Speaker 1: This is Bloomberg business Week inside from the reporters and
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Speaker 1: Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio.
Speaker 1: It's been another day. Check full of headlines from the
Speaker 1: banking sector, credit suite shut yelling up on Capitol Hill.
Speaker 1: And then you've got you know that the nation's biggest
Speaker 1: banks here, certainly here in the United States, look to
Speaker 1: be close to a plan to deposit about thirty billion
Speaker 1: with First Republic Bank, which has been certainly under a
Speaker 1: lot of pressure. So let's get an update. Where are
Speaker 1: we with us right now? Is Herman Chan He's senior
Speaker 1: Alice for US regional banks with our Bloomberg Intelligence team
Speaker 1: here in our Bloomberg Interactive Broker studio along with Shinali Bossi,
Speaker 1: Bloomberg News Wall Street reporter, who I'm convinced because every
Speaker 1: time I listen to Bloomberg Radio or Blueberg TV, she's there.
Speaker 1: So she's not getting any sleep. I'm sure Herman isn't either. Shinali,
Speaker 1: let's start with because I do feel like the headlines
Speaker 1: just kind of continue to come out. So where are
Speaker 1: we credit suis First Republic? What do we need to know?
Speaker 1: Let's talk about First Republic first, because we are expecting
Speaker 1: this afternoon an announcement and it's in coordination with the
Speaker 1: big banks. We understand that these large banks have really
Speaker 1: brought forth this idea where each of them deposit. The
Speaker 1: biggest ones will depositif five billion dollars each, the smaller
Speaker 1: ones will do less than that. It will be a
Speaker 1: package of nearly a dozen banks. And so it is
Speaker 1: a significant effort from the banking community to put money
Speaker 1: into First Republic, really stave off concerns in the banking system,
Speaker 1: and you are seeing First Republic stock at least upon
Speaker 1: the initial news reports about this. Remember all of this
Speaker 1: is still source material according to people familiar with the matter.
Speaker 1: No official announcement has been made. There's another interesting thing
Speaker 1: about the structure of this deal that if you're a
Speaker 1: stock or bond holder, you would like and it's that
Speaker 1: by infusing this banquet deposits, you're not necessarily eroding the
Speaker 1: equity or debt. And so it's a way to kind
Speaker 1: of find a solution that is approved by the government
Speaker 1: that falls short of a Sale're right, certainly better than
Speaker 1: trying to do an equity offering in this environment, I think,
Speaker 1: which is sort of what undid SVB. But you know, Shelly,
Speaker 1: I look at the KRX, the Regional Bank Index, and
Speaker 1: I see Pac West Bank WRP down fifty two percent
Speaker 1: year to date, Bank of Hawaii down thirty two percent,
Speaker 1: of more than ten bank stocks in that index down
Speaker 1: twenty some percent this year. Is this going to be
Speaker 1: a rolling crisis? Do you think where they just go
Speaker 1: from bank to bank to bank that are looking the
Speaker 1: weakest in the market. Well, we should probably ask Kerman, right, Well, yeah,
Speaker 1: especially because me and him were researching the parallels between
Speaker 1: the F and L crisis, which is what everybody has
Speaker 1: been bringing up. Fewer banks failed, but larger banks are failing.
Speaker 1: Larger banks are failing. Signature and s maybe we're larger
Speaker 1: banks that failed. What I would say is that you
Speaker 1: mentioned Pac West, there's others like Western Alliance that are
Speaker 1: sort of caught up in this vortex. I would say
Speaker 1: that the size of action and the unitsa yesterday or
Speaker 1: somebody came out and said Western Alliance was their top pick,
Speaker 1: right exactly. So, the unique partnership with the government and
Speaker 1: the private banks is essentially putting a line in the
Speaker 1: sand and saying that SVB happened, signature happens. We're going
Speaker 1: to try to prop up First Republic, putting our own
Speaker 1: money at stake into the depository institution so the rest
Speaker 1: of the depositors at FRC First Republic can sleep well
Speaker 1: the night. How does this happen? Notionally, because what happens
Speaker 1: if there's another one? Do the does the private banking
Speaker 1: industry come in and help out? Like you know, like
Speaker 1: I was just surprit you could ask the same thing
Speaker 1: of what happened Sunday night with the FDIC backstop. You're
Speaker 1: hearing today Treasury Secretary yelling kind of telling you that
Speaker 1: if it's a systemically important bank, your deposits are safe.
Speaker 1: I'm really curious about herman things of that as well,
Speaker 1: because you know, anybody who was watching in the market
Speaker 1: and the reason there are so fears under the market,
Speaker 1: there's at no point that the government said we are
Speaker 1: going to save the depositors of every bank. Should we
Speaker 1: have a rolling issue here? And by the way, it's
Speaker 1: funny because I'm answering an email from one of our clients.
