What better way to begin the hour than with the worlds biggest money manager. Erik schatzker joins us now. And it close of interview. An exclusive interview. Erik we are at the blackrock annual fixed income conference here in midtown. Good to see you. The world has its share of problems. The horrible massacre in las vegas, the reconstruction efforts in puerto rico. ,f we look at the big picture things look pretty good. 2530. P 500 trading at my question is this. How much longer can this goldilocks state of affairs persist . Larry we should pause and think of these natural disasters and the tragedies in las vegas. This reminds you how tender life is. We have to respect that. And remember our loved ones and friends all the time. Too. Ought about tom petty, about theure goldilocks market. I believe to my surprise, too , howpeople surprised resilient the world has become. China is close to 7 . Surveys came out of china even accelerating. A 5 increase in the Chinese Bank Stocks today in hong kong. You have a japan that we witnessed for 20 years stagnant and we are seeing it grow at 40 . Ats presume it is going 2. 5 . We have a europe that we did not believe the outcomes could be so significant. You had some issues in spain. But overall and aggressive Monetary Policy by the ecb. Unionalk of political with macron and merkel. Witnessing 22. 5 growth in europe. We have the united states, despite whether you are very prowhat is happening in washington or negative, the real economy is doing quite well. The American Consumer is feeling good. Low 4 unemployment. Callupeing wages modestly. Erik what does that mean . Should investors feel more comfortable taking risks than six months ago . Larry there is more information that is more positive. I see the markets reflecting that. I believe the markets overseas represent more value than the united states. The opportunity is probably greater. Nature largest nation in the world have more uncertainty. I would going to have successful tax reform . Know that in the next 26 months. Erik since you brought up the topic larry one less thing. Were going to have to see corporate earnings in the next few weeks, they were quite strong, from what we are hearing they are going to be fine the third quarter. You are seeing the different points that lead you to believe the markets are fine. I would not call it goldilocks. Erik even though we have already seen u. S. Stocks. Larry 12 this year. Erik they have more room to run . Larry less than international stocks. Currency adjusted basis. Asia, 10 . Than theun much faster other places in the world. We are record highs. 50 away from its record high. You have other areas of the world of percent more value going forward. Erik there is some uncertainty here, send some changes. The Trump Administration will have an impact on the economy. Tax reform is one of those things. What you think of the tax reform proposal . Larry i think it is going to have to be amended importantly. Im not a big believer in elimination of local taxes. I think that is harmful to the major states today. Erik including this one here. Larry new york and new jersey. One of the greatest problems we have is the lack of saving for retirement and liabilities these major states have in terms of retirement. If we stretch these states economically through the elimination and people move, it creates bad behaviors within our own country. Are meritscs, there and what was being proposed. Lets be clear. What is being proposed is a large expansion of our deficits. Will grow to 25 trillion in the next 10 years before whatever this tax reform is, tax cut is. Whether this tax reform or adds another trillion and a half, 5 trillion, we can debate. We have her own story. , 10 years forry the country that is so dependent on Foreign Ownership of our data , we have the chinese and japanese owning as much as 2530 of our treasury debt. Demographically the domestic , theyof china and japan are going to need that money. To think that we can have more 40 10 ownership of years is a bad assumption. Orry is erik are we growing our in front of some demographic halls . Larry it works if we can successfully bring our economy a half. 3 and we have to grow out of that. That is what the president says he wants to do. Happened evert since. It brings growth for word. Erik are you saying the proposal needs to be under control . Larry it has to be mindful of what we need to do related to our deficit. Erik what would you change . Larry im not a tax expert. But i dont believe we are going to get tax reform if there is the elimination of the duct abilities. Deductiblities. Obviously one of the ways of doing it is raising corporate to somethingm 20 close to 25 or 27. That is a net positive. Investors,e, most corporations would welcome that. Erik you would be fine with that . Larry we would be fine with that. We pay 31 worldwide. That we areake sure fair and just across all sectors. The proposal related to partnership, that will help small and medium businesses, having that 25 tax rate. Erik there is change coming up the fed. Whether or not janet yellen is replaced, there are a lot of vacancies the Trump Administration needs to fill. Randall has made it through committee. Stan fischer is leaving the fed in two weeks. Republican will able republican will a more republican fed change Monetary Policy . Erik i dont ascribe any Political Party to the fed. Members believe they have to be independent. I dont believe youre going to see any real change. Historically you would say republican oriented fiscal conservatives would be more hawkish. We have a fed that is more dovish. If you think that the potential candidates to be a replacement for chairwoman moderate. Ey are more larry gary cohn, Kevin Worsham . Larry they are going to be more moderate