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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Again, a little bit

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Speaker 1: of a Bloomberg Intelligence round table here as we think

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Speaker 1: about this banking issue, these banking crises, if you will,

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Speaker 1: on both sides of the pond. We do that with

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Speaker 1: Alison william Sees, his senior Global Banks annalyst for Bloomberg Intelligence,

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Speaker 1: and Tim Craig, had director of Research and he's a

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Speaker 1: senior European strategist with Bloomberg Intelligence. And Tim you're based

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Speaker 1: in London. Allison's based in Princeton and Tim from London.

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Speaker 1: Give us a sense of what the feeling is among

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Speaker 1: Bloomberg's institutional investor clients and clients for Bloomberg Intelligence that

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Speaker 1: you talk to about what the demise of credit Swiss means,

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Speaker 1: what the uncertainty of the European banking sector means to

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Speaker 1: the typical European investor, look, I think that the key

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Speaker 1: here from from European investors perspective is is this, you know,

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Speaker 1: the cockroach theory going on, or is Credit Suite a

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Speaker 1: one off? It's been undergoing a very prolonged period of troubles,

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Speaker 1: Let's put it that way. You know, a couple of

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Speaker 1: decades worth in ways, and you know, the take so

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Speaker 1: far today is it's it's very much more of the

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Speaker 1: one off. There are definitely issues that we need to

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Speaker 1: consider the ramifications of the At one situation, that special

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Speaker 1: bond issue with Credit Suite was a bit of an

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Speaker 1: eye opener this morning that seems to have calmed for

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Speaker 1: the moment. But underlying all of this, if we assume

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Speaker 1: this is one off, an SVB and signature are in

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Speaker 1: one form or another one off, it does from a

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Speaker 1: European investment perspective, looking across the mark markets, especially with

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Speaker 1: Futzie in particular, we're called into question what about financial's

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Speaker 1: profitability post all of this, And I think there is

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Speaker 1: a reasonable issue that our banks team on both sides

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Speaker 1: of the Atlantic have been raising in terms of profitability

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Speaker 1: of banks, and banks are a big deal for European markets,

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Speaker 1: much bigger than they are necessarily in the US. You know,

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Speaker 1: it's twenty five percent of Futzie earnings for example, And

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Speaker 1: so if profitability is under threat relative to what was

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Speaker 1: expected only two or three weeks ago, that changes the

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Speaker 1: dynamic and the tenor of the market. Well, what does

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Speaker 1: it then mean when you factor in something like kind

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Speaker 1: of the bond turmoil? These eight ones have gotten so

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Speaker 1: much scrutiny that the idea they're going to get you

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Speaker 1: written down to zero. It felt like in the early

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Speaker 1: trade this morning and the overnight trade as well. That

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Speaker 1: affected sentiment around the world. It was a question of, well,

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Speaker 1: if credits least ones are going to drop, then what

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Speaker 1: is the incentive to create a capital buffer for any

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Speaker 1: other bank around the world. Is that a fair assessment

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Speaker 1: or a fair way to think about that. I'll give

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Speaker 1: my two cents, but I'm bet Allison has perspective on this.

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Speaker 1: But and I will echo Jerome Julius, who is our

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Speaker 1: banks credit analyst here in London, you clearly could call

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Speaker 1: exactly the sort of question that you have. But for

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Speaker 1: the credit suites and ubs specifically, unlike any of the

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Speaker 1: other at one issuers across Europe, they do have a

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Speaker 1: little clause that is a little bit different. That does

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Speaker 1: argue why this is an exception and not something that

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Speaker 1: you would just generically see putting in question at ones

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Speaker 1: as a as an asset class or you know, a

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Speaker 1: capital building tool for banks, and you know, I think

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Speaker 1: if that's what proves to be the case, then may

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Speaker 1: be you know, this market you know isn't or this

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Speaker 1: tool you know won't be ineffectual going forward. Well, Alison

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Speaker 1: hop On in here you of course oversee global banks

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Speaker 1: and asset managers. What do you make of this kind

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Speaker 1: of at one scrutiny, Alison, you're with us, he's a

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Speaker 1: research talking about UM. You know why those securities are

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Speaker 1: a little bit different than other securities in Europe. I

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Speaker 1: think two things. First is that UM, you know, part

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Speaker 1: of the violent reaction is is just that, you know,

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Speaker 1: look at people that look at capital structure, UM did

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Speaker 1: not like that. You know that that those securities were

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Speaker 1: zeroed and equity shareholders actually got something UM. But they

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Speaker 1: are balance securities and you know that is a risk

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Speaker 1: out there. And I think in this particular transaction, UH,

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Speaker 1: the Swiss government made this decision to provide more capital

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Speaker 1: support for ubs. So CET one is a key ratio

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Speaker 1: for that bank, and so that the way that this

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Speaker 1: deal ended up being structured UM provides that support, and

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Speaker 1: that that does sort of lead into the discussion of

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Speaker 1: you know, the Swiss government talking about this not being

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Speaker 1: a bailout, but for sure they orchestrated the deal. And

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Speaker 1: so I think, you know that the two things to

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Speaker 1: me were first of all that aspect. Second of all,

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Speaker 1: the fact that UBS shareholders are not going to vote

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Speaker 1: that's not required for the deal, and so that's that's

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Speaker 1: something that management alluded to that the Swiss work had

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Speaker 1: actually indicated they were going to change the law. And

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Speaker 1: TI might be able to comment on that from a

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Speaker 1: macro perspective, but you know, in general, investors don't like

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Speaker 1: those type of surprises. I think at the end of

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Speaker 1: the day, UM, you know this this is a deal

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Speaker 1: that in a long term has a lot of financial

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Speaker 1: protections for UBS. They did get it at a very

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Speaker 1: cheap price. They do have the added capital boosts that

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Speaker 1: we just discussed. However, it is going to take a

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Speaker 1: long period of time. It's the sizeable we're structuring. The

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Speaker 1: accretion is not expected till twenty twenty seven. There's a

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Speaker 1: lot of details that worked aren't worked haven't been worked out,

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Speaker 1: we're going to want to hear about. So long term,

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Speaker 1: it does look like an attractive deal, but there's there's

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Speaker 1: likely to be some volatility in the near term. Hey, Allison,

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Speaker 1: you know, we were talking to your colleague, Herman Chan

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Speaker 1: who follows the regional banks for Bloomberg Intelligence, and we're

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Speaker 1: talking about how important it is important role that regional

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Speaker 1: banks and community banks play in you know, markets all

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Speaker 1: across the country in terms of take it into posits

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Speaker 1: and then loaning it out to you know, local businesses

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Speaker 1: or consumers who want to get a residential mortgage and

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Speaker 1: things like that. To the extent that those types of

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Speaker 1: banks are losing deposits to maybe, I don't know, the

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Speaker 1: big money center banks, does that pose a risk for

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Speaker 1: local economies, like maybe the capital is not going to

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Speaker 1: be there to build that new store or to finance

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Speaker 1: this new office building or something. It doesn't necessarily pose

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Speaker 1: a risk because these big banks and specifically JP Morgan

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Speaker 1: Bank of America and Whiles Fargo are in so many

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Speaker 1: local markets across the country, and so that that is

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Speaker 1: the way that they're gaining the deposit is that you know,

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Speaker 1: they are the third or four bank in that local market. However,

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Speaker 1: I would say that, you know, the regulators are very focused. Obviously,

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Speaker 1: they prefer it to be They prefer deposits to be

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Speaker 1: out you know, across a wide variety of banks. They

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Speaker 1: prefer not for the big biggest banks to get bigger,

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Speaker 1: and a lot of the regulations and a lot of

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Speaker 1: the actions that they take are in general aimed at

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Speaker 1: protecting some of these smaller banks, and I think that's

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Speaker 1: why you see a lot of people raising questions about

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Speaker 1: deposit insurance, different people suggesting different things. I would just

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Speaker 1: say that it's definitely tricky because it's a very big

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Speaker 1: deposit up there, base sets out there that is uninsured.

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Speaker 1: And you know, certainly we saw with with with the

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Speaker 1: orchestrated transaction last week that regulators are watching this, but

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Speaker 1: they don't necessarily want to come in and provide that

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Speaker 1: type of blanket insurance tim real quick. We heard from

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Speaker 1: the ECB last week fifty basis point increase. How is

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Speaker 1: that received by the market. How's that being received by

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Speaker 1: the market? Yeah, Paul, I think the interesting thing here

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Speaker 1: is twofold number one there was I think there would

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Speaker 1: have been a negative reaction had they not raised what

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Speaker 1: was widely anticipated to be fifty, because it would have

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Speaker 1: given a sign that they think that there's a looming issue.

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Speaker 1: So I applaud them for that. Secondly, if you look

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Speaker 1: at what's gone on with expectations for policy rates over here,

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Speaker 1: whether it be the ECB or it be the Bank

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Speaker 1: of England, you know, there have been dramatic shifts and

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Speaker 1: I know you were just talking about that with FED

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Speaker 1: policy as well. The idea that we're going to peak

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Speaker 1: earlier and lower and then pivot the easing is pretty pervasive,

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Speaker 1: you know, but that begs the question we haven't solved

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Speaker 1: the inflation issue that's still here. That's what they have

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Speaker 1: focused on. I think personally the markets were being disappointed. Gotcha, Okay,

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Speaker 1: all right guys, great, great to get you two together.

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Speaker 1: Alison Williams, Senior bank analyst and Tim Craig at Director

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Speaker 1: of Research and Senior European Strategists, both for Bloomberg Intelligence.

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Speaker 1: You're listening to the Team Cancer Line program Bloomberg Markets

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Speaker 1: weekdays at ten am Eastern on Bloomberg dot com, the

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Speaker 1: I Heart Radio app, and the Bloomberg Business app. We're

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Speaker 1: listening on demand wherever you get your podcast, other European

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Speaker 1: banking community, the European econ economic outlook. We can do

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Speaker 1: that with Fanny's Strafakana, Professor of Economics at the London

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Speaker 1: Business School, Vanni, thanks so much for joining us here.

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Speaker 1: I guess some good news. UBS stock is trading higher.

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Speaker 1: What is your takeaway from this UBS credit Swiss transaction?

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Speaker 1: So thank you very much for having me. I do

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Speaker 1: believe that this was a long time coming, that Credit

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Speaker 1: Swiss was supposed to be essentially resolved at this point

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Speaker 1: it was bought by UBS. I'm not quite happy with

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Speaker 1: the weight was done, and I think financial markets are

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Speaker 1: not quite happy with essentially everything being done behind closed

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Speaker 1: doors over the weekend, the shareholders at Credit Swiss who

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Speaker 1: were not really considered much in this decision, and then

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Speaker 1: of course there's the fiasco with the Coco bonds. Overall,

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Speaker 1: I do believe that development is positive because it's going

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Speaker 1: to limit contagion to other systematically important banks in Europe.

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Speaker 1: That's why we saw the heads of the central banks

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Speaker 1: well coming the takeover of Credit Suiss. My concern is

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Speaker 1: with the long run consequences on both the billionable debt,

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Speaker 1: which is very important to regulators. So that's a massive market,

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Speaker 1: more than two hundred billion, and effectively it felt like

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Speaker 1: the Swiss regulators traded three billion valuation of equity shareholders

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Speaker 1: for the two hundred billion dead markets. And I believe

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Speaker 1: that would have been done better and avoid it, essentially

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Speaker 1: the repercussions to the billion abouded market. Having said that,

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Speaker 1: also best it's bad news for the shares of banks,

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Speaker 1: even if they're financially sound and solvent and they're well regulated,

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Speaker 1: especially the large banks. The message that was sent after

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Speaker 1: the weekend is that even though regulators assure everyone that

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Speaker 1: you know, the banks have enough fliquidity, enough equity, overnight,

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Speaker 1: we might still wipe out a big chunk of the

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Speaker 1: equity if we decide to do that, essentially in the

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Speaker 1: case of pretty Swiss. And I do believe that this

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Speaker 1: might translate into lower city state valuations of bankache given

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Speaker 1: the massive interventions of regulators and governments into systematically important

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Speaker 1: bank which probably markets were not pricing prior to the weekend.

