sonali: welcome to "bloomberg markets." i'm scarlet fu. we are roughly through halfway of today's trading. the s&p 500 and the nasdaq 100. big stocks in the green once again with both indexes resuming their july advances. they are recovering from yesterday's decline. look at the russell 2000. small caps extending the search. traders convinced the fed will cut rates in september after today's decline in consumers inflation expectations and the new michigan report and yesterday's cpi report. they are more than offsetting a hotter wholesale inflation print. looking at dollar-yen. dollar weakness because of the prospect of lower rates. that is the case against most of the g10 currencies. in particular, versus the japanese yen.

let's look at what is happening. here is a five-day chart of the pair. the big drop in the dollar yesterday. right around the time the cpi report was released at 8:30 a.m. japan likely going to intervene around then, with bloomberg calculating it spent around 22 billion dollars to support the japanese yen. as for company news, earnings season underway. big ranks publishing results. jp morgan announcing the highest quarterly profit in the history of american banking. investment banking fees soared past estimates. and it jumped 20%. net interest income fell short. expenses climbed more than expected. looking at citi. all of its major divisions's our revenue gains compared to last year. quarterly revenue rose 38%. they also warned this year's costs are likely to be at the high end of its range. wells fargo posted its lowest quarterly net income in the past two years and reported higher than expected cost.

weighing on shares. let's unpack all of these results and find out what it says about results from morgan stanley and goldman sachs with allison williams. great to speak with you, great to have you here. let's start with the bread-and-butter business of banking. lending. whether to consumers or businesses. that makes up the lion's share of business at all of these banks. how does the bread-and-butter business look compared to the wall street businesses? >> not great. that is where we saw the weakness at wells fargo this quarter. the negative news is they are going to have less net interest income coming forward. part of it is loans are coming in weaker than expected. they came in weaker and they expect it to continue. especially on the bread-and-butter, the commercial business. card is the business that continues to grow. we are seeing loan growth. we also see banks setting aside

provisions. part of it is growth, provisions. we see some weakness at citi. we are seeing. that specific -- the specific area we are seeing is a lower income bucket. that is a concern. that is seasonally better in the second half. but i think some of the numbers don't give us the most comfort it will improve. by contrast, capital markets, really booming. scarlet: that is the interesting thing. a bounce back from the first half of 2024. is it sustainable? citi and wells fargo, fees were up year-over-year, but down quarter over quarter. >> there is seasonality. seasonality starts the strongest in q1, ends the weakest in q4. there is a seasonal element. but we have looked at trading. it is resilient looking at a year-over-year basis. some weakness quarter to

quarter. but equities markets are booming. that is helping the equity side of things. credit-rating also doing well. we are getting help from the primary calendar. investment banking fees are good. that is also helping trading activity. the markets are good for the wealth and asset management business. the math goes into higher assets. the hope is it also brings flows into it. on the fees side, there is still a lot of room for m&a and ipo's to get better. a lot of that will depend on the fed in the second half. scarlet: great stuff, bloomberg intelligence senior bank analyst alison williams. let's build on this discussion and bring in betsy duke, who has worn a number of has through her career. former fed governor, former chair of wells fargo, and former chair of the american bankers association. it is good to speak with you. we are both wearing red so we match. i want to start with banks.

the fed's rate hike campaign has been good for the industry. higher rates increase net interest income and net interest margins. the first quarter and second-quarter numbers suggests we may have seen a peak in net interest income. why is the industry no longer benefiting from persistently higher interest rates? >> you have a couple of things. different timing in the repricing. when rates are moving quickly in one direction or another, that will scramble. net interest income. as interest rates stabilize, the balance sheet effects will begin to move, assets will reprice to current rates, and liabilities will reprice to current rates. one of the things the banks have had an issue with is how long it has taken them to get their deposit rates back up closer to market. scarlet: what would the start of a rate cutting cycle mean for the profitability of these banks as lending business? whether you are a big bank or smaller bank?

betsy: i don't think right now you are looking at enough cutting to make a big difference one way or the other. scarlet: first we have to get to that cut. provisions that jp morgan growth. wells fargo reported charge-offs due to commercial real estate charge-offs. what is your read on credit quality given where we stand in the economy? betsy: i'm not watching any individual bank that closely. it is hard for me to say. i think the credit quality generally is pretty good. i don't really worry about the drag office markets will have on bank earnings. the loans for offices, while they are out there, they are not you -- not huge parts of any of the portfolios anyway. scarlet: let's talk about one of your other hats, a former fed governor. talking about inflation. yesterday's cool cpi data sparked a massive rally in small caps. yesterday, a drop in inflation