than a candidate from a republican president. An bernanke was selected by republican and turned out to be alsocally prudent but aggressive in terms of the problems. Erik how do i interpret what we set what you say . You dont think the fed is going to be too much different . Larry you said it. Is a federall fed reserve we dont have to talk about often. Role inayed a major 20082009. Toer we are going to go back not having a deliberate worry about the Federal Reserve as much. They played a role in stabilizing our economy but if we have a normalized economy the debate, the conversation is less important. It is going to be more about how are we driving innovation, jobs in our economy . Erik of what to ask you about the relationship between the buy side and sell side. It is the source as you know of a lot of anxiety on wall street. How are you thinking about it . Larry i am not anxious. Erik you are also the guy who says he is not on wall street anymore. Larry we looked at it as a net positive. Transparencyg more. Erik by unbundling commissions. Larry correct. The biggest problem we have is this fear of retirement, the inability of having proper savings. In europe, germany, 72 of all individual savings are in a bank account. Trillion of individual savings in a bank account earning negative returns. Withof it has to do investors didnt feel comfortable, understanding how this will help them over the longterm. They had fear of all the commissions and prices. Erik how does that give them confidence . Larry transparency gives them confidence. One of the reasons we have seen growths in etfs, they have more transparency than other products. The movement to greater transparency, what are whether it was how people are getting paid, net result will be greater confidence by our clients, the people we try to ,elp, and if they invest more into longterm savings. Iselieve the amount of cash one of the reasons why Global Growth has been so anemic. You expect blackrock will spend more or less on research as a result . Larry we intend to have just as Much Research internally. Were going to do it more efficiently. We are going to have more systematic teams. Erik the research and buying . Larry it is going to be much more internal. Were going to have our own. We have many researchers. It is going to be much more heavily designed to fit our needs. More customized. I think it is going to force better behaviors, to systematically build a better proprietary platform that differentiates. Erik what you just said ought to terrify every Large Research producing bank on the street. That blackrock will spend a fraction of what it does now on research. I have no anxiety. Idea of you have any what you spend now . Larry i do but i am not going to talk about it. Martin he is a big fan of cycles. A put out a memo itemizing long list of things he thought might lead to a bubble. Volatility, the list goes on. He named etfs to that list. I havent idea as to what you would think of that. He pointed to one thing i hear more and more about. Bitcoin and cryptocurrency. Have you developed a point of view . Larry i believe in block chains. We are looking at many. Erik that is the underlying technology. Larry but we believe, we you raise more and more flow through information having the different reference points of a transaction being systematized. Related to cryptocurrencies, im a big believer in the potential do. Hat a cryptocurrency can you see huge opportunities. Speculativeore of a people are speculating on it. It just identifies how much Money Laundering is being done in the world. How much people are trying to move currencies from one to another. I believe you are seeing demand for it. Digitaleated a global currency,a digitized then you would not have Money Laundering anymore. You would have everything understood. Everything would be flowing through. You can see all the applications. Im horrified on one point. Had we preserve the system from cyber problems . The whole world is using this one network for financial transactions. It presents a lot of systemic risks. Erik is it time for blackrock to trade in Virtual Currencies . Larry we are not hearing any demand from eddie clients other than speculative. It is more of the Venture Capital type of interchange. Erik not an institutional thing yet. Larry it is much more of a for asiave platform used for Money Laundering. Shareware you think the bond market is going to be. For somebody in the bond market for 41 years, the bond market is continuing to evolve and change. One of the fundamental problems, bonds are incredibly cumbersome. I think it is over 3000 individual bonds. It is operational headache. We believe as we create more efficiencies you will see different techniques being used in the bonds. Etf spoke play a bigger role own for etfsn and have the majority of the exposure that you have in mind. And etf that has domestic credit. Erik lets put a number on it. Five years from now, it is what . Larry 15 . Erik from 1 today. I am afraid we have to leave it there. That is larry think of blackrock k of blackrock. Scarlet fantastic fantastic interview. Back with you for more highbrow interviews. I want to point out happening Richard Smith of equifax is answering questions before a house panel on that massive data breach his former company of course sat down. You can watch the entire event on bloomberg tv go. The stock down 25 since the breach. This is bloomberg. They quickly get what is happening. Today, the best since july 2015. Ended ins last run 2006. The terminal uncovers all sorts of marvelous fax. This shows the discrepancy performance between the eye banks in spain, falling for a second day and the blue line, both down since the high in may. Date it is outperforming the european benchmark. Today. P marginally the