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Speaker 1: Professor put us into some perspective for us when it

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Speaker 1: comes to international willingness to kind of invest in European banks. Here,

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Speaker 1: how do you view this if you are an investor

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Speaker 1: in the Middle East or an investor in Asia, are

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Speaker 1: you more or less willing after this Credit Suiss debacle

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Speaker 1: to have that exposure to European and arguably to American

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Speaker 1: banks as well. I do think it did create a

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Speaker 1: problem for the valuation of equity or larger systematically banks.

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Speaker 1: Of course, they have franchise value right there are assets

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Speaker 1: back in these banks. So the question is by how

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Speaker 1: much we cause damage by not considering the shareholders or

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Speaker 1: not to a large extent over the weekend, I do

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Speaker 1: believe that actually what we saw happened was a result

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Speaker 1: of political economic considerations. So it was a massive shock

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Speaker 1: that equities still received something while the Coco bonds were

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Speaker 1: completely wiped out. Now, probably this was necessary to persuade

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Speaker 1: the shareholders of ubs that supposedly had presumably had also

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Speaker 1: exposure to Credit Swiss to take on the deal. However,

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Speaker 1: there are ways in which this could have been done

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Speaker 1: and they could have been compensated with doubt essentially create

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Speaker 1: creating problems in the billion about the market. Now, yes,

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Speaker 1: bank valuations might be lower in steady state, the question

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Speaker 1: is by how much? And and here financial investors are

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Speaker 1: waking up and realizing, okay, what is what is the

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Speaker 1: long term damage of both the current shocks that we've observed,

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Speaker 1: but also the steady state trends that are present in

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Speaker 1: the banking industry, which is shrinking over time for a

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Speaker 1: number of different reasons. So, professor, who really drives the

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Speaker 1: bus in these types of situations, Who's really in charge?

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Speaker 1: Isn't the European Central Bank? Is that the Swiss National

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Speaker 1: Bank give us a sense of how within Europe when

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Speaker 1: a bank is under stress, who really comes into kind

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Speaker 1: of you sure that a deal gets done somehow? Well,

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Speaker 1: to be fair, bailing out banks is still a national issue,

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Speaker 1: so you saw during the global financial crisis, it is

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Speaker 1: on the Swiss government, on the Swiss regulators STU deal

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Speaker 1: with Credit Swiss. Of course, they shouldn't take in isolation

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Speaker 1: this decision, because financial markets are very interconnected. Decisions they

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Speaker 1: make heavy percussions for the other central banks and the

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Speaker 1: other large banks. So for example, we saw the ECB

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Speaker 1: and the European regulators made a clear statement that from

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Speaker 1: their point of view, bailing about that is senior to

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Speaker 1: equity and they would treat it as such, unlike what

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Speaker 1: happened with Credit Swiss. But it's very much decision done

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Speaker 1: by the Swiss government and the Swiss regulators. I'm not

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Speaker 1: true to what extent the Europeans and the Americans will consulted.

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Speaker 1: My priory is not that much. I am confused almost

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Speaker 1: by the fine print of that Swiss Uba story that

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Speaker 1: you were specifically talking about. But let's let's broadened out here.

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Speaker 1: If we're talking about this merger really a merger, acquisition,

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Speaker 1: whatever you want to call it, I hear each bank

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Speaker 1: has a different way they're phrasing it. But if you

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Speaker 1: are talking about the effect it has on the Swiss

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Speaker 1: economy and, by extension, one of the G ten nations

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Speaker 1: of the world, what effect do you actually see? And

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Speaker 1: I'm kind of talking about this in the lens of

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Speaker 1: say effects for example, and the Swiss taxpayer. Are their

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Speaker 1: global ramifications for that? Well, it is not completely without

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Speaker 1: any reprecussions for the Swiss taxpayer. So for example, in

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Speaker 1: the deal they specify that the first five billion of

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Speaker 1: flossies will be borne by UBS, but then they provision

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Speaker 1: for anana nine point eight billion of future losses that

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Speaker 1: will have to be paid by the Swiss taxpayer if

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Speaker 1: they're additional losses. And this is part of essentially the

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Speaker 1: offering to UBS in order to agree to this deal,

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Speaker 1: So potentially there could be applications for the Swiss taxpayer,

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Speaker 1: that's for sure. I don't believe that the actual takeover

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Speaker 1: of Credit Swiss is going to have very material impact

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Speaker 1: on the Swiss real economy, to the extent that the

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Speaker 1: retail bank, which is what matters for lending to consumers

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Speaker 1: and two forms, has been always in good shape and

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Speaker 1: it's ring fenced. We'll see where the UBS is going

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Speaker 1: to keep it on the book or it's going to

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Speaker 1: be sold off in a separate entity. So the repercussions

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Speaker 1: to the real economy, the Swiss economy are probably limited. Now,

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Speaker 1: the deal was important to essentially prevent global contagent, and

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Speaker 1: the longer you leave the bank, the Credit Swiss in

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Speaker 1: this case alive, given that it's on the verge of

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Speaker 1: definite it has been for quite a while, the bigger

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Speaker 1: the risk of contagent to the rest of the financial industry.

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Speaker 1: So in that sense, it was a good decision to

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Speaker 1: finally deal with Credit Swiss because it's been a long

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Speaker 1: time coming towards Yeah, I'm sorry, do you have concerns

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Speaker 1: about other banks or other countries or other regions in

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Speaker 1: Europe that we might see more this, or you think

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Speaker 1: this is specific to Credit Swiss, which which as you mentioned,

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Speaker 1: has had long standing problems. Yeah, so in terms of

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Speaker 1: systematically important bank, I do believe it's definitely specific to

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Speaker 1: Credit Suizz. One caveat being is that we definitely do

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Speaker 1: not know where the interest rate dividi risks are born.

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Speaker 1: So if there are large systematically important banks that have

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Speaker 1: loaded on interest rate risk and they're the sellers of

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Speaker 1: the insurance, the issues might be there. The main issues

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Speaker 1: in the European banking sect they are going to be

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Speaker 1: similar to the US banking sector, and that will be

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Speaker 1: with the regional and small banks. So it's a very

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Speaker 1: simil pattern, right. So the issues is facing is the

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Speaker 1: fact that in terms of bookmarket valuations the small banks

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Speaker 1: are solvent, but the mark to market valuations they're insolvent.

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Speaker 1: They are relying on the backstop of the FED borrowing

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Speaker 1: against face value. So the same consideration is present from

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Speaker 1: the europe European banks. The European banks are a little

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Speaker 1: bit in a better shape because they have floating mortgages

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Speaker 1: and not so much fixed income. But in terms of

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Speaker 1: credit contraction, we will seek credit contraction in Europe as

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Speaker 1: well potentially. All right, doctor, thank you so much for

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Speaker 1: joining us. Can really appreciate getting your prospective perspective. Doctor

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Speaker 1: Vannius for Rokana, professor of economics at the London Business School,

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Speaker 1: talking to us about this UBS Credit Swiss deal. UBS

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Speaker 1: acquiring Credit Swiss. You're listening to the tape Ken's are

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Speaker 1: Live program Bloomberg Markets weekdays at ten am Eastern on

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Speaker 1: Bloomberg Radio, the tune in app, Bloomberg dot Com, and

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Speaker 1: the Bloomberg Business app. You can also listen live on

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Speaker 1: Amazon Alexa from our flagship New York station. Just say

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Speaker 1: Alexa play Bloomberg eleven thirty. I want to bringing John Michelthwaite.

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Speaker 1: He's an our editor in chief of Bloomberg News. He

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Speaker 1: is located in our lovely London headquarters in the city

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Speaker 1: of London. So, John, the story for Global Wall Street

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Speaker 1: over the last several days has been the dying throws,

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Speaker 1: if you will, of the Credit Swiss. Could you give

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Speaker 1: us a sense again the acquisition being announced this morning,

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Speaker 1: UBS buying Credit Swiss. What that really represents for Swiss

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Speaker 1: banking and just Switzerland in general. Well, I think it's

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Speaker 1: Switzerland saying, and this may have been fall in the

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Speaker 1: category of the bleeding obvious that you know, banking is

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Speaker 1: a critical national industry to them in the same way

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Speaker 1: as you know Hollywood focused on films or whatever it is.

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Speaker 1: It's this is a crucial part of the Swiss makeup

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Speaker 1: and they made this decision. It is you referred to

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Speaker 1: your own experiences. It is a pretty amazing thing, this bank, which,

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Speaker 1: certainly when I started being a financial journis in nineteen eighties,

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Speaker 1: you would not have imagined that Credit Swiss was even

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Speaker 1: remotely close to this, and even as a little ago

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Speaker 1: as a decade it was worth over one hundred billion

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Speaker 1: dollars And now suddenly it's being snapped up for three

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Speaker 1: And the whole point about Swiss banking was it was

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Speaker 1: meant to be reliable. So maybe UBS has got a

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Speaker 1: fantastic deal, but it's certainly a change, and I think

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Speaker 1: it will send shock waves not just through Swiss banking,

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Speaker 1: but also through European banking. You now have, I suppose,

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Speaker 1: a Swiss national champion in one extent, what questions does

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Speaker 1: that mean for other banks across Europe? Will there be

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Speaker 1: more mergers? And just as in America, I think there

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Speaker 1: is fundamental questions about whether America should have so many

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Speaker 1: small banks, what superregionals mean, and so on. There is

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Speaker 1: a general financial questioning going on pretty much across the world.

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Speaker 1: Put that into perspective for us when it comes to

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Speaker 1: international investments. If Credit Suez and was thinking largely was

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Speaker 1: the gold standard, now that it's kind of fallen apart,

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Speaker 1: does that disincentivize investments from the Middle East, from Asia?

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Speaker 1: I think certainly the Saudis don't love them very much

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Speaker 1: at the moment, Having just right the way down to

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Speaker 1: the weekend still arguing about it, I think it must

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Speaker 1: make a difference. It's an odd business though, banking. You

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Speaker 1: look back at the two thousand and eight crisis and

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Speaker 1: you had a variety of names which were sort of

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Speaker 1: shuddering at the brink. You know. City Bank was an

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Speaker 1: example of something that everyone began to say, how terrible

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Speaker 1: it's band that sheets were and things like that. But

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Speaker 1: millions of people around the world, I'm guessing millions, and

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Speaker 1: certainly a lot of people bank with City Bank without

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Speaker 1: any particular worries. Now, so you can see that happening.

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Speaker 1: I think you could see it's just possible that UBS

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Speaker 1: has actually done a remarkably clever deal. It certainly would

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Speaker 1: look like a clever deal if you looked at it,

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Speaker 1: say five years ago, you would think if you could

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Speaker 1: really buy a Credit sweez for three billion, you know

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Speaker 1: what's what's and get permission in a sense from your

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Speaker 1: national government to sort of reorganize it, that's quite a

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Speaker 1: good start. The problem is we don't quite know what's

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Speaker 1: buried in the in the credit suis books. John is

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Speaker 1: there and I'm just looking to do ubs ADRs right now.