Speaker 1: They're like, why First Republic and not all the others
Speaker 1: when you're looking at this deposit infusion. Even probably was
Speaker 1: asking that and a great financial crisis as well, are right,
Speaker 1: it's a great question because First Republic, remember, this is
Speaker 1: something that was a very healthy acquisition target for a while.
Speaker 1: But it's not easy for a large bank to buy
Speaker 1: another bank. There are limits, deposit caps, there's all sorts
Speaker 1: of other issues when they're buying a bank, and basically
Speaker 1: they just kind of want security from the government that
Speaker 1: if they were to buy something it would be okay.
Speaker 1: But right now, this is not a bank that is
Speaker 1: easy to buy by any fashion. And I would say
Speaker 1: to that effect with First Republic, it's not a bank
Speaker 1: that ran into issues when rates were low and then
Speaker 1: subsequently are high. Now you compare that with SVB, and
Speaker 1: they had a very large fifteen billion dollar lost position
Speaker 1: in their security's portfolio and for signature, they were very
Speaker 1: much involved with the crypto business, So two very important
Speaker 1: issues that FRC First Republic just doesn't have. That's what
Speaker 1: I was asking, what's the connective tissue? But it's different cases,
Speaker 1: and we kind of keep pointing like credit suits different
Speaker 1: from SVB, right, different from signature, So I don't know
Speaker 1: how to warm commonalities. I think one, I mean, the
Speaker 1: one of them being that a lot of smaller firms
Speaker 1: were always going to be under stress, given you know,
Speaker 1: their bond portfolios, given the deposited issues they had. I mean,
Speaker 1: we knew this is going to be a problem. We
Speaker 1: knew this from months. We didn't know that it was
Speaker 1: going to beat this much of a problem. And the
Speaker 1: deposit or flighted Silicon Valley, they had a much more
Speaker 1: to the concentrated depositor base. First Republica has a wealthier
Speaker 1: clients by and large. They also have a very attractive
Speaker 1: loan book to a lot of banks as well, so
Speaker 1: again they're they're fine ish, Yeah right, You're still getting
Speaker 1: a thirty billion dollar deposit infusion, so it's a difficult situation.
Speaker 1: Another question I have for you is, you know, to
Speaker 1: mckey's sorry, to um Mike's point here, Sorry McKey and
Speaker 1: I've been only we all look alike customer. No, no, no,
Speaker 1: he's just in my mind because he's a central bank
Speaker 1: to my banks. But you know what about pack West
Speaker 1: and Western Alliance, I think it's just more of an
Speaker 1: implicit vote of confidence for the overall industry if the
Speaker 1: government and the private publicly traded banks will come together
Speaker 1: to save one of their institutions. And I would also
Speaker 1: like contrast with what happened with SBB and the VC community,
Speaker 1: where where they abandoned their own personal bank, whereas these
Speaker 1: the peers of First Republic are banning together to save them.
Speaker 1: So it's an interesting contrast. But with pressure, can we
Speaker 1: assume there was pressure from regulators? I think that's as
Speaker 1: safe as you know. It's an interesting thing because from
Speaker 1: what we understand, it wasn't just the regulators that are
Speaker 1: wanting this for First Republic, it's the banks as well.
Speaker 1: Remember First Republic. Usually what you're seeing when you look
Speaker 1: at these institutions they try to hire boutiques or kind
Speaker 1: of independent bank Silicon Valley Bank and hire its centerview
Speaker 1: for example. But for a while First Republic have been
Speaker 1: working with JP Morgan. Okay, and after that Signature Bank,
Speaker 1: you know, an announcement we had on Sunday after they
Speaker 1: were taken over by regulators, they said they secured additional
Speaker 1: liquidity from the Fed and from JP Morgan. So the
Speaker 1: fates to the tied to First Republic for the biggest
Speaker 1: banks are a little larger now. Silicon Valley Bank is
Speaker 1: another good example, because it's trying to go through this
Speaker 1: process where they're selling assets and they're hitting so many snags,
Speaker 1: and so it was more marginalized to them. This man,
Speaker 1: we know where this ends. Yeah, it's really hard to
Speaker 1: say at this point. Yeah, there could be some more
Speaker 1: twist concerns. But I think today's action really should be
Speaker 1: seen as a photoconfidence. But but Herman, you know what
Speaker 1: I wonder is this crisis is so unique because typically
Speaker 1: a banking crisis is triggered by poor quality credit yea,
Speaker 1: whether it's mortgage delinquencies, whatever on the credit side. I
Speaker 1: wonder if that shoe perhaps is yet to drop for
Speaker 1: the banking sector. You know, is there the chance with
Speaker 1: these this blistering campaign to raise hikes that in a
Speaker 1: few weeks, months, however long, we're going to start hearing
Speaker 1: about credit issues and have another sort of round of
Speaker 1: hair pulling over the banks. Well, we just heard about
Speaker 1: Richard Clareno's comments earlier about a hard landing. I think
Speaker 1: what you've seen over the past week or so is
Speaker 1: that the regional banks are going to contract lending because
Speaker 1: they are really concerned about their deposits, with deposits exiting
Speaker 1: their balance sheets, so they don't have sort of like
Speaker 1: the dry powder to lend, because you're, in essence your
Speaker 1: deposits fuels future lending, and if those deposits are leaving,
Speaker 1: then the lending capacity is diminished and that could hurt
Speaker 1: the overall economy. All right, we need to talk about
Speaker 1: Credit sueee. You know what we need to know about that,
Speaker 1: which has been We've talked about this already. They've had
Speaker 1: problems for a while and they've been trying to kind
Speaker 1: of write the ship, if you will. I think one
Speaker 1: positive sign from Credit Suez is what remember yesterday was
Speaker 1: a lot of panic. But even within the panic, I
Speaker 1: was kind of trying to take a couple of meetings
Speaker 1: out of the office to go into different offices to
Speaker 1: see how folks are feeling. And what they were saying is, listen,
Speaker 1: Credit Suite has been in problems for a long time.