dollar is on the move. Eurodollar down is our preferred expression of Dollar Strength in the nearterm. Spain, germany. We had a big blowout in the spread, the most since august. It will change today. How is looking over there . Looking mix. We started higher, which would mean records once again. The nasdaq has been flirting with losses as we see the things stockscontinuing fang continuing. Sales,ers are reporting toyota with a 15 gain. Chrysler better than estimated, but still declining. Pretty Strong Performance across the board because of record incentives. Are we seeing any follow through with the car sellers . It is a mixed picture. Carmax, not much changed. Julie, thank you. Still ahead, President Trump his way to puerto rico now. How will the devastation there and billions that it may cost to rebuild impact chances of anything else on the trump agenda . This is bloomberg. Live from bloomberg World Headquarters in new york and london, on vonnie quinn im vonnie quinn. In the has more from new york. The gunmen in the las vegas inoting had a huge arsenal the hotel review he used as a snipers perched. They found to gun stocks that will allow automatic fire. Homefound 19 guns at his and thousands of rounds of ammunition. The death toll is it 59. The first lawsuits have been filed against the trump new travelions restrictions. They were filed by random american advocates. They argued restrictive travel violates the constitution. The uks trying to tackle online propaganda from the Islamic State. Extremists that watch content could get 15 years in prison. They say the Islamic State supporters have promoted 67 propaganda tweets in english. There have been five terrorist attacks in the u. K. Two scientists from caltech and nobel prizewon the in physics. Global news 24 hours a day powered by 2700 journalists and analysts in 120 countries. This is bloomberg. Traveledresident trump to puerto rico to visit the devastation from hurricane maria. Juan,r, en route to san he addressed the federal response to the national disaster. The first responders, they have done an incredible job in puerto rico. Whether it is her or anybody else, they are starting to say it. I appreciate the governor and his comments. He has said we have done an incredible job. That is the truth. Tomorrow the president will head to las vegas. Here to report on the challenges the president faces, kevin from washington dc. In president is due to land just more than an hour. What response will he get from officials and from islanders . President trump will be meeting with the governor of puerto rico. He will meet with local government officials on the ground, and u. S. Government officials there from fema to survey the damage with his administration encouraging including first lady a Melania Trump will be accompanying him. He will be trying to meet about the damage. There is no question this president is facing intense criticism for his response on this. We just heard the president in which he thanked the governor and thanked him for the remarks. We have heard from local officials on the ground, the san juan mayor. He is going to las vegas tomorrow. Details are being kept close to the best. He will serve as survey the deadliest mass shooting in u. S. History. Vonnie happening now on capitol hill, Richard Smith is answering questions before a house panel on the massive data breach at his former company. Lets listen in. The cyberSecurity Team, when you talk to the forensics experts, they will tell you complications of trying to understand where these criminals were, the footprints they left, the inquiries they had made. The cumbersome process. That is why it took weeks before we had indications for the breadth and depth of the issue which brought us to the day that you mentioned. To july 31. K up you were talking to the experts. You learned about the breach. You did not know the personal information had been stolen at that point. Did you ask if personal information had been stolen . On the 31st, all i was told at that time was security had noticed a Suspicious Movement of portal. Of a dispute it wasnt until later they understood that was an actual dispute document. We had no indication on the 31st piiuly there was any information. That personal information has been stolen at that time. Your company is built on data. ,id you think it was important looking at if personal information had been stolen at that point . The best working with in the business. We have a great cyber team. It took them time. They did not know if data had been compromised or what the data was. When you did find out about the breach, with your chief information officer, how did he tell you there had been a breach . Was there a phone call . And email . It was a facetoface brief meeting on the 31st. He had just learned as well. The day was fresh to him. An incident was described as incident, not as a breach. Is that the normal way for that information, to notify , to just give a facetoface . Is that Standard Operating Procedure . At that time we had no indication it was a breach. It was suspicious activity. Did you tell anybody at that time or not until you told the one call on the 24th before the. Est of the board of directors it is important to say it was not we did not know it was a breach at that time. The first notification to the , which followed the chronology of events a meeting i had with our Cyber Security therts that occurred on 17th of august. My time has expired. I will recognize the gentlelady from illinois for five minutes. Thank you. Abouted to ask questions the chief legal officer responsible for security. They report directly to you, the ceo. Correct. Told re told we were we were told that a cybersecurity incident that had occurred. He was notified on the 31st of july of suspicious activity in a web portal that was a dispute environment. Staff was told, our informed it might have compromised personally identifiable information. Is that correct . 