expectations. chair powell told congress fed officials need to gain more confidence before cutting. did these data points provide that confidence? betsy: it will take a few more. certainly every good data point provides a bit more confidence. if you look at the confidence or the uncertainty in their last projections, at least half of them were pretty confident in their projections on growth. and their projections on the unemployment rate. they had confidence there. where they didn't have confidence was projections on inflation. the movement in those projections, i went back and looked -- june of 2023, the projection was 2.6% for pce. dead on the last reading we had. it came down to 2.4% in december. then went back up to 2.6% in march. 2.8% in june. in june, only about 2 of the

participants said they had normal levels of uncertainty. and more than half of them said they thought the risk was too high of inflation. so we've got time between now and september to get good, solid readings at 2.6% pce or whatever. i think if you get those, you will have a strong majority feeling comfortable in beginning to move on rates. i don't expect that door to be teed after the next meeting. but i expect the door to be open to a rate decrease in september if the data continues to come in right around where it is now. scarlet: they may not set the table for a september rate cut in july. that puts the onus on whatever jay powell says at jackson hole, doesn't it? betsy: i don't think he will make news at jackson hole on their intention. it has a lot to do with how the readings come in.

i can't remember if they have two or three readings between that meeting and the september meeting. but that is what it will depend on. scarlet: betsy duke, appreciate you joining us. a number of impressive titles in her past, including former fed governor and former chair of wells fargo. banks can take comfort in the rest of -- according to paul davies. we will discuss all of it with him later in the program. but first, at&t shares are down after they were hit by a massive data breach. all of the details next for all of you at&t customers. this is bloomberg. ♪

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♪ scarlet: this is "bloomberg markets." i'm scarlet fu. it is time for the stock of the hour. at&t. it is lower after they announced a massive hack of customer data. the breach included records of calls and texts for nearly all of its mobile phone users for a six-month period in 2022. joining us is brodie ford. this happened two years ago, how did we learn about this? did at&t make a big announcement, or was it under the radar? >> 6:30 this morning, checking on friday. a filing said nearly all of our customers call data was revealed. that is not exactly what was said, but who called who and when. it is not hard to see how damaging this can be. who called a lawmaker for a specific bill, an executive

before a decision was made? this is pretty sensitive stuff. a bit of a nightmare scenario as it relates to the disclosure of information. scarlet: now the fcc is looking into it. you have national security experts talking about how this is a breach, undermining of u.s. national security. >> absolutely. i think about the government use cases, journalists, who called us before a big story went out. what is interesting is with the at&t hack, it is part of a larger campaign targeted at customers of snowflake. a company where they help you store and analyze your most important data. we have seen folks like ticketmaster, name is marcus breached. it has been this kind of slow drip of customers impacted. they count many of the world's largest, most important corporations as customers. it is hard to not think who else

has been breached they don't know about yet. >> do we have any idea whom i have done this? >> it is currently unclear if it is the same hackers we have breached the other folks. it is unclear who they are. researchers from cyber firms have said it appears to be folks in the u.s. doing this. they have try to extort folks for money. i think they were requesting $2 million from ticketmaster to stop the chaos. it appears to be profit motivated at this point. will they sell the data to someone who may use it for more to various purposes? thinking about government security. it appears on the table. nothing is off the table just yet, so some bad actors at work. brodie ford, thank you for the latest details on this. let's turn to today's big take, which focuses on the destruction of the undersea research cable off of the coast of norway

destroyed back in 2021. bloomberg investigated a worrying pattern of underwater cables. jordan robertson spoke to whether russia may be behind it. in 2021, on unexpended incident occurred off the coast of norway. an important undersea data cable had been damaged and no one could explain why. >> something was seriously wrong. >> nothing worked anymore. no incident -- instrument, no sensors. there was no cable where it was supposed to be. you just see mayhem. >> at the bottom of the world's ocean light a central network of data cables. they stretch hundreds of thousands of miles around the world. fax information flow, communications systems, financial communications, it is a vast network and extremely vulnerable. >> damage to any of them can be catastrophic. >> it can spread panic,

disruptive functioning of states. >> in the last few years, there has been a whole series of incidents involving undersea cables. these may not be freak accidents. it may be a sign of something more sinister. , sabotage. scarlet: that was jordan robertson. catch a full story on bloomberg.com or listen to more of our reporting through the big take daily podcasts. this is bloomberg.