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Speaker 1: They're trading up about four percent here after trading lower earlier,

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Speaker 1: So the market's applauding this deal at least at this point, John,

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Speaker 1: Is there a concern or maybe what level of concern

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Speaker 1: is there in Europe that this may not be a

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Speaker 1: credit Swiss specific issue, that there may be more system

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Speaker 1: systematic risk across Europe. You look at credit squeezes problems

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Speaker 1: and again I've no doubt you've played your role in this,

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Speaker 1: but the pretty much since those days it used to

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Speaker 1: be used to be a very reputable place. But you

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Speaker 1: look at the recent rank run of scandals, pretty much

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Speaker 1: everything at some point has ended up with Credit sweee

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Speaker 1: being involved in some bit of it. Deutsche Bank also

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Speaker 1: has a record that goes a bit like that. The

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Speaker 1: German Landers Bank have a record which occasionally has meant

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Speaker 1: they've ended up with things that they shouldn't have done.

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Speaker 1: So there's quite a few things looking around. And the

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Speaker 1: big difference I think this time is that whereas previous

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Speaker 1: sort of banking problems had a lot to do with

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Speaker 1: underlying credit quality, I think, certainly in terms of kind

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Speaker 1: of Silicon Valley Bank and also to some extentment would

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Speaker 1: happened in credit sweee is liquidity was the main thing.

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Speaker 1: It wasn't whether in the end you have a sort

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Speaker 1: of reputable business with good lending and so on and

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Speaker 1: so on. Notwithstanding all the scandals that grow sweets. You know,

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Speaker 1: they had quite a lot of capital against that. The

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Speaker 1: problem was that they needed capital to pay people who

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Speaker 1: wanted to take their deposits out now. And that is

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Speaker 1: the one sort of cord that runs true between both

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Speaker 1: Silicon Valley Bank and this. What does that then mean

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Speaker 1: for kind of these regulatory bodies here? It felt like

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Speaker 1: the bond market turmoil just in the last twenty four

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Speaker 1: hours really pushed the European banking authorities to say, look,

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Speaker 1: what's going on in Switzerland is a Switzerland specific kind

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Speaker 1: of regulatory arena, for lack of a better term. Are

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Speaker 1: they right to really emphasize that. Well, I'm not sure

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Speaker 1: they are in that extent. Yes, there is a there

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Speaker 1: is a great deal of swiftness about this subject, particularly

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Speaker 1: of keynote to the deputy editor in chief of Bloomberg.

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Speaker 1: But there is something there, and the Swiss to some

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Speaker 1: extent have taking decisions that will not please that many

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Speaker 1: people outside Switzerland. There are a lot of European banks

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Speaker 1: are suddenly looking at their capital or people who invested

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Speaker 1: in different levels bondholders and European banks are suddenly a

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Speaker 1: bit worried. You've got the Saudis doing that stuff. Not pleased.

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Speaker 1: So the Swiss have taken a number of kind of

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Speaker 1: somewhat insular decisions, you might argue, but you look around

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Speaker 1: the world. It's very difficult if you're regulated, know exactly

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Speaker 1: how you deal with that liquidity side. Because what's happened

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Speaker 1: with both Silicon Valley Bank and with Credit speceis you've

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Speaker 1: had this thing where people have just queued up saying

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Speaker 1: they want their money back, and that's quite hard. That's

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Speaker 1: much harder to deal with in a strange way other

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Speaker 1: than maybe if you ensure all depositors, but that is

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Speaker 1: carries an enormous amount of moral hazard. John, You know,

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Speaker 1: when I think of Switzerland, I think of chocolate watches,

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Speaker 1: and you know, bank secrecy laws, banking, it's it's a

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Speaker 1: it's identifiable with the you know, it just seems like

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Speaker 1: Switzerland one and the same. How do you think the

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Speaker 1: average Swiss person on the streets of Geneva or Zurich

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Speaker 1: are taking this news today that one of the venerable

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Speaker 1: institutions has gone under. I think there was a mutual

432
00:25:16,600 --> 00:25:19,359
Speaker 1: friend of us pointed out that when this thing started

433
00:25:19,400 --> 00:25:22,880
Speaker 1: that they didn't think the Swiss would panic. And you

434
00:25:22,920 --> 00:25:25,320
Speaker 1: look at different things that have been various sort of

435
00:25:25,400 --> 00:25:28,800
Speaker 1: small scale things where you have seen invested in Switzerland

436
00:25:28,920 --> 00:25:32,640
Speaker 1: move quite rapidly, sort a thing involving global asset management

437
00:25:33,160 --> 00:25:35,480
Speaker 1: a couple of years ago where they suddenly pulled money

438
00:25:35,480 --> 00:25:39,040
Speaker 1: out of a bond fund that the Swiss don't seem

439
00:25:39,080 --> 00:25:41,879
Speaker 1: to panic unless they really think it's sort of hitting

440
00:25:41,880 --> 00:25:44,560
Speaker 1: their money at that time. In this case, I think,

441
00:25:44,600 --> 00:25:46,840
Speaker 1: as far as I've seen, and I'm stand to be corrected,

442
00:25:47,359 --> 00:25:49,720
Speaker 1: is that most of the action on credit series was

443
00:25:49,800 --> 00:25:53,960
Speaker 1: from outside Switzerland. It was for people taking taking stuff back,

444
00:25:54,880 --> 00:25:58,479
Speaker 1: or certainly not from the retail sector. And there is

445
00:25:58,480 --> 00:26:00,720
Speaker 1: that there is that question about the retail sector. You

446
00:26:00,800 --> 00:26:05,080
Speaker 1: look at possible mergers in Europe, one potential one longbooted

447
00:26:05,119 --> 00:26:07,919
Speaker 1: in Germany's you put Deutsche Bank and Commets Bank together.

448
00:26:08,000 --> 00:26:12,399
Speaker 1: A justification for that would be that Commets Bank, whatever

449
00:26:12,440 --> 00:26:14,960
Speaker 1: it's ups and downs, does have retail investors in a

450
00:26:15,000 --> 00:26:19,199
Speaker 1: way that retail depositors in a way that the Deutsche

451
00:26:19,320 --> 00:26:22,359
Speaker 1: does not. Hey, John, just lastly, I mean we've you

452
00:26:22,440 --> 00:26:24,600
Speaker 1: mentioned Deutsche Bank, and over the years we've we've talked

453
00:26:24,600 --> 00:26:27,879
Speaker 1: about that troubling story and one of the solutions that

454
00:26:28,520 --> 00:26:31,480
Speaker 1: we Americans bandy about us why can't the stronger European

455
00:26:31,520 --> 00:26:33,959
Speaker 1: banks buy out the weaker European banks? And we keep

456
00:26:34,000 --> 00:26:37,000
Speaker 1: getting told about this, boy, that's a tough regulatory cell.

457
00:26:37,320 --> 00:26:42,040
Speaker 1: Is there any change in that thinking? I will two things.

458
00:26:42,200 --> 00:26:45,360
Speaker 1: Number one is yes, you're absolutely right, and I think

459
00:26:45,359 --> 00:26:47,440
Speaker 1: there will be a change. I think the change will

460
00:26:47,480 --> 00:26:50,199
Speaker 1: come from in part from that, but also from a

461
00:26:50,240 --> 00:26:54,680
Speaker 1: general national belief in subtle national champions. You cannot take

462
00:26:54,720 --> 00:26:57,120
Speaker 1: any of this stuff that the European Union is spouting

463
00:26:57,119 --> 00:26:59,720
Speaker 1: at the moment about national champions on and look at

464
00:26:59,720 --> 00:27:02,200
Speaker 1: fine ants and then discover that the top five banks

465
00:27:02,200 --> 00:27:06,160
Speaker 1: to all Americans without thinking that maybe something will come

466
00:27:06,160 --> 00:27:08,320
Speaker 1: of it. And the second thing the Americans is in

467
00:27:08,359 --> 00:27:12,320
Speaker 1: a pah humbug America is the place where are these

468
00:27:12,480 --> 00:27:17,440
Speaker 1: thousands of small banks, which, adding anybody outside one or

469
00:27:17,480 --> 00:27:21,640
Speaker 1: two American politicians thinks is a particularly brilliant idea, right

470
00:27:21,680 --> 00:27:24,080
Speaker 1: exactly what we're dealing with that as well here, John,

471
00:27:24,200 --> 00:27:26,399
Speaker 1: thanks so much for taking the time. John Michael Thwaite,

472
00:27:26,400 --> 00:27:28,959
Speaker 1: he is the editor in chief Bloomberg News, joining us

473
00:27:29,520 --> 00:27:33,080
Speaker 1: from London and giving us some excellent perspective on what

474
00:27:33,240 --> 00:27:36,439
Speaker 1: is taking place in Switzerland with ubs Credit Swiss and

475
00:27:36,480 --> 00:27:40,000
Speaker 1: then just European banking in general. We appreciate getting some

476
00:27:40,080 --> 00:27:43,879
Speaker 1: of his time. You're listening to the team cancer a

477
00:27:43,960 --> 00:27:47,560
Speaker 1: live program Bloomberg Markets weekdays at ten am easting on

478
00:27:47,680 --> 00:27:51,440
Speaker 1: Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app.

479
00:27:51,560 --> 00:27:56,919
Speaker 1: We're listening on demand wherever you get your podcast. All right,

480
00:27:57,000 --> 00:27:59,360
Speaker 1: John Tucker, thank you so much. We appreciate it. A big,

481
00:27:59,359 --> 00:28:03,040
Speaker 1: big news tinuing in the world of global banking again

482
00:28:03,080 --> 00:28:06,560
Speaker 1: coming out of Europe. Credit Swiss being acquired by UBS.

483
00:28:07,240 --> 00:28:10,639
Speaker 1: Good news for the banking space. Seeing some of the

484
00:28:10,680 --> 00:28:12,880
Speaker 1: other big names like JP, Morgan Chase and City Group

485
00:28:13,160 --> 00:28:15,760
Speaker 1: also do well. Some of the regional names kind of

486
00:28:15,920 --> 00:28:18,800
Speaker 1: hit or miss. First Republic Bank it's down another fifteen percent.

487
00:28:19,160 --> 00:28:22,440
Speaker 1: No news there on kind of a salvage operation there,

488
00:28:22,480 --> 00:28:24,199
Speaker 1: so we'll pay attention to that. But some of the

489
00:28:24,240 --> 00:28:27,760
Speaker 1: other regional banks trading higher today. So let's break this

490
00:28:27,800 --> 00:28:30,080
Speaker 1: all down. We'll do a little roundtable here into banks.

491
00:28:30,560 --> 00:28:33,600
Speaker 1: We can do that with Herman Chan and Arnold Coucuta.

492
00:28:33,640 --> 00:28:38,479
Speaker 1: Both of them are analysts for Bloomberg Intelligence. Arnold follows

493
00:28:38,480 --> 00:28:41,280
Speaker 1: it from the credit side and Hermann follows it from

494
00:28:41,320 --> 00:28:43,920
Speaker 1: the equity side, and they're both here in our Bloomberg

495
00:28:43,960 --> 00:28:47,640
Speaker 1: Interactive Broker studio. So Herman, I have to bid. I'm

496
00:28:47,680 --> 00:28:49,680
Speaker 1: surprised it's Monday morning. I thought we'd come back and

497
00:28:49,760 --> 00:28:52,480
Speaker 1: we'd have a buyer for First Republic. I thought i'd

498
00:28:52,520 --> 00:28:56,200
Speaker 1: have a buyer for Summer all of the Silicon Valley Bank.