Speaker 1: Many people have reduced risk for a very long time
Speaker 1: as far as counterparty risk and other kind of you know,
Speaker 1: lending arrangements and whatnot. But the general sense was, listen,
Speaker 1: it's still a globally systemic financial institution. The Swiss government
Speaker 1: stepped up at the end of the day. The problem
Speaker 1: if it's Ciffy were to fail, the problem for Wall Street,
Speaker 1: it's investors everybody else. Fewer options are not a good thing.
Speaker 1: When it comes to the banking system. We've learned you
Speaker 1: have to diversify where you keep your money. That is
Speaker 1: certainly true for large institutions. Corporations have learned it the
Speaker 1: hard way. What's the Wilicon Valley Bank? And you know,
Speaker 1: even for an individual depositors, diversifying is how the system works,
Speaker 1: all right, real quickly five seconds each you what are
Speaker 1: you keeping on your radar right now? Deposits It's the
Speaker 1: name of the game. Anything else hitting into a problem.
Speaker 1: I mean, honest way, every day is like you wake up,
Speaker 1: you never know. Listen, look at the market moves every
Speaker 1: single day. I know different day to day. One day
Speaker 1: is bad. It's tough out there, yeah, which is I
Speaker 1: think very telling in its own right, which means it's
Speaker 1: a little bit trickier. I think for Fined Reserve chair
Speaker 1: Jay Powell when they meet next week, UM, thank you,
Speaker 1: thank you. This is how we like to do a
Speaker 1: set up. Herman Chan, senior analysts for US regional banks,
Speaker 1: with our Bloomberg Intelligence Team and the Woman who Never sleeps.
Speaker 1: Shineli bask Our, Bloomberg News Wall Street Reporter. I want
Speaker 1: what she's happening. How do you keep sleeping? Just two
Speaker 1: cups of coffee today? I'm sure there's more, all right,
Speaker 1: Carol Master, Mike Reagan, you are listening and watching Bloomberg Radio.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live week afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot com, the ihond Radio app, and the Bloomberg
Speaker 1: Business App, or watch us live on YouTube. We want
Speaker 1: to get to another name that was rolling in today's session,
Speaker 1: following their Ladies poorly update earlier this morning. We're talking
Speaker 1: about lands And which is a great check in terms
Speaker 1: of what's going on in retail and the consumer. The
Speaker 1: company's first Quarternet revenue forecast beating estimates, helping to sound
Speaker 1: the small cap stock rolling around eighteen percent today. So
Speaker 1: let's get to it. We have the company's CEO, Andrew McClean.
Speaker 1: He is with us on zoom in Wisconsin. Andrew, nice
Speaker 1: to have you back with us here on Bloomberg Lot
Speaker 1: going on, Sorry, just trying to keep up here. How
Speaker 1: do you feel about the environment right now? You know,
Speaker 1: I feel pretty good about the environment. We look at
Speaker 1: our customer like in some detail. We got seven million
Speaker 1: of them, so we got a lot of data to
Speaker 1: work with. We're seeing that they're they're relatively robust right now.
Speaker 1: They're sort of weathering inflation, they're weathering the political environment,
Speaker 1: they're weathering the banking issues that we're seeing over the
Speaker 1: last week or so. So no particular cracks yet and
Speaker 1: a little bit of momentum of anything. Well, Andrew, let's
Speaker 1: get into that idea of the inflation. What are you
Speaker 1: seeing in your sort of supply chain. Is there any
Speaker 1: hope that this inflation, especially that cost input that you're
Speaker 1: dealing with, Is there any hope there that we've seen
Speaker 1: the worst of it, or or what what are we
Speaker 1: looking at? I mean, I certainly hope. So, I mean,
Speaker 1: you know, we've definitely we've definitely seen transportation costs become
Speaker 1: more favorable to us than they were last year, and
Speaker 1: hopefully we'll pick that up as a as a tailwind
Speaker 1: for us this year. Um. Some of the prices of
Speaker 1: fabrics have moderated as well, and we're working with our
Speaker 1: factories closely to make sure that you know, we see
Speaker 1: those costs passed on. But you know, we're chipping away
Speaker 1: at it every day. I think everyone's trying to hang
Speaker 1: on so that the extra dollars that they made during
Speaker 1: the pandemic, and you just have to fight your corner.
