seeing we're

actually seeing oil prices fall and

we're, you know, down to $91 a barrel on

WTI. Why is that?

So it's clear that optimism is reigning

supreme right now, that people are are

that the markets are kind of looking

forward to a continuation of the

ceasefire and potentially a long-term

negotiated agreement between Iran and

the United States. But just as you

highlighted, I think we can't lose sight

of what is actually happening and the

the risks that remain. The blockade that

is now in effect, obviously is is still

relatively new, but if it it maintains,

you know, removes potentially up to 2

million barrels a day of Iranian oil

that was still exiting the Strait of

Hormuz. And, you know, Bloomberg's own

estimates put that at, you know,

impacting prices at close to 7 to 8%,

which we did initially see a rise to

that effect, but we've lost much of that

today in optimism. And in addition to

the what's currently happening in the

and the the risk it poses to oil prices,

the reality is that while everyone is

optimistic today, there are there is the

broader risk of re-escalation in this

conflict and the potential of Iran

seeking to retaliate against energy

infrastructure in the region or

potentially going after energy

infrastructure in the Red Sea,

particularly Saudi Arabian that has been

so important to a escape valve for oil

getting out of the Gulf.

You know, it's interesting, too. One of

the things Adam we're increasingly

talking

and thinking about is the upcoming

meeting between the United States and

China. Javier Blas, a Bloomberg Opinion,

has a really interesting column out and

he talks about his first line is the

black market for Iranian oil wouldn't

exist without China. Before the war

began, Beijing bought 95% of all the

crude Tehran shipped via network of

sanctioned tankers, mysterious traders,

and shadowy financial links. Hence,

President Trump isn't just targeting

Tehran with his blockade of the Strait

of Hormuz, he's aiming at Beijing, too.

So I do think about sending a message to

Beijing ahead of those talks, but also,

you know, how that greases the wheels

perhaps on those upcoming negotiations.

We talk about these global choke points,

right? What you need to exist as a

country going forward for economic or

national security reasons, and oil is

certainly a choke point for China.

So that's absolutely true and I think

he's keying in on an important aspect of

the situation that even before the

crisis, China relied on Iran for upwards

of 13% of its imported seaborne oil. And

the fact that you had 2 million barrels

still getting out, much of it going to

China, was a welcome relief for Beijing

as it's been heavily exposed to the

closure of the strait because not only

is it relying on Iranian oil, but also

Gulf oil representing together close to

40% of its imports. But the reality

right now, I think, you know, to be

clear, the Trump administration's focus

was very much on pressuring Iran and I

think their hope was actually that

moving forward this blockade would allow

for some short-term pain to force Iran

back to the table with the idea that

while it might pressure others, the

intent is to to to focus it on Tehran

and and hopefully not lead to

retaliation from countries like China

that do have significant leverage

theoretically over the US. Is it

working, Adam?

Mhm.

I mean, I think we're going to have to

wait and see, right? We're only a few

hours into this initial blockade. Now,

on one hand, I think we have seen

initial signs from Tehran that they're a

little reticent to try and push the

blockade and test the United States.

There's some conversation about whether

or not they will refrain from exports in

the short term as they push towards

further negotiations. But the proof will

be in whether that actually moves

forward, right? Whether Vice President

Vance gets on a plane and heads to

Pakistan or any other location to

continue those discussions. And and

again, not that discussions are

important, but it really is about

whether they can find a way to reach a

new agreement that that goes to areas

that neither side has so far been

willing to go on compromise. You know,

Adam, I'm I'm just wondering about the

blockade and what you and the team have

been able to to glean from

the open source intelligence, what the

US government has said. What What are

the mechanics of this blockade? Like how

does it work? Where is the US doing it?

What are the assets that are required?

What can you tell us?

So I think the first important note is

to understand that this is not

physically stopping ships from

transiting the Strait of Hormuz. The

United States has set forward what they

say is a inspection and potential

seizure regime that takes place east of

the strait in a much more open body of

water in the Gulf of Oman and

potentially into the Arabian Sea itself.

And so they're they're pushing the US

military assets further away from the

the Strait of Hormuz choke point and

hopefully limiting their exposure to

Iranian weapons, although they are still

at risk. Now, the first goal though and

the first tool they have in in this in

this operation is actually just, you

know, shipborne communications, reaching

out and telling ships that they

shouldn't attempt to either enter an

Iranian port or attempt to leave. And in

fact, that's what US sent Central

Command said today was successful, is

reaching out to these ships, warning

them that if they do attempt to leave,

they will be boarded and seized. And and

supposedly several of those vessels

chose not to exit and actually returned

to port.

Yeah, it's it's just kind of fascinating

to watch this happen and try to figure

out, you know, whether this is all

working and whether it leads to a

different outcome. You know, one of the

things Adam that we were thinking about,

just China in general, their draw on

global commodities, be it oil or what

have you, right? We talk often about,

you know, copper usage. If we see

numbers down, we think about what's

going on in China in terms of

manufacturing. I mean, it is a great

global economic indicator and you do

wonder

um for China alone, its economy, it

needs to make sure that it has access.