499
00:28:56,640 --> 00:28:59,440
Speaker 1: Where are they? Yeah, Herman, what's up with that? Yeah,

500
00:28:59,480 --> 00:29:02,560
Speaker 1: we're all going the same question. I think First Republic

501
00:29:02,880 --> 00:29:06,360
Speaker 1: is trying to make a go of it if you

502
00:29:06,400 --> 00:29:09,520
Speaker 1: want to take a step back. First, Republic's historically been

503
00:29:09,560 --> 00:29:12,880
Speaker 1: a very well regarded bank. CEO has been there since

504
00:29:12,920 --> 00:29:18,480
Speaker 1: the founding, high regard across you know, fellow CEOs and regulators.

505
00:29:18,520 --> 00:29:21,600
Speaker 1: It hasn't lost money in its loan book and its entirety,

506
00:29:22,200 --> 00:29:25,000
Speaker 1: so it's done everything right and it's getting caught up

507
00:29:25,040 --> 00:29:28,880
Speaker 1: in some of the turmoil in the markets, and I think,

508
00:29:29,200 --> 00:29:31,719
Speaker 1: you know, rightfully, they're a bit prideful and want to

509
00:29:31,720 --> 00:29:36,080
Speaker 1: try to salvage whatever they can. The market's going against them,

510
00:29:36,080 --> 00:29:39,280
Speaker 1: so we'll see what happens. SBB it's a different picture

511
00:29:39,360 --> 00:29:41,680
Speaker 1: because it is a bit of a complicated bank. It

512
00:29:41,800 --> 00:29:45,360
Speaker 1: has you know, investment banking, It has a private wealth

513
00:29:45,760 --> 00:29:49,360
Speaker 1: management arm, it has a venture debt arm along with

514
00:29:49,400 --> 00:29:53,040
Speaker 1: your traditional loans and deposits. So it sounds like the

515
00:29:53,080 --> 00:29:56,640
Speaker 1: FDIC is taking a dual track and trying to sell

516
00:29:56,720 --> 00:30:00,959
Speaker 1: the traditional bank to a traditional bank and then the

517
00:30:01,000 --> 00:30:05,600
Speaker 1: other stuff will go elsewhere. Arnold, Yeah, there you go.

518
00:30:05,720 --> 00:30:08,120
Speaker 1: Arnold's fund in here and talk to us about this

519
00:30:08,160 --> 00:30:11,840
Speaker 1: bond market, because over the last twenty four hours it's

520
00:30:11,840 --> 00:30:15,320
Speaker 1: been fascinating. Look at the credit suits fallout and kind

521
00:30:15,320 --> 00:30:18,160
Speaker 1: of how you even trade that given the at ones

522
00:30:18,200 --> 00:30:20,080
Speaker 1: are going to be written down to zero, and that

523
00:30:20,240 --> 00:30:23,800
Speaker 1: creating commotion around the world. Is that panic over now

524
00:30:23,840 --> 00:30:26,400
Speaker 1: in the credit market. Yeah, I think a lot of

525
00:30:26,400 --> 00:30:29,040
Speaker 1: people were caught by, you know, even though it's written

526
00:30:29,080 --> 00:30:31,560
Speaker 1: in the docks, right that for the Swiss at ones

527
00:30:32,680 --> 00:30:34,200
Speaker 1: an a one give me a definition. I'm not a

528
00:30:34,240 --> 00:30:37,640
Speaker 1: bank person, yep, so additional tier one capital. It's um,

529
00:30:37,760 --> 00:30:40,800
Speaker 1: think of it as like equity light okay, right, And

530
00:30:41,680 --> 00:30:44,960
Speaker 1: I guess these are supposed to be could be perpetual securities,

531
00:30:45,000 --> 00:30:48,200
Speaker 1: but I guess there's a quirk of people investors in

532
00:30:48,240 --> 00:30:50,200
Speaker 1: Europe expecting needs to be called at the call date

533
00:30:50,240 --> 00:30:52,920
Speaker 1: in five years. But and then, um, the at ones.

534
00:30:52,960 --> 00:30:55,840
Speaker 1: These are kind of a post financial crisis instrument where

535
00:30:56,680 --> 00:30:58,560
Speaker 1: mostly people look at this in terms of if your

536
00:30:58,560 --> 00:31:02,200
Speaker 1: capital ratios, which are let's say fourteen percent, and they

537
00:31:02,240 --> 00:31:06,120
Speaker 1: go below seven percent, that's when these things are triggered, triggered,

538
00:31:06,120 --> 00:31:07,840
Speaker 1: and so the bond which converted into a piece of

539
00:31:07,920 --> 00:31:10,480
Speaker 1: equity for most of Europe, yes, but then for the

540
00:31:10,480 --> 00:31:12,880
Speaker 1: Swiss ones, right, these were unique and that they were

541
00:31:12,960 --> 00:31:16,000
Speaker 1: write down security, so you get zero. So why the

542
00:31:16,080 --> 00:31:19,120
Speaker 1: fine print on Switzerland? Well, and so that that's kind

543
00:31:19,120 --> 00:31:21,000
Speaker 1: of the path that they chose to go right where

544
00:31:21,000 --> 00:31:22,720
Speaker 1: it's kind of like, you know, they are also other

545
00:31:22,720 --> 00:31:25,560
Speaker 1: ones where it's like, oh, you could be mum temporarily

546
00:31:25,800 --> 00:31:28,360
Speaker 1: temporarily written down, but then they might have a chance

547
00:31:28,360 --> 00:31:31,000
Speaker 1: to come back or um. But but more in this case,

548
00:31:31,040 --> 00:31:33,360
Speaker 1: I think it was it was like because the regulator

549
00:31:33,400 --> 00:31:35,920
Speaker 1: had to step in, so then it was like, okay,

550
00:31:35,960 --> 00:31:38,400
Speaker 1: well regular had to come in and that's why you

551
00:31:38,440 --> 00:31:40,760
Speaker 1: guys are getting written down. So it was it was

552
00:31:40,800 --> 00:31:43,800
Speaker 1: odd that even though the equity still got what is it,

553
00:31:43,840 --> 00:31:46,000
Speaker 1: I think three billion at the end, um, you know,

554
00:31:46,120 --> 00:31:47,720
Speaker 1: the eighteen ones were written down to zero. So I

555
00:31:47,760 --> 00:31:50,720
Speaker 1: think that caught some people, a lot of people offsides. Yeah,

556
00:31:50,720 --> 00:31:53,240
Speaker 1: I bet the guys who wrote those contracts Paul breaking

557
00:31:53,280 --> 00:31:55,920
Speaker 1: it in. Yeah. Yeah, it's just amazing. So so because

558
00:31:55,920 --> 00:31:59,400
Speaker 1: typically in a bankruptcy, the equity guys get zero. Yeah,

559
00:31:59,440 --> 00:32:02,360
Speaker 1: the credit guys. The more senior yard the more you'll

560
00:32:02,480 --> 00:32:05,120
Speaker 1: get if you get anything, and the more subordinated you are,

561
00:32:05,760 --> 00:32:07,640
Speaker 1: the more the greater the risk that you're not going

562
00:32:07,680 --> 00:32:10,800
Speaker 1: to get anything. You're gonna get substantially less. In this

563
00:32:10,880 --> 00:32:15,120
Speaker 1: particular case, the equity holders got something right, and these

564
00:32:15,280 --> 00:32:18,280
Speaker 1: eighty one bond holders get zipped? Is that kind of

565
00:32:18,360 --> 00:32:20,800
Speaker 1: play out? Yeah? Yeah, so I think it's because of this,

566
00:32:21,000 --> 00:32:24,160
Speaker 1: like because the regulator had to step in guarantee. I

567
00:32:24,160 --> 00:32:26,320
Speaker 1: think it was like nine billion of losses and right,

568
00:32:26,320 --> 00:32:29,720
Speaker 1: so it's not just a smooth okay, um ubs spies

569
00:32:29,800 --> 00:32:33,600
Speaker 1: for for three billion you know, um curded Swiss. Well

570
00:32:33,600 --> 00:32:35,960
Speaker 1: actually had the regulator had to kind of massage this

571
00:32:36,080 --> 00:32:38,400
Speaker 1: and then and take on some losses, so you know,

572
00:32:38,440 --> 00:32:40,640
Speaker 1: pointing to that, um, you know, that's why they will

573
00:32:40,720 --> 00:32:43,240
Speaker 1: to kind of go in and write down these sixteen

574
00:32:43,320 --> 00:32:46,680
Speaker 1: seventeen billion dollars of securities and then put them into

575
00:32:46,680 --> 00:32:48,920
Speaker 1: context when it comes to the ripple effects around the world,

576
00:32:48,960 --> 00:32:51,360
Speaker 1: because it felt like then all the eighty one bonds

577
00:32:51,360 --> 00:32:54,920
Speaker 1: around the world were like no, I touch this absolutely right.

578
00:32:54,920 --> 00:32:56,760
Speaker 1: Then it's like oh oh yeah there is. It's not

579
00:32:56,800 --> 00:32:59,480
Speaker 1: just really looking at um, oh, how how big is

580
00:32:59,520 --> 00:33:02,040
Speaker 1: your you know attritionally you look at the buffer. Oh yeah,

581
00:33:02,080 --> 00:33:05,320
Speaker 1: we are you know, X billion amount of capital above

582
00:33:05,360 --> 00:33:07,560
Speaker 1: our buffer. But then when when when when it comes

583
00:33:07,560 --> 00:33:10,480
Speaker 1: to kind of confidence runs and uh, you know, regulators

584
00:33:10,520 --> 00:33:12,520
Speaker 1: having to step in, then they can kind of point

585
00:33:12,520 --> 00:33:15,040
Speaker 1: to that clause and say hey, actually, uh, this thing

586
00:33:15,040 --> 00:33:16,840
Speaker 1: will trigger, this thing will bit and get converted to

587
00:33:16,840 --> 00:33:19,360
Speaker 1: equity or or in this case the worst case, you know,

588
00:33:19,400 --> 00:33:21,560
Speaker 1: written down to zero. So all right, So herman, I'm

589
00:33:21,600 --> 00:33:23,800
Speaker 1: looking at the S and P five hundred regional bank

590
00:33:23,920 --> 00:33:29,960
Speaker 1: sub industry. Uh it is trading up today? Um has

591
00:33:30,000 --> 00:33:32,800
Speaker 1: it has the worst pass for the US regional bank

592
00:33:32,840 --> 00:33:35,760
Speaker 1: as a category, as an investable category. Do you think

593
00:33:35,800 --> 00:33:38,400
Speaker 1: as a sector it's still going to be a bit

594
00:33:38,440 --> 00:33:40,320
Speaker 1: of a roller coaster ride. But I would say that

595
00:33:40,760 --> 00:33:44,560
Speaker 1: resolution with the the issue in Europe with credit suites,

596
00:33:44,760 --> 00:33:48,520
Speaker 1: and also closer to home, with a New York Community Bank,

597
00:33:48,520 --> 00:33:51,800
Speaker 1: which is another bank we cover buying certain loans and

598
00:33:51,960 --> 00:33:57,200
Speaker 1: deposits from the FDIC and really injecting a bit of

599
00:33:57,200 --> 00:34:00,320
Speaker 1: confidence into the system, showing that the system works. A

600
00:34:00,360 --> 00:34:03,800
Speaker 1: bank may fail, but another bank will step in and