Speaker 1: Is it easier to be a CEO today versus where
Speaker 1: it was twelve months ago? I think so. I think
Speaker 1: it was more looking at uncertainty twelve months ago. I
Speaker 1: actually felt, and I said this one of the conferences
Speaker 1: earlier this year, I felt that retail went through its
Speaker 1: recession sort of like Q three early Q four. I
Speaker 1: think the sector was in recession. Whether the country was
Speaker 1: or not, it's up for debate, but I'm hoping, I'm
Speaker 1: touching wood here that the worst is the worst is pastors,
Speaker 1: and we can look forward to set ourselves out for
Speaker 1: a decent year. Having said that, you know, we talk
Speaker 1: about customers trading down or looking for bargains. Are you
Speaker 1: seeing any signs of kind of some of the patterns
Speaker 1: in terms of how customers and consumers are shopping. That
Speaker 1: tells you a little bit more about the economic outlook.
Speaker 1: I have an eighteen year life on my customers. I mean,
Speaker 1: they come to us and they stay forever, and so
Speaker 1: we get a good read on them through various life stages. Um,
Speaker 1: you know what we're starting to see if anything is well.
Speaker 1: Actually it's a continuation of a theme. We're leaning in
Speaker 1: more and more to leisure and vacation. Um. You know,
Speaker 1: I've talked a lot today on various calls about Swim
Speaker 1: and you know, we've continued to power ourselves from late
Speaker 1: December through to mid March off the back of Swim
Speaker 1: and really building out the vacation outfit for our customer.
Speaker 1: And I can tell you she's really embracing them. And
Speaker 1: you know, we see that number of cohorts, We sell
Speaker 1: a lot of school uniforms, and we make connections, We
Speaker 1: make connections with with millennial late millennial moms and they're
Speaker 1: buying our swim. You know, she's thinking very much about
Speaker 1: vacation this year. Yeah, Andrew, what is how are you
Speaker 1: thinking about sort of the sales channels these days? Is
Speaker 1: the retail physical stores are they back? Is that is
Speaker 1: that the focus going forward? Or do you still have
Speaker 1: sort of the online hangover from the pandemic. I think
Speaker 1: there's a place for our physical stores in any retailer
Speaker 1: at work for a lot of retailers that had physical stores.
Speaker 1: For Land's end, we have a different physical manifestation of
Speaker 1: our brand and it's through a catalog. We only have
Speaker 1: thirty stores. It's you know, we reported the relatively small
Speaker 1: revenue for us in the scheme of how we approach
Speaker 1: the world. For us, it's about our digital ecosystem. And
Speaker 1: you know we have a we have two businesses, a
Speaker 1: B to B business and a B two C business
Speaker 1: in the digital world. And they're both scaled, scalable and profitable.
Speaker 1: And you know that that's where we're that's what we're
Speaker 1: leaning into and the physical manifestation of the brand that
Speaker 1: supports them kindly gives us that Midden upper funnel marketing
Speaker 1: is really our catalog. Yeah, I think when you've been
Speaker 1: on in the past, I've definitely bought a school unif
Speaker 1: form from you in the past. Remind our audience though,
Speaker 1: and forgive me for not remembering, but your B to
Speaker 1: B or your you know, the school uniforms and the
Speaker 1: uniforms that you provide for hospitality and leisure. That is
Speaker 1: how much of your business, So that out there's business
Speaker 1: which comprises three things. Is the sort of those the
Speaker 1: very large customers, you know, like in American airlines, there's
Speaker 1: small medium businesses in their um you know, autoparts companies,
Speaker 1: hotel chains, and then then we're into school uniforms. And
Speaker 1: then those three businesses together comprised sixteen seventeen percent of
Speaker 1: our total revenue base. Andrew, how is this high interest
Speaker 1: rate environment in affecting you? I mean, I assume it
Speaker 1: must be a headwind to some degree. Is it is
Speaker 1: a huge challenge? Are you able to refinance in this environment?