That's absolutely true and I think, you

know, so far in this conflict what we've

seen is that China has been relatively

well insulated from the short-term

impacts. And that's because of a massive

oil strategic oil reserve that they

built up both from a government side and

commercial side over the past several

years with, you know, the the risks of

such a conflict in mind. And also very

large moves on energy transition that

they've made with a movement towards

renewables and the electrification of

their automobile industry. All of which

has given them a lot more space to move

and operate in this crisis. But over

time, they will feel more pressure if

this war continues and particularly if

the Strait of Hormuz remains completely

blocked, including of Iranian oil. And

that's when they may choose to start

pressuring all sides further and and

start using their leverage, whether that

be pressuring Tehran or pressuring the

United States to try and at least get

the flow of oil moving again. Adam, what

would you say the status of the strait

is as we speak?

Currently, all signs point to it being

virtually closed. You know, as you

mentioned at the the top, we had one

vessel, a sanctioned vessel, move

through the strait itself and transit

eastbound this morning, but that vessel

then subsequently seems to have turned

around and stopped outside of Oman. So

it's unclear where it's going, but it

certainly hasn't left the area and and

it's, you know, remains uncertain

whether the US actually already engaged

that vessel. But considering we were

used to see over 130 vessels a day of of

varying types moving through the strait,

one vessel certainly doesn't count for

much.

>> You know, I was talking to some friends

about this and and and and you know,

people who aren't even like

uh you know, studying geo-economics of

the region are now understanding the

effect of the of a closed Strait of

Hormuz. And I think one area that's also

under understanding the power of it is

Iran right now. And and this goes to

show, one of my friends said, that Iran

can actually

wield this power

that essentially was never tested in the

past. So, what's to stop if it does open

up? What's to stop Iran from from

saying, "Wait a second, this worked so

well for us in the past. We're going to

go ahead and and close it again."

I think that's a major concern and it's

going to increase uncertainty for those

who want to operate in the region moving

forward regardless of the outcome. And

simultaneously, I think despite the Vice

President Vance and the President

emphasizing this question of uranium

enrichment, the status of the strait as

an outcome of negotiations is key and

certainly essential for markets and Gulf

countries. And right now, we don't have

any sense for what Iran has or has not

been willing to put on the table and

what the United States position actually

is in the room. And clearly, Iran

though, as you had stated, they

understand the leverage they hold in the

fact that the strait itself represents

their greatest leverage over the

international community. And so, I you

know, it seems less likely they'd be

willing to give that up without

substantial gives from the other side.

But we're going to have to wait and see,

but it it really is the issue to watch.

Yeah, I do wonder too, coming on the

other side of this, what this means for

China in terms of its access to energy.

Does it create new alliances perhaps

with the United States who's a net

exporter? Like I just wonder kind of

where this all goes ahead of those

meetings and those talks between the

United States and China, Adam.

So, I think China's certainly going to

work to further diversify its its input

of energy from all sources, not only its

imports, but domestically. And And in

the short term, that may mean importing

more from the United States to deal with

any crisis, but the reality is they

don't want to expose themselves to US

leverage either. And so, the question

really becomes how do they find a way to

increase their energy independence and

security? And that really looks towards

renewables, nuclear energy, and you

know, even going back towards some of

their coal powered fire

uh excuse me, coal power plants. So, I I

I do think in the short run, you could

see purchases towards the US, but they

don't want that exposure either. Yeah,

that's true.

It's It's just I love the negotiating

ahead of, you know, or how this all

plays out. Adam, thanks so much for

really kind of putting this in

perspective, especially when it comes to

China and energy, global energy. Adam

Ferrer, he is senior geoeconomics

analyst for Asia Pacific,

part of our Bloomberg Economics team.

Adam, thank you. Thank you. He's out

there in our Washington DC bureau.

Stay with us. More from Bloomberg

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>> Um maybe I have a good segue.

If you want to go to Venezuela, you got

to get on an airplane, [laughter] but

you could also take a boat. You could

take a boat. People do that.

>> But we're talking airlines.

>> Shares of American Airlines surging as

much as 9.7% earlier in the session.

United shares up today too by as much as

5% earlier. This after Bloomberg

reported that United CEO Scott Kirby has

floated a possible combination with

American Airlines. This according to

people familiar with the conversations.

It's an audacious proposition that would

face intense scrutiny even under the

business friendly Trump administration.

Sit Philip is here. He's Bloomberg News

chief correspondent for global aviation.

Has a really cool job and this is a

great exclusive story that he has

reported out. He's here in our Bloomberg

Interactive Broker studio. Wait, what?