601
00:34:04,000 --> 00:34:08,160
Speaker 1: absorb some of those assets and those employees. So I

602
00:34:08,280 --> 00:34:11,400
Speaker 1: think all in all, today should be viewed as a

603
00:34:11,440 --> 00:34:13,840
Speaker 1: sign that that things are a bit stable. Your community

604
00:34:13,880 --> 00:34:17,200
Speaker 1: Bank up thirty five percent on this deal? Does that

605
00:34:17,280 --> 00:34:21,560
Speaker 1: surprise you? You You know, it doesn't surprise me because it,

606
00:34:22,160 --> 00:34:24,279
Speaker 1: in effect it was a very sweet, hard deal for

607
00:34:24,360 --> 00:34:29,239
Speaker 1: NYCB does The issue with new or community bank historically

608
00:34:29,239 --> 00:34:34,000
Speaker 1: has been funding. They they do their their funding base

609
00:34:34,000 --> 00:34:36,480
Speaker 1: a bit differently where they issue a lot of higher

610
00:34:36,520 --> 00:34:40,000
Speaker 1: cost CDs and a higher costs wholesale funding. So in effect,

611
00:34:40,160 --> 00:34:43,719
Speaker 1: all these lower costs signature deposits are coming in to

612
00:34:44,320 --> 00:34:48,319
Speaker 1: improve the balance sheet and that has really strong implications

613
00:34:48,320 --> 00:34:52,279
Speaker 1: for earnings and earnings growth and then interest margins. So

614
00:34:52,600 --> 00:34:55,080
Speaker 1: now who put this deal together? Does the FDIC come

615
00:34:55,120 --> 00:34:57,960
Speaker 1: in or to just and my CB do it on

616
00:34:58,000 --> 00:35:02,680
Speaker 1: their own. So like most of these failed deals, failed banks,

617
00:35:02,760 --> 00:35:06,400
Speaker 1: the nays, the FBI c will do an auction process

618
00:35:06,600 --> 00:35:10,040
Speaker 1: and there are anybody, any bank of a certain size

619
00:35:10,080 --> 00:35:14,160
Speaker 1: can bid and offer terms that they think would would win,

620
00:35:14,320 --> 00:35:18,520
Speaker 1: and eventually NYCB was the winning bid. Arnold, do we

621
00:35:18,520 --> 00:35:20,800
Speaker 1: have any of these eight one bonds in the US?

622
00:35:20,840 --> 00:35:23,239
Speaker 1: I mean our banks do that kind of thing after

623
00:35:23,280 --> 00:35:27,279
Speaker 1: the financial crisis. So, uh, these cocoas in Europe, the

624
00:35:27,280 --> 00:35:32,239
Speaker 1: ones with these triggers, that's a way contingent convertibles. We'll

625
00:35:32,239 --> 00:35:36,359
Speaker 1: stick with Cocoa. The f clauses where you know, if

626
00:35:36,400 --> 00:35:39,080
Speaker 1: you hit a certain level of equity then you'll get

627
00:35:39,080 --> 00:35:41,640
Speaker 1: written down or a crivered equity or the regulator has

628
00:35:41,640 --> 00:35:44,239
Speaker 1: to step in. You'll get converted equity, you're written down. Um.

629
00:35:44,280 --> 00:35:46,640
Speaker 1: The way we fill that in the US is through

630
00:35:46,680 --> 00:35:50,120
Speaker 1: preferred stock, right, And so we don't have these explicit

631
00:35:50,520 --> 00:35:52,880
Speaker 1: trigger events where you get written down to zero or

632
00:35:52,920 --> 00:35:56,640
Speaker 1: converted equity. So I think we do have a better

633
00:35:56,640 --> 00:35:59,319
Speaker 1: sense of you know, the capital structure higher. How are

634
00:35:59,320 --> 00:36:04,719
Speaker 1: those things trading? Yeah, no, they're off. Yeah, but you know,

635
00:36:04,760 --> 00:36:06,400
Speaker 1: not not as much as you know other other parts

636
00:36:06,400 --> 00:36:08,920
Speaker 1: of Europe or Asia where I'm seeing like ten points

637
00:36:08,960 --> 00:36:11,799
Speaker 1: plus down and stuff. So I think, you know, the

638
00:36:11,840 --> 00:36:14,279
Speaker 1: regular sense of the hierarchy does remain in the US.

639
00:36:14,360 --> 00:36:17,360
Speaker 1: But obviously, um, you know, with with banks failing in

640
00:36:17,360 --> 00:36:21,480
Speaker 1: the in the US, still some uncertainty with FRC the

641
00:36:21,520 --> 00:36:25,360
Speaker 1: New York Community Bank acquisition of SPNY sweetheart deal. Right,

642
00:36:25,400 --> 00:36:28,120
Speaker 1: they only took thirteen billion of the loan book of

643
00:36:28,360 --> 00:36:31,320
Speaker 1: what seventy seven billion, right, So out of the stuff

644
00:36:31,360 --> 00:36:34,759
Speaker 1: that maybe overlaps with UM Silicon Valley Bank, they did

645
00:36:34,760 --> 00:36:37,000
Speaker 1: not take the capital call line, you know, a book

646
00:36:37,080 --> 00:36:40,080
Speaker 1: with the VCS. They did not take the commercial real

647
00:36:40,200 --> 00:36:43,200
Speaker 1: estate right New York commercial estate stuff, So there's a

648
00:36:43,239 --> 00:36:45,080
Speaker 1: lot of stuff that that was left out there, right,

649
00:36:45,160 --> 00:36:48,160
Speaker 1: So Um, you know, has everything solved yet. I mean,

650
00:36:48,560 --> 00:36:51,160
Speaker 1: let's see how this, you know, first Republic thing pays out.

651
00:36:51,239 --> 00:36:53,879
Speaker 1: I mean we got the SMP downgrade, right, but yeah,

652
00:36:54,040 --> 00:36:57,000
Speaker 1: there's still a lot of certain uncertainty. I think, all right, well,

653
00:36:57,000 --> 00:36:58,799
Speaker 1: you guys should all over it. And that's why we

654
00:36:59,000 --> 00:37:01,600
Speaker 1: feel so fortunate to get access to YouTube guys a

655
00:37:02,400 --> 00:37:06,000
Speaker 1: Hermit Chan and Arnold Kuta. They're both Bloomberg Intelligence. One

656
00:37:06,040 --> 00:37:08,440
Speaker 1: follows the equity one follows a debt. They're interchangeable as

657
00:37:08,440 --> 00:37:10,200
Speaker 1: far as I'm concerned. They both know what they're talking

658
00:37:10,239 --> 00:37:13,719
Speaker 1: about when it comes to banks and bank accounting. So

659
00:37:13,880 --> 00:37:15,719
Speaker 1: maybe you know a little bit of a ray of

660
00:37:15,760 --> 00:37:18,560
Speaker 1: sunshine their cretty. You know, we get credit Swiss kind

661
00:37:18,560 --> 00:37:21,120
Speaker 1: of dealt with signature dealt with here in the US.

662
00:37:21,520 --> 00:37:23,320
Speaker 1: Now we'll see. I guess next you get something with

663
00:37:23,360 --> 00:37:27,080
Speaker 1: the West Coast banks. A proper nerd like myself would

664
00:37:27,640 --> 00:37:29,960
Speaker 1: notice that you just said the debt folks and equity

665
00:37:29,960 --> 00:37:34,880
Speaker 1: folks are interchangeable, kind of like a coco Arnold gets me. Anyway,

666
00:37:35,160 --> 00:37:38,320
Speaker 1: that moment's over. Continue. You're listening to the tape Cancer

667
00:37:38,520 --> 00:37:42,160
Speaker 1: Live program Bloomberg Markets weekdays at ten am Eastern on

668
00:37:42,320 --> 00:37:45,360
Speaker 1: Bloomberg Radio Tune in a half, Bloomberg dot Com and

669
00:37:45,400 --> 00:37:48,200
Speaker 1: the Bloomberg Business Half. You can also listen live on

670
00:37:48,280 --> 00:37:51,560
Speaker 1: Amazon Alexa from our flagship New York station, Jo Say

671
00:37:51,600 --> 00:37:57,200
Speaker 1: Alexa play Bloomberg eleven thirty JT. Thank you so much.

672
00:37:57,239 --> 00:38:00,040
Speaker 1: We appreciate it. My prousers just pointing out that I

673
00:38:00,080 --> 00:38:02,480
Speaker 1: knew it was close, but twenty years to the day

674
00:38:02,600 --> 00:38:05,440
Speaker 1: today is the US invasion of Iraq. Wow did that

675
00:38:05,560 --> 00:38:09,040
Speaker 1: go fast? Um? Greg Parsons joins us here Greg as

676
00:38:09,040 --> 00:38:12,279
Speaker 1: a chairman and CEO of CAVU Securities. He joins us

677
00:38:12,280 --> 00:38:15,920
Speaker 1: here in a Bloomberg in actor broker studio. CAVU. What

678
00:38:16,040 --> 00:38:18,520
Speaker 1: does that mean? Where did it come from? So? CAVU

679
00:38:18,600 --> 00:38:23,080
Speaker 1: military acronym ceiling and visibility unlimited. Gotcha, that's a good

680
00:38:23,280 --> 00:38:25,600
Speaker 1: name for a firm. I mean, you got everything in focus,

681
00:38:25,640 --> 00:38:27,480
Speaker 1: you know where you're going, all that kind of stuff.

682
00:38:27,520 --> 00:38:29,239
Speaker 1: You know, it really is, you know, up into the right,

683
00:38:29,320 --> 00:38:31,400
Speaker 1: you know sky. You know the opportunity sets are limited.

684
00:38:31,480 --> 00:38:34,359
Speaker 1: Certainly as a former infantry officer, you know, I've got

685
00:38:34,400 --> 00:38:37,400
Speaker 1: a little personal adjita, you know, paying homage to my

686
00:38:37,600 --> 00:38:41,520
Speaker 1: aviation brethren. But yes, it's it is a great it's

687
00:38:41,520 --> 00:38:43,400
Speaker 1: a great signal and it's a great signal to the

688
00:38:43,400 --> 00:38:45,560
Speaker 1: market of what we're trying to accomplish. And Greg was

689
00:38:45,560 --> 00:38:48,120
Speaker 1: an infantry officer with the United States Marine Corps. So

690
00:38:48,160 --> 00:38:50,279
Speaker 1: we thank you for your service. Greg, talk to us

691
00:38:50,280 --> 00:38:52,399
Speaker 1: about CAVU. What are you guys trying to do there?

692
00:38:52,440 --> 00:38:54,680
Speaker 1: Where do you fit in? What's what's the focus for

693
00:38:54,680 --> 00:38:57,359
Speaker 1: you guys. So, we are a minority and veteran own

694
00:38:57,400 --> 00:39:00,239
Speaker 1: broker dealer based here in New York City, and look,

695
00:39:00,239 --> 00:39:02,920
Speaker 1: we view our strategic mandate. You know, I've spent coming

696
00:39:02,920 --> 00:39:04,640
Speaker 1: on thirty years ever since I got out of the

697
00:39:04,680 --> 00:39:09,120
Speaker 1: Marine Corps at the in the financial services industry and

698
00:39:09,280 --> 00:39:11,719
Speaker 1: take a lot of pride and feel out of responsibility

699
00:39:11,719 --> 00:39:17,560
Speaker 1: and driving the conversation around inclusion and equitable opportunity. Right. So,

700
00:39:17,600 --> 00:39:20,759
Speaker 1: a CAVI we view our mission as providing best you know,

701
00:39:21,120 --> 00:39:24,440
Speaker 1: being a strategic solutions provider for that corporate treasurer or

702
00:39:24,440 --> 00:39:28,640
Speaker 1: that public fund allocator to allow them to be inclusive,

703
00:39:28,760 --> 00:39:33,319
Speaker 1: more inclusive in their decision financial services decision making in

704
00:39:33,400 --> 00:39:36,120
Speaker 1: terms of the macroeconomic issues here. Look, I'm a market

705
00:39:36,120 --> 00:39:39,440
Speaker 1: scale so you've got to really like nerd up for

706
00:39:39,480 --> 00:39:44,160
Speaker 1: this next question. What do you do on Wednesday FOMC decision.