Speaker 1: I assume that, Uh, you know, we talked about it
Speaker 1: on the call this morning. It's like you definitely saw
Speaker 1: our interest charges tacking up. That was partly driven by
Speaker 1: the inventory receipts that we had last year. It was
Speaker 1: also driven by rising interest rates. And you know, we
Speaker 1: found ourselves in a situation where we had to place
Speaker 1: debt in the pandemic and then had a two year
Speaker 1: no call on it, which left us shut out by
Speaker 1: the time we got around to trying to get back
Speaker 1: into the markets again. And we're going to come back
Speaker 1: to the markets as soon as they open up. And
Speaker 1: it's that debt, and that's that's one of our priorities
Speaker 1: for us, But there's things we're doing to mitigate that.
Speaker 1: You know, we're landing our inventory much more differently. You know,
Speaker 1: we're not holding as much of it. We're going to increaseable,
Speaker 1: we are increasing the turns in our business, and the
Speaker 1: reality is will chip away at that side of it
Speaker 1: as well. I think the question would be is how's
Speaker 1: the consumer doing with it? And it's like, you know,
Speaker 1: she's taken it in our stride. What does that mean?
Speaker 1: What does an inner stride mean? Well, you know, it's
Speaker 1: just like she's I think she's probably finding ways to
Speaker 1: cut corners, but there are certain go tos that she wants.
Speaker 1: So if I look at my business, my best stats,
Speaker 1: or I've got a handful of best stats, and you
Speaker 1: know one of those is swim, one of those is
Speaker 1: out to where one of those is the fit of
Speaker 1: the fit of our product, particularly the bottoms, and we
Speaker 1: see her leaning into those categories in night. She's she's
Speaker 1: still very much inclined to take those on the if
Speaker 1: I if I compare that with my business in Europe,
Speaker 1: it's been a little tougher with the business in Europe
Speaker 1: because you know, once once we got into the war
Speaker 1: with Ukraine. In Europe, we sort of business really sort
Speaker 1: of way back down, and when we felt that, we
Speaker 1: felt that resistance. But most of the last year, Yeah, Andrew,
Speaker 1: I wonder what sort of keeps you up at night.
Speaker 1: As as the biggest risk, I mean, my guess is, um,
Speaker 1: this labor market has proven to be so strong, the
Speaker 1: consumers still remains strong. Is that the main risk? Do
Speaker 1: you think? Just um, a creepier in the in the
Speaker 1: unemployment rate and sort of less confidence among consumers. Is
Speaker 1: that a risk this year? Yes? It is. I mean,
Speaker 1: you know, but I have this amazing trove of data.
Speaker 1: Tropes are funny word, but I've been using that a
Speaker 1: lot to day. I have this, I have this trove
Speaker 1: of data, and that's like I'm looking at my customer.
Speaker 1: You know, there's definitely a customer in there who is
Speaker 1: feeling is feeling the interest rates. But you know, again
Speaker 1: she's switching as I talked about two product categories that
Speaker 1: really work for her, and I can I can see
Speaker 1: the energy through the through the first Quarterman, I passed
Speaker 1: the midpoint of the first quarter, so I can see
Speaker 1: the energy of where she's at in the first quarter.
Speaker 1: That'll carry through to the second quarter, but you know,
Speaker 1: some sort of system shot to that, and you know
Speaker 1: it's harder to see for the back half of the year. Hey,
Speaker 1: one last question, Andrew, if I'm in We've just got
Speaker 1: about thirty seconds. I mean, in an environment where we
Speaker 1: are so focused on what's going on in the banking
Speaker 1: community right now and we've seen it create some stress,
Speaker 1: certainly in financial markets, how do you factor that in
Speaker 1: at all in terms of your job? And again, just
Speaker 1: got about twenty seconds. I'm just going to make sure
Speaker 1: that it's like we're appropriately financed, we have access to
Speaker 1: the capitol we need, and then I'm going to I'm
Speaker 1: going to just tell you the customers. I'm not experiencing
Speaker 1: it through my customer right now. She's not said I
Speaker 1: see a crisis, I'm going to react differently. She's trucked
Speaker 1: on right through that. And I hope that continues. All right. Well,
Speaker 1: really good to get your perspective, really appreciated, Andrew McClean,
Speaker 1: his chief executive officer at LANDS. You're listening to the
Speaker 1: Bloomberg Business Week podcast. Catch us live weekday afternoons from
Speaker 1: three to six Eastern on Bloomberg Radio, the Bloomberg Business
Speaker 1: app and YouTube. You can also listen live on Amazon
Speaker 1: Alexa from our flagship New York station. Just say Alexa
Speaker 1: play Bloomberg eleven thirty. We want to get to another
Speaker 1: name that was rolling in today's session following their latest
Speaker 1: quarterly update earlier this morning. We're talking about lands And
Speaker 1: which is a great check in terms of what's going
Speaker 1: on in retail and the consumer. The company's first quarternet
Speaker 1: revenue forecast beating estimates, helping to send the small cap
Speaker 1: stock rolling around eighteen percent today. So let's get to it.