31st was notified on the there was suspicious activity in a consumer dispute portal. What mr. Kelly wrote a short memo to you regarding the incident. Is that correct . Correct. Some suspicious activity was in his email. Time, threee same executives sold 1 million of equifax stock on august 1 and august 2. Mr. Kelly was responsible for losing those sales. Is it true that mr. Kelly or one of his direct reports would have been required to sign off on the stock sales . Yes. Inwas her general counsel the clearance process. So the answer is yes . He was supposed to sign off . Did anyone of these executives have knowledge cybersecurity incident had occurred . To the best of my knowledge, no. When were they informed . I dont know exactly the date. They had no knowledge of the time. They cleared their trades. Do you know for sure that they did not know . To the vest of my knowledge they did not know. Mr. Kelly knew of the breach, that it contained personal information, yet approved the sale. Is he still chief legal officer . It was a not know breach when he approved series it could have been a breach. All the new is suspicious activity. It could be a breach, right . It was deemed suspicious activity. Was inno indication pii that included in that time. Your 2017ee to forgo bonus which has been 3 million for the past two years. Correct . That is correct. He will still retain 18 million in pension benefits. That is correct. It also means you will be free to sell your stock worth 24 million. Is that correct . That calculation, it is hard to say. It depends on shareholder return. Variables. Ultiple that may be an estimate. We wont know until the end of the year. Sold addition to stock you for 19 million. Is that correct . That sounds correct. You could be eligible to 22 million in performancebased compensation depending on how stock performs. When i announced my retirement, i thought it was best for the company to move forward with a new leader. I agreed to step down with no further compensation. I agreed there was be no severance. I asked for nothing beyond what i had earned. I was just informed the chase Security Officer told the chief legal officer verbally that , that according to a call with staff yesterday, there was a mention of the breach of personally identifiable information. Told us that in a call. I have no documentation, no knowledge anyone in the company informed me or the chief of Security Officer that there was a breach on july 31. Is that what you said . Yes. We did not say a date. Me say im glad the fbi is looking into it. Many state attorneys general. The city of chicago. We will probably get more information that way as well. Thank you. The chair recognizes the chairman from oregon for five minutes. Thank you. Thank you for being here today. This is a coffee of equifax Credit Report in my hand that list Social Security numbers, dads, all of the personal financial information. It is the life lot of equifax. These data points are really important to what you do at the company. That is correct. It is a 3 billion company. Customers0 million worldwide. This breach happen because the company did not know it was running Certain Software on its system. To, there was a human error that did not allow us to identify that. That is what we are trying to get to. Eurozone Information Technology system did not tell the equifax Security Division the software with contained the vulnerability which led to this was running on the equifax system. How did that happen . The day after the notification came out from certain the Security Team peopled a wide range of in the Technology Team who were responsible for that finding, finding the vulnerability, and ,hen days later as is typical to look for the vulnerability. And thean deployment scanning deployment did not work. The protocol was followed. People ask how does that happen . If as a Sophisticated Company as with so much at risk, how does this happen . We have colleagues that say we are going to double the fines, triple the fines. How does this happen when some much is at stake . I dont think we can pass a law that fixes stupid. With so much at risk say some companies have an automated system. When a patch comes out it automatically gets installed. That is not what you had necessarily. I am unaware of an automatic patch. We have security notifications. Vulnerabilities that are discovered, they follow the protocol to notify the proper people. Was they did not find the patch. The human error issue reference, that they didnt know that particular software was running on your system . That is what needed patching. If i may clarify the human error, and the individual responsible vonnie that is Richard Smith testifying about the massive data breach at his former company. You can continue to watch that q a on the bloomberg. , wells capitol hill fargo Ceo Tim Sloan testifying about his efforts to clean up after the wells fargo account scandal. Lets have a listen. In your filing. Shares is it, 2 million it looks like you had a good thing going. Talk up the ability to open new accounts. It investors excited. 