707
00:39:45,400 --> 00:39:47,239
Speaker 1: I mean, it kind of depends where you are, what

708
00:39:47,280 --> 00:39:49,080
Speaker 1: type of investor you are. I mean, we have a

709
00:39:49,120 --> 00:39:52,560
Speaker 1: sister platform, a mortgage back security shop. I think certainly

710
00:39:52,600 --> 00:39:55,440
Speaker 1: the volatility in the market right the market's kind of expecting,

711
00:39:55,440 --> 00:39:58,520
Speaker 1: you know, a quarter point. I think it's it's it's

712
00:39:58,560 --> 00:40:02,440
Speaker 1: going to be volatile sledding moving forward, right so and

713
00:40:02,680 --> 00:40:06,560
Speaker 1: especial volatile sledding right m right there. Yeah, And you know,

714
00:40:06,600 --> 00:40:09,279
Speaker 1: with everything that's gone over the last two weeks, you

715
00:40:09,360 --> 00:40:12,080
Speaker 1: take a very you know, as best you can, right

716
00:40:12,120 --> 00:40:14,080
Speaker 1: you show up balance sheet and you sure you've got

717
00:40:14,160 --> 00:40:16,080
Speaker 1: kind of a long term perspective. But there's certainly is

718
00:40:16,120 --> 00:40:19,760
Speaker 1: value being created in various pockets of the capital markets.

719
00:40:19,840 --> 00:40:26,040
Speaker 1: Are you hedging at all? Again, on the asset management side,

720
00:40:26,040 --> 00:40:28,760
Speaker 1: with where where we have exposure, it's probably less about

721
00:40:28,840 --> 00:40:32,360
Speaker 1: hedging from a direct you know, using derivative or overlays,

722
00:40:32,360 --> 00:40:35,840
Speaker 1: and more about you know, security selection or sector selection

723
00:40:35,880 --> 00:40:39,560
Speaker 1: of Again, we are extremely bullish on structured product asset

724
00:40:39,640 --> 00:40:42,080
Speaker 1: back cash flows that you know, while they're certainly spread

725
00:40:42,120 --> 00:40:44,000
Speaker 1: widening in market right now, if you believe in the

726
00:40:44,000 --> 00:40:46,680
Speaker 1: fundamental credits of what you have, You've got some natural

727
00:40:46,760 --> 00:40:49,399
Speaker 1: hedge to some of the volatility we expect to see. Greg.

728
00:40:49,440 --> 00:40:51,120
Speaker 1: You know, I've been on the street simmar to you

729
00:40:51,320 --> 00:40:54,520
Speaker 1: more than thirty years, um, and I'm not sure the

730
00:40:54,560 --> 00:40:58,160
Speaker 1: diversity situation, whether it's racial diversity, gender diversity, has gotten

731
00:40:58,160 --> 00:41:01,600
Speaker 1: a whole lot better. I mean, I look at the

732
00:41:01,640 --> 00:41:05,720
Speaker 1: incoming classes of analysts at Investment Bank USA today, It'll

733
00:41:05,760 --> 00:41:10,719
Speaker 1: be perfectly racially diverse gender race. But when you get seven, eight,

734
00:41:10,840 --> 00:41:14,520
Speaker 1: nine years on to the managing director slash partner interviews,

735
00:41:14,840 --> 00:41:19,000
Speaker 1: it ain't so anymore. What in your experience, how's the

736
00:41:19,040 --> 00:41:22,040
Speaker 1: street evolved and not evolved? How does it? What's going on?

737
00:41:22,320 --> 00:41:24,080
Speaker 1: I mean, look, you know certainly all right now, what's

738
00:41:24,120 --> 00:41:26,120
Speaker 1: the SoundBite to answer? I mean that is a massive

739
00:41:26,200 --> 00:41:28,360
Speaker 1: question that applies to much more than just Wall Street.

740
00:41:28,560 --> 00:41:30,719
Speaker 1: But no, I mean, look your macro premise. My first

741
00:41:30,800 --> 00:41:32,880
Speaker 1: job out of the Marine Corps working for a minority

742
00:41:32,880 --> 00:41:35,400
Speaker 1: on investment bank in ninety eight. You fast forward it's

743
00:41:35,440 --> 00:41:38,200
Speaker 1: twenty twenty three, and how much of the landscape is

744
00:41:38,200 --> 00:41:42,360
Speaker 1: fundamentally changed? Not enough? Yeah, Look, I think there's certainly

745
00:41:42,680 --> 00:41:46,319
Speaker 1: a growing focus on the human capital side. Right, How

746
00:41:46,320 --> 00:41:49,920
Speaker 1: do you recruit you know, identify and recruit talent and

747
00:41:50,000 --> 00:41:52,960
Speaker 1: build that pipeline and build that funnel. Right, second question

748
00:41:53,000 --> 00:41:55,840
Speaker 1: is how do you then retain them? Certainly, you know,

749
00:41:55,840 --> 00:41:58,719
Speaker 1: I spent about eight years in McKinsey thinking about that

750
00:41:58,800 --> 00:42:01,880
Speaker 1: exact issue. Right again, I think it's a multi tiered

751
00:42:01,880 --> 00:42:04,640
Speaker 1: problem where the first is ensuring that you're the open

752
00:42:04,760 --> 00:42:07,480
Speaker 1: end of the funnel. Right, you're creative, you're thoughtful, you know,

753
00:42:07,680 --> 00:42:09,960
Speaker 1: ensuring you're not lowering a standard or lowering a bar,

754
00:42:10,280 --> 00:42:13,400
Speaker 1: but you're providing an equitable opportunity set for folks to

755
00:42:13,400 --> 00:42:16,399
Speaker 1: get into the funnel. And then look, it's corporate's responsibility

756
00:42:16,440 --> 00:42:19,960
Speaker 1: as they think about building a career path or again,

757
00:42:20,000 --> 00:42:22,560
Speaker 1: whether it's veteran, whether it's minority, whether it's gender, how

758
00:42:22,560 --> 00:42:25,120
Speaker 1: do you ensure that you give someone the right path

759
00:42:25,400 --> 00:42:28,560
Speaker 1: right meritocracy of idea where if they perform, there's a

760
00:42:28,600 --> 00:42:30,600
Speaker 1: path to them and succeeds. So that again, twenty years

761
00:42:30,640 --> 00:42:34,040
Speaker 1: from now, we're not talking about the same issue of potential.

762
00:42:34,239 --> 00:42:39,040
Speaker 1: You know, a disportionate small number participation at senior levels

763
00:42:39,040 --> 00:42:41,360
Speaker 1: of management. So you're confident twenty years from now that

764
00:42:41,400 --> 00:42:44,560
Speaker 1: analyst class is gonna rise and be just as equitable

765
00:42:44,560 --> 00:42:47,840
Speaker 1: as perhaps it is now. I am certainly hopeful. I

766
00:42:47,840 --> 00:42:49,960
Speaker 1: think I don't know about confident, but hopeful. I mean, look,

767
00:42:50,000 --> 00:42:53,200
Speaker 1: there is there is growing conversation. Right, Certainly, the talent

768
00:42:53,320 --> 00:42:56,920
Speaker 1: is out there. I mean, every academic study, every research study,

769
00:42:57,000 --> 00:42:59,640
Speaker 1: right shows the power of you know, whether it's investment

770
00:42:59,680 --> 00:43:03,120
Speaker 1: perform naments or skills or business performance. Right, the importance

771
00:43:03,160 --> 00:43:05,840
Speaker 1: of and the power of diversity, right, that is now

772
00:43:06,719 --> 00:43:08,640
Speaker 1: might have been a question thirty years ago. Now that's

773
00:43:08,640 --> 00:43:12,439
Speaker 1: a factual statement, right. And so you're seeing growing adoption. Now,

774
00:43:12,440 --> 00:43:14,080
Speaker 1: could you pick up the pace of adoption? Could you

775
00:43:14,080 --> 00:43:16,160
Speaker 1: pick up the pace of services? Without a doubt? So

776
00:43:16,320 --> 00:43:19,439
Speaker 1: I put myself in hopeful confident would be a little

777
00:43:19,480 --> 00:43:23,040
Speaker 1: bit strong. How about just the military? I don't I

778
00:43:23,080 --> 00:43:24,560
Speaker 1: guess when I think about the versity, I don't think

779
00:43:24,560 --> 00:43:27,320
Speaker 1: about the military so much the ranks. How about in

780
00:43:27,360 --> 00:43:31,120
Speaker 1: financial services? Where are military veterans, because boy, there's lots

781
00:43:31,120 --> 00:43:33,120
Speaker 1: of them over. I mean, we've been at a war

782
00:43:33,200 --> 00:43:37,160
Speaker 1: for a long time and ramp up in man manpower.

783
00:43:37,719 --> 00:43:40,840
Speaker 1: Where are they on Wall Street? Any sense? Look, certainly

784
00:43:40,880 --> 00:43:44,279
Speaker 1: I think you know it's passionate mining veteran transition, right,

785
00:43:44,320 --> 00:43:46,960
Speaker 1: you know, while at the Afghanistan war wound down, right,

786
00:43:47,000 --> 00:43:51,799
Speaker 1: still twenty thousand plus veterans transitioning a month, right, So

787
00:43:51,920 --> 00:43:55,319
Speaker 1: there is a massive opportunity set to capitalize on that.