Is he Is this serious? Uh so, as far as

we know, it is serious. The CEO of

United Airlines pitched this to

President Trump as a possible

combination that would sort of allow

United to scale up and also potentially

buy his former employer. Yeah, okay. I'm

glad you ended with former employer

there cuz to understand this, you got to

understand Scott Kirby's history in

aviation. He was once seen as maybe he

would be CEO of American Airlines. He

left after it was clear that he would

not become CEO. What has he done under

United and why would this actually make

sense? So, he moved to United in 2016

and since then, he's become CEO of

United. And

while he's sort of run United, United

has focused really on premium passengers

and sort of upgrading the travel

experience. And that's really been a

sweet spot for both United and Delta

which have also sort of focused on that

customer. And that customer has really

helped those airlines sort of maximize

yields, be able to sort of tap into that

credit card market, and also sort of be

much more profitable than the rest of

the industry. What has American done at

that time? So, American Airlines has

sort of underperformed those rivals. I

mean, that's partly due to sort of

decisions that Scott Kirby says that the

airline did not focus enough on premium

travel. They also had a roll back now

initiative to sort of get business

travelers to book directly with the

airline instead of using travel agents

which was really badly received by

business travelers. And so, United

>> Wait, what would that mean? Instead of

us using sort of a travel service that

your company uses, they want you to take

your corporate card and just go right to

United or American Airlines?

>> was the plan and that that was sort of

now it's been asked, but it did sort of

lead to a lot of A lot of friction.

Friction for customers. And so, American

has underperformed and they've got a big

pile of debt that they have at the

moment, but they also have America's

biggest domestic network. And that would

be a fairly attractive for United. They

also combined Delta, United Delta and

American's combined revenue last year

was about 110 110 billion dollars.

Delta Airlines would be significantly

smaller. It would be about half of what

they made. So,

there's potential for massive

combination and even though it'll be

just 1/3 of the market share in the

industry, it would still be huge for the

industry. It'll be the biggest airline

in the on the planet. You say only 1/3

of the market. Um and

that seems like a lot. How can this

possibly get through regulators?

>> So, that will be

>> But going back to how you started, that

Kirby talked to President Trump about

this. Exactly. And that that will be the

sort of question that I mean, this

deal's not going to go if this deal we

we don't know if there's formal

negotiations ongoing at the moment. We

don't know if there's been a formal bid

for it. At the same time, we don't know

how this will be received by lawmakers.

We don't know how this is going to be

received by customers. We don't know how

it's going to And we don't know the

competition's going to try

>> want to mention for those who are

watching, we've got and for radio just

to lay it out for you,

just talking about how a United American

combination would dwarf rivals.

Passengers carried in 2025, United

American would be 405 million.

American alone, we see just below that.

And then, you've got American and then

we've got Ryanair. But it's just it

shows you how dominant, right? That they

would ultimately be. Exactly. I mean,

this this would be a sort of massive

step. I mean, they would have over 2,800

planes. They would have like over 100

billion dollars revenue and that would

be huge in terms of their rivals will

not really take this sort of lying down.

I mean, there's going to be significant

up roar from their rivals if this was

allowed to go through. But at the same

time, we've we haven't really heard much

from the government, but Sean Duffy

spoke on CNBC this a couple of days ago

and he said there was room for mergers

in the aviation industry.

>> maybe not at the with these two. So,

that will that remains to be seen. I

mean, he did talk about if there was a

merger between two larger airlines, they

would have to peel off some assets.

>> Okay. But at the same time, how much of

what would United and American together

peel off? They would have to peel off

routes. They would have to sort of allow

others to have airport gates and slots.

>> Yeah, that that's the that's the big

thing with I mean, I don't I don't know

you got to you got to talk a little bit

about the gate situation at airports

because in some cases, there are gate

sharing deals with with some airlines

and this is this is the stuff where the

real supply demand comes in because if

you can't get access to a gate, you're

not getting those passengers and your

route's not happening.

>> Exactly. I mean, gates are I mean, given

the fact that a lot of airports are

constrained in terms of capacity, in

order to be able to fly in those

flights, you need slots, you need gates.

And those things are And those are a

gate is controlled by a single airline.

In some most In some airports, I mean,

some airports gates are free for all,

but in the airports that you want to be

in like Chicago and Dallas and others,

that's where those gates are really

significant including New York's various

airports. I got to get 30 seconds on

JetBlue because if you look at the S&P

Supercomposite Airline Index, it is at

the top of the pack today. All names are

up, but it is up about 16%. We know this

company, there's been reports about

exploring

selling itself to a competitor.

They lost in that bidding war back in

2016 with Alaska Group to buy Virgin

America. The Spirit deal collapsed. Is

that an airline to also keep an eye on?

Just real quickly, like 25 seconds.

>> an airline to keep an eye on. They have

a I mean, they also have a partnership

with United that's going to come in

where they sort of have an Yeah, why

don't they just get together? I mean,

we'll have to see how that goes, but at

the same time, I mean, JetBlue is like

looking is the most obvious candidate if

anyone were to buy one. Right?

All right. Stay tuned, everybody.

Watch what happens. Miles like converge.

>> I mean, yeah, watch what the regulators

[laughter]

do.

>> [gasps]

>> Sit Philip. He is Bloomberg News chief

correspondent for global aviation.

This is the Bloomberg Businessweek Daily

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