Speaker 1: We have the company's CEO, Andrew McClean. He is with
Speaker 1: us on zoom in Wisconsin. Andrew, nice to have you
Speaker 1: back with us here on Bloomberg. Luck going on, Sorry,
Speaker 1: just trying to keep up here. How do you feel
Speaker 1: about the environment right now? You know, I feel pretty
Speaker 1: good about the environment. We look at our customer like
Speaker 1: in some detail. We've got seven million of them, so
Speaker 1: we've got a lot of data to work with. We're
Speaker 1: seeing that they're they're relatively robust right now. They're sort
Speaker 1: of weathering inflation, they're weathering the political environment, they're weathering
Speaker 1: the banking issues that we're seeing over the last week
Speaker 1: or so, so no particular cracks yet and a little
Speaker 1: bit of momentum of anything. Well, Andrew, let's get into
Speaker 1: that idea of the inflation. What are you seeing in
Speaker 1: your sort of supply chain? Is there any hope that
Speaker 1: this inflation, especially that cost input that you're dealing with,
Speaker 1: Is there any hope there that we've seen the worst
Speaker 1: of it or what we're looking at. I mean, I
Speaker 1: certainly hope. So. I mean, you know, we've definitely we've
Speaker 1: definitely seen transportation costs become more favorable to us than
Speaker 1: they were last year, and hopefully we'll pick that up
Speaker 1: as a as a tailwind for us this year. Some
Speaker 1: of the prices of fabrics have moderated as well, and
Speaker 1: you know, we're working with our factories closely to make
Speaker 1: sure that you know, we see those costs passed on.
Speaker 1: But you know, we're chipping away at it every day.
Speaker 1: I think everyone's trying to hang on so, you know,
Speaker 1: the extra dollars that they made during the pandemic, and
Speaker 1: you just have to fight your corner. Is it easier
Speaker 1: to be a CEO today versus where it was twelve
Speaker 1: months ago? I think so. I think it was more
Speaker 1: looking at uncertainty twelve months ago. I actually felt, and
Speaker 1: I said this one of the conferences earlier this year,
Speaker 1: I felt that retail went through its recession sort of
Speaker 1: late Q three early Q four. I think the sector
Speaker 1: was in recession. Whether the country was or not, it's
Speaker 1: up for debate. But I'm hoping, I'm touching wood here
Speaker 1: that the worst is the worst is pastors, and we
Speaker 1: can look forward to set ourselves out for a decent year.
Speaker 1: Having said that, you know, we talk about customers trading
Speaker 1: down or looking for bargains. Are you seeing any signs
Speaker 1: of kind of some of the patterns in terms of
Speaker 1: how customers and consumers are shopping. That tells you a
Speaker 1: little bit more about the economic outlook. I have an
Speaker 1: eighteen year life on my customers. I mean they come
Speaker 1: to us and they stay forever, and so we get
Speaker 1: a good read on them through various life stages. You
Speaker 1: know what we're starting to see if anything is well.
Speaker 1: Actually it's a continuation of a theme. We're leaning in
Speaker 1: more and more to leisure and vacation. You know, I've
Speaker 1: talked a lot today on various calls about swim and
Speaker 1: you know, we've continued to power ourselves from late December
Speaker 1: through to mid March off the back of Swim and
Speaker 1: really building out the vacation outfit for our customer. And
Speaker 1: I can tell you she's really embraced sing and you know,
Speaker 1: we see that number of cohorts. We sell a lot
Speaker 1: of school uniforms, and we make connections, We make connections
Speaker 1: with with millennial late millennial moms and they're buying our swim.
Speaker 1: You know, she's thinking very much about vacation this year. Yeah, Andrew,
Speaker 1: what is how are you thinking about sort of the
Speaker 1: sales channels these days? Is the retail physical stores? Are
Speaker 1: they back? Is that is that the focus going forward
Speaker 1: or do you still have sort of the online hangover
Speaker 1: from the pandemic. I think there's a place for our
Speaker 1: physical stores in any retailer at work. For a lot
Speaker 1: of retailers that had physical stores. For Land's end, we've
Speaker 1: a we have a different physical manifestation of our brand
Speaker 1: and it's through a catalog. We only have thirty stores.
Speaker 1: It's you know, we reported the relatively small revenue for
Speaker 1: us in the scheme of how we approach the world.
Speaker 1: For us, it's about our digital ecosystem and you know,
Speaker 1: we have a we have two businesses, a B to
Speaker 1: B business and the B two C business in the
Speaker 1: digital world. And they're both scaled, scalable and profitable. And
Speaker 1: you know that that's where we're that's what we're leading into.
Speaker 1: And the physical manifestation of the brand that supports them
Speaker 1: kindly gives us that Midden upper funnel marketing is really
Speaker 1: our catalog. Yeah, I think when you've been on in
Speaker 1: the past, I've definitely bought a school uniform from you
Speaker 1: in the past. Remind our audience, though, and forgive me
Speaker 1: for not remembering, but your B to B or your
Speaker 1: you know, the school uniforms and the uniforms that you
Speaker 1: provide for hospitality and leisure. That is how much of
Speaker 1: your business, So that there's a business which comprises three things.