788
00:43:55,800 --> 00:43:58,240
Speaker 1: You know, the leadership capability is the problems on capabilities,

789
00:43:58,239 --> 00:44:00,200
Speaker 1: I mean, that is one of our country's biggest I

790
00:44:00,280 --> 00:44:03,000
Speaker 1: believe untapped resources. I mean, specific to Wall Street, I

791
00:44:03,000 --> 00:44:07,440
Speaker 1: think you're certainly seeing at all levels of the entry

792
00:44:07,520 --> 00:44:10,960
Speaker 1: you know, the entry level pipeline, greater participation by the

793
00:44:11,040 --> 00:44:13,719
Speaker 1: veteran community in you know, at Wall Street, right on

794
00:44:13,760 --> 00:44:15,560
Speaker 1: the on the buy side, on the cell side, capital

795
00:44:15,600 --> 00:44:19,440
Speaker 1: market side, research side, right. I think certainly employers, the

796
00:44:19,480 --> 00:44:22,720
Speaker 1: industry as employers is recognizing the benefit and the value

797
00:44:22,800 --> 00:44:26,600
Speaker 1: of quote unquote the veteran community and is making active

798
00:44:26,600 --> 00:44:29,480
Speaker 1: outreach to bring them into the fold. And what is

799
00:44:29,480 --> 00:44:31,840
Speaker 1: the connective tissue there? How how are they kind of

800
00:44:31,840 --> 00:44:35,359
Speaker 1: funneled into this industry which is I think notably very

801
00:44:35,360 --> 00:44:38,719
Speaker 1: hard to break into. Um. Certainly there is what I

802
00:44:38,800 --> 00:44:40,759
Speaker 1: call the hand up. Right, the more veterans you have

803
00:44:40,840 --> 00:44:42,839
Speaker 1: into I think about how I got my first job,

804
00:44:42,880 --> 00:44:45,080
Speaker 1: and my second job and my third job, there was

805
00:44:45,080 --> 00:44:47,000
Speaker 1: a veteran on the other side of the equation that

806
00:44:47,080 --> 00:44:51,239
Speaker 1: was either explicitly pulling me in or implicitly behind the

807
00:44:51,239 --> 00:44:53,799
Speaker 1: scenes helping me guide the path. So I think there's

808
00:44:53,800 --> 00:44:58,239
Speaker 1: a natural kind of self fulfilling, self fulfilling mechanism. And

809
00:44:58,280 --> 00:45:00,759
Speaker 1: I also think, you know, you know, the organizations like

810
00:45:00,840 --> 00:45:03,920
Speaker 1: VOWS right, veterans on Wall Street right, where there's conscious

811
00:45:03,920 --> 00:45:06,799
Speaker 1: form of deliberate effort for quote unquote Wall Street and

812
00:45:06,840 --> 00:45:11,399
Speaker 1: decision makers to approach that community, build programs, onboarding platforms,

813
00:45:11,440 --> 00:45:15,160
Speaker 1: and the right training and resources required to better capitalize

814
00:45:15,200 --> 00:45:17,960
Speaker 1: on that audience. All right, Greig, thanks so much for

815
00:45:18,000 --> 00:45:20,279
Speaker 1: coming in and joining us. Really appreciated. Greg Parsons. He's

816
00:45:20,280 --> 00:45:24,600
Speaker 1: a chairman CEO of KABU Securities. What's that stand for again,

817
00:45:24,920 --> 00:45:27,719
Speaker 1: Ceiling and Visibility Unlimited boom. I like that. That's very cool.

818
00:45:27,760 --> 00:45:31,480
Speaker 1: He's a US Marine veteran. Street thank him very much

819
00:45:31,520 --> 00:45:34,160
Speaker 1: for his service on this day, the two years to

820
00:45:34,200 --> 00:45:36,880
Speaker 1: the day the US invasion of Iraq, so kind of

821
00:45:36,920 --> 00:45:40,440
Speaker 1: puts time kind of into perspective. Here, you're listening to

822
00:45:40,480 --> 00:45:44,160
Speaker 1: the tape Cancer Live program Bloomberg Markets weekdays at ten

823
00:45:44,239 --> 00:45:47,719
Speaker 1: am Eastern on Bloomberg Radio, Tune in a half, Bloomberg

824
00:45:47,760 --> 00:45:50,279
Speaker 1: dot Com and the Bloomberg Business Half. You can also

825
00:45:50,400 --> 00:45:53,960
Speaker 1: listen live on Amazon Alexa from our flagship New York station.

826
00:45:54,160 --> 00:45:59,839
Speaker 1: Just say Alexa play Bloomberg eleven thirty. I'm gonna get

827
00:46:00,080 --> 00:46:05,160
Speaker 1: to John Arthur's here, folks. We need some adult opinion perspective,

828
00:46:06,280 --> 00:46:08,800
Speaker 1: maybe a little bit of Cromodgeney stuff. I think we

829
00:46:09,040 --> 00:46:12,200
Speaker 1: established the lifetime John was in here. He John was

830
00:46:12,520 --> 00:46:16,919
Speaker 1: not cranky though, No, never cranky, Never cranky John Arthur's

831
00:46:16,960 --> 00:46:20,759
Speaker 1: He's a senior editor for a Bloomberg opinion. John, I

832
00:46:20,840 --> 00:46:24,600
Speaker 1: loved to get your opinion on this ubs credit Swiss.

833
00:46:24,800 --> 00:46:28,839
Speaker 1: I guess resolution here. What's your takeaway from what we learned?

834
00:46:29,239 --> 00:46:30,879
Speaker 1: To be honest? If she's so far, I'm a little

835
00:46:30,920 --> 00:46:35,600
Speaker 1: surprised that it seems to be being received quite as

836
00:46:35,680 --> 00:46:40,759
Speaker 1: calmly as it is. I'm not saying I expected continued

837
00:46:41,480 --> 00:46:44,279
Speaker 1: meltdown or repeat of what happened after Lehman or whatever,

838
00:46:44,400 --> 00:46:49,359
Speaker 1: but I am pleasantly surprised and actually almost a little

839
00:46:49,520 --> 00:46:53,080
Speaker 1: off put that the market reaction has been so calm. Thus,

840
00:46:53,200 --> 00:46:56,920
Speaker 1: bar you want to see chaos. It just makes me

841
00:46:57,040 --> 00:46:59,959
Speaker 1: think that not only I, but everyone in the market,

842
00:47:00,600 --> 00:47:02,960
Speaker 1: or a balance of people on the market is missing

843
00:47:03,040 --> 00:47:07,359
Speaker 1: something in just the same way that I had never

844
00:47:07,560 --> 00:47:11,800
Speaker 1: myself ever thought of Silicon Valley Bank as being something

845
00:47:11,880 --> 00:47:14,080
Speaker 1: that was going to cause you know that I was

846
00:47:14,680 --> 00:47:17,759
Speaker 1: ever going to need to write about, and I was wrong.

847
00:47:18,120 --> 00:47:22,440
Speaker 1: On Credit suite, it will be fascinating. The critical issue

848
00:47:22,520 --> 00:47:29,719
Speaker 1: I think is on whether the credit suite deal manages

849
00:47:29,840 --> 00:47:33,200
Speaker 1: to work at least to keep the sorry about it,

850
00:47:34,000 --> 00:47:37,560
Speaker 1: to keep contagion under under control for a few days.

851
00:47:37,760 --> 00:47:42,920
Speaker 1: Is what happens to eighty one additional Tier one bonds.

852
00:47:44,880 --> 00:47:47,880
Speaker 1: It was certainly a very contentious thing for the Swiss

853
00:47:47,920 --> 00:47:52,920
Speaker 1: authorities to wipe them out when it didn't wipe out stockholders. Yes, completely.

854
00:47:53,480 --> 00:47:57,520
Speaker 1: And now I've I've had one email so far from

855
00:47:57,560 --> 00:47:59,560
Speaker 1: people trying to start a class action on this. I'm

856
00:47:59,560 --> 00:48:05,640
Speaker 1: sure they'll anymore. My understanding is they probably won't win

857
00:48:05,880 --> 00:48:08,840
Speaker 1: because there you know that that was the language in

858
00:48:09,560 --> 00:48:12,759
Speaker 1: the original perspectuses. That was the point of introducing at

859
00:48:12,880 --> 00:48:17,760
Speaker 1: one as a new category to really make UM banks safer.

860
00:48:19,080 --> 00:48:23,000
Speaker 1: But from now on, why would you buy one as

861
00:48:23,040 --> 00:48:26,920
Speaker 1: opposed to you know, equity in a bank that might

862
00:48:27,000 --> 00:48:30,239
Speaker 1: actually give you a capital gain. It's that that could

863
00:48:30,280 --> 00:48:34,040
Speaker 1: be a real problem. Yeah, I'm just I think it's

864
00:48:34,080 --> 00:48:36,080
Speaker 1: for everybody else here is out here wondering too, and

865
00:48:36,200 --> 00:48:39,520
Speaker 1: especially the AT one bond holders, why the equity holders

866
00:48:39,760 --> 00:48:43,160
Speaker 1: are getting anything in this situation? Is there anything that

867
00:48:44,120 --> 00:48:48,120
Speaker 1: switch regulators the Central Bank have said to explain as

868
00:48:48,160 --> 00:48:51,719
Speaker 1: to why that may be? Not? That's I mean, I

869
00:48:52,440 --> 00:48:54,520
Speaker 1: it was quite difficult to follow the press conference last

870
00:48:54,560 --> 00:48:59,759
Speaker 1: night with a continuous sponsor continuous translation. No, not as

871
00:49:00,040 --> 00:49:04,000
Speaker 1: not that I can see. I think there is a

872
00:49:04,200 --> 00:49:07,920
Speaker 1: big element of internal Swiss politics going on here. That

873
00:49:08,719 --> 00:49:11,800
Speaker 1: you know, there's a lot of Swiss people who have

874
00:49:12,080 --> 00:49:14,799
Speaker 1: small amounts of shares in Credit Suite. It's an incredibly

875
00:49:15,080 --> 00:49:20,359
Speaker 1: both these banks are obviously hugely important corporate citizens of Switzerland,

876
00:49:20,640 --> 00:49:25,560
Speaker 1: and not wiping them out completely mattered. I think calling it,

877
00:49:26,000 --> 00:49:30,600
Speaker 1: in some sense a takeover rather than a rescue mattered.

878
00:49:30,680 --> 00:49:32,919
Speaker 1: Although if you're going to do that, presumably you could

879
00:49:32,960 --> 00:49:36,640
Speaker 1: have allowed, you know, allowed eighty one holders to at

880
00:49:36,719 --> 00:49:39,040
Speaker 1: least hold on to ten percent on the dollar or something.

881
00:49:40,239 --> 00:49:43,399
Speaker 1: So I but that you know that there certainly are

882
00:49:43,960 --> 00:49:49,440
Speaker 1: soft political issues within Switzerland which would make them you know,

883
00:49:49,800 --> 00:49:55,000
Speaker 1: very nervous, very very reluctant to admit that that Credit

884
00:49:55,040 --> 00:49:58,560
Speaker 1: Suite had become worth nothing at all. But that's my

885
00:49:58,640 --> 00:50:02,239
Speaker 1: best guess. I can't see a really good reason from

886
00:50:02,840 --> 00:50:04,719
Speaker 1: any of the normal things that we would look at

887
00:50:05,000 --> 00:50:08,600
Speaker 1: about financial stability and so on, Why why you would

888
00:50:08,600 --> 00:50:10,439
Speaker 1: do it? So? So, where do you think we are, John,

889
00:50:10,480 --> 00:50:14,479
Speaker 1: in terms of broad pan European banking. Has this deal

890
00:50:15,280 --> 00:50:17,479
Speaker 1: kind of calmed the nerves or do you think there's

891
00:50:17,480 --> 00:50:21,000
Speaker 1: still this underlying at the very least a crisis and

892
00:50:21,120 --> 00:50:28,160
Speaker 1: confidence and maybe in some of these banks both. I mean, certainly, yeah,

893
00:50:28,600 --> 00:50:32,120
Speaker 1: it's only one day. The market was up of the

894
00:50:32,200 --> 00:50:37,560
Speaker 1: week after Lehman incredibly yea, So let's not build too

895
00:50:37,640 --> 00:50:41,560
Speaker 1: much on that. But certainly, so far it has bolstered

896
00:50:41,760 --> 00:50:45,360
Speaker 1: confidence to some extent. We're not in, what you know,

897
00:50:45,480 --> 00:50:50,160
Speaker 1: in a free falling condition at this moment. Longer term,

898
00:50:50,480 --> 00:50:55,560
Speaker 1: if credit Squeez can get sold for three billion dollars

899
00:50:55,680 --> 00:50:59,040
Speaker 1: when it used to be a more than a hundred yeah, yeah, right, exactly,

900
00:51:00,160 --> 00:51:03,800
Speaker 1: that's really not good. And if eighty one bondhold is

901
00:51:04,040 --> 00:51:06,600
Speaker 1: in one of the biggest, most secure banks on the

902
00:51:06,680 --> 00:51:10,359
Speaker 1: planet can get wiped out completely, I don't see how

903
00:51:10,400 --> 00:51:14,640
Speaker 1: it cannot affect confidence. I would worry if it didn't

904
00:51:14,920 --> 00:51:20,200
Speaker 1: affect confidence and to the extent that tightening money monetary

905
00:51:20,239 --> 00:51:25,320
Speaker 1: policy is supposed to tighten general financial conditions and limit inflation,

906
00:51:25,440 --> 00:51:29,080
Speaker 1: it should dent confidence, it should make people more nervous.