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this is "bloomberg markets, i'm scarlet fu. let's take stock of a big verdict this week that mesmerized wall street. bill wong found guilty of criminal charges stemming from his firm's 2021 collapse that included a two-month trial, captivating wall street. it was responsible for the denies -- demise of credit suisse. bloomberg reported on the trial. remind us of how the fund imploded. it was massive bets on a couple of stocks. >> a handful of stocks. some 10 key stocks in the post-pandemic period he really bet on. he bet the entire house on it. he went from roughly $4 billion in assets to $36 billion in just six months. from $36 billion to zero dollars and about four days. it was one of the most extraordinary wall street stories. he was someone who made the most

riskiest bets away from plain sight. no one really knew the scale of the size of his bets. that was a big problem. not even his banking counterparts or partners in the banking industry helping him put on these bets. that was $36 billion of meta-assets. when you include the leverage, it was $160 billion. that is an unfathomable amount. going from there to zero in a matter of days is the next ordinary story we are not going to forget. scarlet: i like how you highlight the scale. that gets everyone's attention. let's bring in paul davies who has written about this. the title is archegos could not happen again. maybe it could. we heard about how the banks did not know what was going on. what is the lesson for banks that bill hwang can be behind the big trades and build up these positions and make these moves without bankers knowing any the better? >> there's a couple of lessons.

partly, having a counterpart like bill hwang who is down to trust banks and never going to allow other banks to look at their portfolios with certain big hedge fund investors. the hedge funds don't want it, the banks don't want it, it is too much information. there will be some better disclosure around some of these trades. there's always a possibility somebody will be able to come to you. the thing is luckily, this is a very unusual case. it is rare for somebody to really be dishonest as they have been convicted of being in positions with other counterparties, with other banks. at the same time, his trades did not even make any sense. what was the get out? no one could understand where he was going with this. it is really hard to spot them.

>> i agree with nine out of 10 things paul says. the one thing i want to be careful is in this instance, a lot of what bill hwang was doing was a man taking on extreme risk and bending a blind system to his will. at the same time, we have to acknowledge there was very clear wall street folly. if i were to try and get a million-dollar mortgage at the bank down the street, i cannot go in and say i make x amount, trust me. you don't need any proof. here was someone giving them evasive assurances and they were happy to lend out billions of dollars in firepower. that is where i think the system broke down a little bit. now that you see what happened in the documents that have come out, the ease with which the banks believed they wanted to believe him, because they were making a lot of money off of him and he continued to fund his bets. that is a problem.

i think that has to change. you will never get to a place where you have 100% visibility into what your client is doing across all of their prime brokerage relationships, across all of their counterparties. you would still hope the system would allow for the banks, allow for the counterparties to be able to ask more probing questions. that is with the risk function does. that is when you force them to give more real, believable answers. scarlet: sounds like risk management did not do its job. these are questions between sophisticated investors like bill hwang's fund, his family office, and sophisticated bankers. both sides should be aware of the possibility of things going haywire, shouldn't they? >> absolutely. some of these banks were really chasing this business in a very unwise and reckless way. you read the detailed independent lawyers report into what happened with credit suisse, which suffered the biggest losses.

i think it was on these trades. just the scale of -- just bad management and bad culture behind what went on at credit suisse in particular is just startling. there were other banks equally who turned down bill hwang and archegos. they came there looking for leverage and help and backing and was turned away. there was a mixture across the banks, but some were about as reckless as you can be. scarlet: you covered goldman sachs, morgan stanley. how has the archegos disaster and the blowup impacted the way they operate? do you see them doing things differently as a result? >> it is hard to get a full window into what they are doing. in the immediate aftermath of the collapse, all risk management operations must have been on high alert. they were willing to look under every rock carefully.

but the question is as we get further away, we are already three years past the archegos collapse. as we get further away, how long does this remain in your memory and how quickly does the allure of new promising attractive fees ensure that this fades away in the rearview mirror? scarlet: always good questions to pose, especially during bank earnings season. paul davies and -- on the archegos lessons banks may or may not learn moving forward. that does it for this hour of "bloomberg markets." we have green in equities right now with the s&p and nasdaq resuming their advance for this month. yields are coming down on the two-year and the 10 year 4.9%. the latest university of michigan consumer confidence survey showed inflation expectations dropping to a gain of 2.9 percent. encouraging following yesterday's cooler than anticipated cpi report. a lot more conviction behind idea the federal reserve may

move forward with an interest rate cut as early as september. from new york, this is bloomberg . ♪

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live from washington, d.c. joe: joe biden wraps the nato summit and political limbo. welcome to the fastest showing politics as democrats argue over the president's performance, if he should stay in the race as world leaders leave washington and we prepare for the start of the republican national convention. i'm joe mathieu alongside kailey leinz in washington. we have new polling out. another national poll and tends to be favorable to joe biden showing a tied race. kailey: npr, pbs putting out new data. it shows biden actually leading trump 50% to 48%. that's in a head-to-head contest. we add third parties in, trump is ahead by a single point. this