Speaker 1: Is the sort of those the very large customers, you know,
Speaker 1: like in American airlines, there's small medium businesses in their
Speaker 1: um you know, autoparts companies, hotel chains, and then we're
Speaker 1: then we're into school uniforms. And then those three business
Speaker 1: together comprised sixteen seventeen percent of our total revenue base. Andrew,
Speaker 1: how is this high interest rate environment in affecting you?
Speaker 1: I mean, I assume it must be a headwind to
Speaker 1: some degree. Is it is a huge challenge? Are you
Speaker 1: able to refinance in this environment? I assume that, you know,
Speaker 1: we talked about it on the call this morning. It's
Speaker 1: like you definitely saw our interest charges tacking up. That
Speaker 1: was partly driven by the inventory receipts that we had
Speaker 1: last year. I was also driven by rising interest rates.
Speaker 1: And you know, we found ourselves in a situation where
Speaker 1: we had to place debt in the pandemic and then
Speaker 1: had a two year no call on it, which left
Speaker 1: us shut out by the time we got around to
Speaker 1: trying to get back into the markets again. Then we're
Speaker 1: going to come back to the markets as soon as
Speaker 1: they open up. And it's that debt, and that's that's
Speaker 1: one of our priorities for us. But there's things we're
Speaker 1: doing to mitigate that. You know, we're landing our inventory
Speaker 1: much more differently. You know, we're not holding as much
Speaker 1: of it. We're going to increasing well, we are increasing
Speaker 1: the turns in our business, and the reality is will
Speaker 1: chip away at that side of it as well. I
Speaker 1: think the question would be is how's the consumer doing
Speaker 1: with it? And it's like, you know, she's taken it
Speaker 1: in our stride. What does that mean? What does an
Speaker 1: inner stride mean? Well, you know, it's just like she's
Speaker 1: I think she's probably finding ways to cut corners, but
Speaker 1: there are certain go tos that she wants. So if
Speaker 1: I look at my business, my best stats, or I've
Speaker 1: got a handful of best stats, and then you know,
Speaker 1: one of those is swim, one of those is out
Speaker 1: of where. One of those is the fit of the
Speaker 1: fit of our product, particularly the bottoms, And we see
Speaker 1: her leaning into those categories and it's like she's she's
Speaker 1: still very much inclined to take those on. And if
Speaker 1: I if I compare that with my business in Europe,
Speaker 1: it's been a little tougher with the business in Europe
Speaker 1: because you know, once once we got into the war
Speaker 1: with Ukraine in Europe, we certain business really sort of
Speaker 1: way back down and we felt that we felt that
Speaker 1: resistance for most of the last year. Yeah, and sure,
Speaker 1: I wonder what sort of keeps you up at night.
Speaker 1: As as the biggest risk, I mean, my guess is, um,
Speaker 1: this labor market has proven to be so strong, the
Speaker 1: consumers still remains strong. Is that the main risk? Do
Speaker 1: you think just um a creepier in the in the
Speaker 1: unemployment rate and sort of less confidence among consumers. Is
Speaker 1: that a risk this year? Yes, it is. I mean,
Speaker 1: you know, but I have this amazing trove of data.
Speaker 1: Trope is a funny word, but I've been using that
Speaker 1: a lot today. I have. I have this trove of data,
Speaker 1: and that's like I'm looking at my customer. You know,
Speaker 1: there's definitely a customer in there who is feeling is
Speaker 1: feeling the interest rates. But you know, again, she's switching
Speaker 1: as I talked about two product categories that really work
Speaker 1: for her. And I can I can see the energy
Speaker 1: through the through the first Quarterman, I passed the midpoint
Speaker 1: of the first quarter, so I can see the energy
Speaker 1: of where she's at in the first quarter. That'll carry
Speaker 1: through to the second quarter. But you know, some sort
Speaker 1: of system shot to that, and you know it's harder
Speaker 1: to see for the back half of the year. Hey,
Speaker 1: one last question, Andrew, if I'm in we just got
Speaker 1: about thirty seconds. I mean, in an environment where we
Speaker 1: are so focused on what's going on in the banking
Speaker 1: community right now, and we've seen it create some stress,
Speaker 1: certainly in financial markets, how do you factor that in
Speaker 1: at all in terms of your job, and again just
Speaker 1: got about twenty seconds. I'm just going to make sure
Speaker 1: that it's like that, we're appropriately financed, we have access
Speaker 1: to the capitol we need, and then I'm going to
Speaker 1: I'm going to just tell you the customers. I'm not
Speaker 1: experiencing it through my customer right now. She's not said
Speaker 1: I see a crisis. I'm going to react differently. She's
Speaker 1: trucked on right through that, and I hope that continues.