907
00:51:29,480 --> 00:51:32,120
Speaker 1: And since this is like a real hole, as you're saying,

908
00:51:32,160 --> 00:51:34,840
Speaker 1: crisis of confidence, want to bring in the regional banks

909
00:51:34,880 --> 00:51:37,160
Speaker 1: here in the US, since a lot of that storyline

910
00:51:37,239 --> 00:51:40,120
Speaker 1: is similar. Yes, and we're just seeing a headline crossing

911
00:51:40,239 --> 00:51:43,280
Speaker 1: the terminal here from Wall Street Journal that Jamie Diamond

912
00:51:43,360 --> 00:51:46,280
Speaker 1: is leading the efforts to craft a new First Republic

913
00:51:46,480 --> 00:51:50,640
Speaker 1: rescue plan. Yes. What I'm wondering is we've seen so

914
00:51:50,840 --> 00:51:54,239
Speaker 1: many of these rescue efforts in the past couple of

915
00:51:54,360 --> 00:51:57,120
Speaker 1: days week now as it relates to First Republic, as

916
00:51:57,160 --> 00:52:00,680
Speaker 1: it relates to crowded squeeze, So are the measures just

917
00:52:00,960 --> 00:52:04,520
Speaker 1: not enough or fragile? Or sentiment and carbonace right now

918
00:52:04,560 --> 00:52:08,200
Speaker 1: it's Joseph fragile. I think in the case of First Republic,

919
00:52:09,320 --> 00:52:12,239
Speaker 1: it has gone so far that somebody has to buy it.

920
00:52:15,000 --> 00:52:21,279
Speaker 1: If Jamie Diamond, who who is seriously good at these things,

921
00:52:21,800 --> 00:52:24,759
Speaker 1: has let the Journal get hold of that story and

922
00:52:24,840 --> 00:52:27,800
Speaker 1: run it, we can assume it has a big element

923
00:52:27,880 --> 00:52:30,600
Speaker 1: of truth to it. And now that it's out there,

924
00:52:31,000 --> 00:52:33,960
Speaker 1: you begin to get this analogy to This is what

925
00:52:34,040 --> 00:52:37,600
Speaker 1: I wrote in my column yesterday, that Jamie Diamond is

926
00:52:37,680 --> 00:52:40,759
Speaker 1: uncomfortably close now in the role he plays to the

927
00:52:40,880 --> 00:52:44,439
Speaker 1: original JP Morgan. Yes, in the Panic of nineteen oh seven,

928
00:52:44,560 --> 00:52:47,759
Speaker 1: when there wasn't a FED and basically the reason the

929
00:52:47,960 --> 00:52:51,760
Speaker 1: entire financial system didn't collapse completely was because he JP Morgan,

930
00:52:52,120 --> 00:52:55,000
Speaker 1: by far the most powerful banker on the planets at

931
00:52:55,040 --> 00:53:00,160
Speaker 1: that point, banged heads together. If Jamie Diamond looks at

932
00:53:00,200 --> 00:53:02,960
Speaker 1: a deal and this science he's okay with it, then

933
00:53:03,640 --> 00:53:07,360
Speaker 1: his cachet, the money JP Morgan the bank has and

934
00:53:07,560 --> 00:53:11,040
Speaker 1: the fact that he actually did pretty well out of

935
00:53:11,080 --> 00:53:14,839
Speaker 1: buying wamu's branch network and bear Stearns in A eight

936
00:53:14,960 --> 00:53:18,200
Speaker 1: he actually was glad he'd come to the rescue, unlike,

937
00:53:18,239 --> 00:53:24,760
Speaker 1: for example, Lloyd's back home in England, which suffered in hindsight,

938
00:53:24,880 --> 00:53:27,399
Speaker 1: says well, I wish I didn't have to do oh,

939
00:53:27,640 --> 00:53:30,440
Speaker 1: you know bear Sterns or what WOMU I think he

940
00:53:30,520 --> 00:53:34,560
Speaker 1: has to say that, doesn't it? Okay? I mean, I

941
00:53:34,640 --> 00:53:39,680
Speaker 1: mean Jake Jamie's Yeah, he's not necessarily always that guarded

942
00:53:39,840 --> 00:53:43,320
Speaker 1: in what he says. Shall we say even on the

943
00:53:43,400 --> 00:53:46,160
Speaker 1: record and even more off. But I think he has

944
00:53:46,200 --> 00:53:48,279
Speaker 1: to say that I'm kind of surprised, just based upon

945
00:53:48,320 --> 00:53:51,160
Speaker 1: our experience John, Yes, from two thousand and eight, that

946
00:53:51,400 --> 00:53:53,000
Speaker 1: we didn't wake up on a Monday morning and this

947
00:53:53,160 --> 00:53:55,160
Speaker 1: was all done in a night. Little nice little bow,

948
00:53:55,280 --> 00:53:58,680
Speaker 1: somebody bought farc, somebody bought Silicon Valley Bank. Were those

949
00:53:58,719 --> 00:54:01,320
Speaker 1: deals that we had back into, doesn't it? Well? What

950
00:54:01,520 --> 00:54:06,520
Speaker 1: surprised me was how little newsflow there was about First

951
00:54:06,560 --> 00:54:09,640
Speaker 1: Republic over the weekend, right. I thought that needed to

952
00:54:09,680 --> 00:54:11,759
Speaker 1: be cleared up over the weekend to some extent. Again,

953
00:54:11,840 --> 00:54:16,040
Speaker 1: the fact that we don't have real, you know, Monday

954
00:54:16,080 --> 00:54:19,480
Speaker 1: after Lehman's style panic going on in the market, even

955
00:54:19,600 --> 00:54:24,840
Speaker 1: though First Republic hasn't been resolved, is quite positive. But

956
00:54:25,040 --> 00:54:30,279
Speaker 1: you do, I guess there's a lot of things going on,

957
00:54:30,760 --> 00:54:38,319
Speaker 1: and yes, I guess, gosh, no wonder you're a senior columnist. Ye,

958
00:54:38,719 --> 00:54:43,000
Speaker 1: so um um. When it comes to First Republic, I

959
00:54:43,560 --> 00:54:48,160
Speaker 1: don't see at this point how it can how it

960
00:54:48,239 --> 00:54:51,400
Speaker 1: can write itself. The fact that money continued to go

961
00:54:51,560 --> 00:54:54,000
Speaker 1: out of it after all the other banks have put

962
00:54:54,120 --> 00:55:00,600
Speaker 1: so much money on deposit is very damning. It really

963
00:55:00,719 --> 00:55:04,040
Speaker 1: ought to be a bank that it's perfectly profitable to rescue.

964
00:55:04,360 --> 00:55:07,040
Speaker 1: It doesn't appear to be anything insolvent about it. It's

965
00:55:07,560 --> 00:55:10,560
Speaker 1: it's got an unfortunate business mix, and it's got too

966
00:55:10,600 --> 00:55:13,600
Speaker 1: many muni bonds on its balance sheet. But neither of

967
00:55:13,640 --> 00:55:15,319
Speaker 1: those things are a problem if you if you've got

968
00:55:15,400 --> 00:55:19,560
Speaker 1: JP Morgan's banatch sheets exactly, I guess aside from those

969
00:55:19,560 --> 00:55:21,640
Speaker 1: a handful of West Coast banks do you feel like

970
00:55:21,800 --> 00:55:24,680
Speaker 1: within the regional banking space in general in this country, John,

971
00:55:24,680 --> 00:55:29,640
Speaker 1: there's a crisis of confidence of boy, you know, because

972
00:55:29,680 --> 00:55:33,279
Speaker 1: we're seeing deposits move around quite actively. Well, I mean,

973
00:55:33,920 --> 00:55:38,240
Speaker 1: that's the great concern, isn't it that? And this wasn't

974
00:55:38,360 --> 00:55:41,040
Speaker 1: really the case, at least at the consumer level in

975
00:55:41,160 --> 00:55:45,840
Speaker 1: O eight. There never was a significant bank run in

976
00:55:45,960 --> 00:55:49,719
Speaker 1: O eight, something approaching at in Wamu, but no real

977
00:55:50,040 --> 00:55:52,920
Speaker 1: none of the major events of OH eight happened because

978
00:55:52,960 --> 00:55:57,040
Speaker 1: of deposit runs. And that's basically what has driven things

979
00:55:57,560 --> 00:56:00,759
Speaker 1: this time around. And thanks both to the development of

980
00:56:00,840 --> 00:56:03,960
Speaker 1: social media since then and the development of internet banking

981
00:56:04,040 --> 00:56:07,279
Speaker 1: since then, both of which just about existed but had

982
00:56:07,440 --> 00:56:10,359
Speaker 1: nothing like the power they do now, that is much

983
00:56:10,440 --> 00:56:14,320
Speaker 1: more of a concern. The other thing that does bother me.

984
00:56:16,160 --> 00:56:19,920
Speaker 1: I covered regional banks back in the nineties, some of

985
00:56:20,000 --> 00:56:26,360
Speaker 1: the very best banks which basically had fantastic franchises. The

986
00:56:26,480 --> 00:56:29,359
Speaker 1: bottom has fallen out of them, the wonderfully named Fifth

987
00:56:29,560 --> 00:56:33,200
Speaker 1: Third in Cincinnati being which at one point traded for

988
00:56:33,320 --> 00:56:36,840
Speaker 1: five times book value. Everything it touched turns to gold.

989
00:56:37,880 --> 00:56:42,759
Speaker 1: Just wonderfully frugal, good bankers that no longer seems to

990
00:56:42,800 --> 00:56:44,719
Speaker 1: be a model anybody wants to touch. And that's a

991
00:56:44,840 --> 00:56:47,560
Speaker 1: lot of name. All right, John, We always appreciate getting

992
00:56:47,880 --> 00:56:52,480
Speaker 1: your learned perspective there. John Arthur's senior editor for Bloomberg Opinion.

993
00:56:52,520 --> 00:56:54,400
Speaker 1: And again, these banks I continue to be front and

994
00:56:54,480 --> 00:56:58,120
Speaker 1: center for investors as well as we're going to learn

995
00:56:58,120 --> 00:57:00,600
Speaker 1: into the Federal Reserve coming up because they're they're gonna

996
00:57:00,600 --> 00:57:04,680
Speaker 1: meet on Wednesday. How about that? This is Bloomberg. Thanks

997
00:57:04,719 --> 00:57:08,120
Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe

998
00:57:08,160 --> 00:57:11,880
Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast

999
00:57:11,960 --> 00:57:15,440
Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at

1000
00:57:15,560 --> 00:57:18,760
Speaker 1: Matt Miller nineteen seventy three, and I'm fall Sweeney. I'm

1001
00:57:18,800 --> 00:57:21,400
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can

1002
00:57:21,440 --> 00:57:23,680
Speaker 1: always catch us worldwide at Bloomberg Radio.