2the stock goes up you make million. Then in december 2013, three years into your time as cfo the l. A. Times published a long article on the relentless pressure wells fargo put on employees to open new accounts. The article was biased on internal wells fargo documents, interviews with more than 30 current and former wells fargo employees. The article specifically said employees opened fake accounts and response to this pressure. You were interviewed for that piece and you said i am not aware of any overbearing sales culture. That is interesting phrasing. Im not aware of any problem. When the l. A. Times came to you and showed you concrete evidence of a terrible problem, at your bank, did you launch an investigation before brushing it off . Commentselates to my in 2011, im proud of the credit card products. That is not the question i am asking. You said im not aware of any problem. Did you open an investigation . In that interview, the best of my recollection with the l. A. Times, they didnt provide me with any information. I take that as a no. Open an inquiry into it. The l. A. Times did not provide me with any documents. A you have no clue. Did you read the article . Yes. Then you open an investigation. At the same time the article was coming out that was a time when the Community Bank elevated this issue. That is the time that we begin to take action. Lets talk about that time. You did look into the fake accounts but you went back to pumping up the stock price i bragging about wells fargos Record Number of new accounts on your very next investor call. Lets forward to 2016. Two months before the scandal became public. You are the chief operating officer of wells fargo. You were asked if the sales goals were pushed too far. Your answer was no. The fundamental strategy we have is not going to change. That is july 2016. According to wells fargos investigation, you knew thousands of employees had been fired for opening fake accounts and other sales file asians. You knew aggressive crossselling goals were to blame. You publicly said the bank did not have a problem. Senator, that is incorrect. You did not say this . Can you read the entire quote . Is about whether or not you pushed employees too far. Your answer was no. The fundamental strategy we have is not going to change. Visions referring to the of our company. Including the fake scandals you are being asked about . Our vision, to ground people in the culture of our company, to satisfy financial needs and to help them. That is the context i made that statement. Since i have become ceo i have made changes to address the issues we are talking about today. You were asked about pressure on employees which caused the fake account scandal. It is public. You knew there was a problem. When you were asked about you lied. This is personal responsibility. Ofls fargo cheated millions people for years. The Federal Reserve should remove all of the current Board Members who served in the fake account scam. You say you have been making changes for 30 years. You enable this fake account scam. Best you were incompetent. At worst you were complicit. You should be fired. Wells fargo needs to start over and that wont happen until the tank rids itself of people like you who let it into this crisis. Thank you. Could i respond . I want an equal amount of time. I will get to your criticism of me in a moment. Lets talk about the board. Veryoard has taken important steps in terms of a thorough independent investigation that has been made public. The board has taken very strong action in terms of executive accountability, that is unfortunately some of the highest in corporate american history. I dont believe your criticism of the board are accurate. I think the reason that i am the right person to run this company today notwithstanding your criticism is because i have been making change for 30 years. I have made mistakes. I certainly have not been perfect but having that knowledge of the company, having the ability to make the change, the actions i have taken since i have become ceo have made fundamental change at this company. Im not afraid to make hard decisions when it is needed, and i have the support of 270,000 people. Can i make a short comic . I know we are over. But are you kidding . Yearsve been there for 30. Every one of my colleagues on the republican side and the democratic side with spoken so far have talked about a broken culture at wells fargo. Have talked about the fact that the problem starts with leadership. The people who were there and leading wells fargo during the time of a years long scam, and multiple scams as our chairman pointed out, those people should not be left in charge of this business. When you promoted exactly what was wrong with this bank over and over, you went to the stock , yout and bragged about it did not tell the truth and you try to cover it out. Wells fargo is not going to change with you in charge. Senator rounds is next. Pay attention to the time limits. You were just listening to senator Elizabeth Warren questioning tim sloan, testifying about his efforts to clean up wells fargo one year after the bogus account scandal. He was facing some particularly Harsh Criticism there from senator warren. He says he is the right person and had support of 270,000 people employed at the bank. We will continue to follow the headlines. At tvn watch this hearing. Secretary Boris Johnson is speaking at the conservative Party Conference in manchester discussing winning the battle for the future, launching the labour party leadership. The cabinet is united behind theresa may, the prime ministers view of brexit. We will continue to monitor this. This is bloomberg. Mark we have 30 minutes left in the trading day. Vonnie this is the european close on bloomberg markets. The top stories were covering from the bloomberg and around the world. Frexit is on the mind is the leaders of the conservative party by the next step in the divided tories. Ubs will move out of switzerland. Will it be dramatically shopping its wares . We will discuss some revealing comments from the executive. We are going to hear from our conversation with larry think, what he said about tax reform, market, the fed, and much much more. Have a look at where european equities are trading
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