Speaker 1: All right, Well, really good to get your perspective. Really
Speaker 1: appreciate it. Andrew McLean, his chief executive officer. At Land's end.
Speaker 1: You're listening to the Bloomberg Business Week podcast Catch Us Live,
Speaker 1: Wait Do afternoons from three to six Eastern Listen on
Speaker 1: Bloomberg dot Com, the Had Radio Appen the Bloomberg Business
Speaker 1: app or Want Us Live on YouTube. Well, with so
Speaker 1: much going on in the world, it's unfortunately easy to
Speaker 1: forget that. Turkey continues to struggle following the February six
Speaker 1: earthquakes that killed over fifty thousand people in Turkey and Syria.
Speaker 1: And if you add on top of that some flooding
Speaker 1: on Wednesday from torrential rains in turkey southeast that killed
Speaker 1: at least fifteen people. I mean, Mike. The natural disasters
Speaker 1: have created a host of problems and health issues, so
Speaker 1: we felt like we wanted to get some thoughts on that.
Speaker 1: And with us is doctor Paul Spiegel. He's director of
Speaker 1: the Center for Humanitarian Health at the Johns Hopkins Bloomberg
Speaker 1: School of Public Health, supported by Michael R. Bloomberg, founder
Speaker 1: of Bloomberg LP and Bloomberg Philanthropies. Doctor Spiegel via zoom
Speaker 1: in Baltimore, Doctor Spiegel, nice to have you here on Bloomberg.
Speaker 1: The earthquakes devastated infrastructure on so many different levels, and
Speaker 1: we know that makes it ripe for dangerous health situations
Speaker 1: throw on top, certainly in Turkey some of the flooding.
Speaker 1: What are you hearing specifically, Thank you, Carol. Yes, the
Speaker 1: situation is that remains dire even if it's not being
Speaker 1: reported on. But we're hearing. What I'm hearing and seeing
Speaker 1: my colleagues and friends in the field is that there
Speaker 1: are two different situations in many ways. You have the
Speaker 1: situation in Turkey where people remain often in makeshift settlements,
Speaker 1: living in cars because so many of their homes and
Speaker 1: the apartments have been destroyed. Where you have in north
Speaker 1: West area, which has already been a humanitarian crisis for
Speaker 1: nearly eleven years now, with over four million people on
Speaker 1: humanitarian assistance, still insufficient aid getting there. There was already
Speaker 1: a cholera outbreak which has worsened, and so the situation
Speaker 1: remains dire and sadly, despite perhaps not the same media attention,
Speaker 1: will remain dire for likely years. And it's very, very,
Speaker 1: very concerned. Doctor. I was wondering if you could just
Speaker 1: talk about what role the Hopkins Center for Humanitarian Health
Speaker 1: plays in a crisis like this. Is it as an
Speaker 1: advisory type of role or is it actually providing doctors
Speaker 1: on the ground or coordination when a crisis hits. What's
Speaker 1: sort of the first order of business for you, right? So,
Speaker 1: I mean Hopkins the Center for Humanitarian Health is not
Speaker 1: an NGO, and so generally we don't provide aid as
Speaker 1: an NGO would. What we do is we work with
Speaker 1: people on the ground and looking at the public health situation,
Speaker 1: so will be we will and have been supporting with
Speaker 1: technical responses in terms of surveillance, and we did actually
Speaker 1: have some people on the ground at the time that
Speaker 1: the earthquake occurred, unfortunately, and they were able to provide
Speaker 1: some assistance, but for the most part, what we're doing
Speaker 1: is trying to examine the situation and then provide technical
Speaker 1: response as well as we continue to trainings both now
Speaker 1: and in the future, so that the future humanitarians that
Speaker 1: will actually be providing hands on experience have the latest evidence,
Speaker 1: the latest data to respond well. And you know you
Speaker 1: did serve as the emergency coordinator for the WHOS Ukraine
Speaker 1: refugee response last year. I mean, as you look at
Speaker 1: this crisis, how does it compare? So for that, because
Speaker 1: of my background, I actually do respond sometimes as you know,
Speaker 1: with who set and others, and so in this situation,
Speaker 1: in many ways, you would imagine it would be very,
Speaker 1: very different because you've had an acute onset earthquake in
Speaker 1: Turkeys in northwest Syria compared to an acute conflict with
Speaker 1: Russia invading Ukraine. But in fact there sadly are many
Speaker 1: still many similarities. Both were predictable. It was not possible
Speaker 1: to know when the earthquake was going to hit, but
Speaker 1: clearly the earthquake was going to hit, and so preparedness
Speaker 1: and much better preparedness was possible. Similarly, we knew that
Speaker 1: the through intelligence that the Russians were on the border
Speaker 1: for a long period of time, yet Ukraine and the
Speaker 1: surrounding European countries were insufficiently prepared. But then things change
Speaker 1: because you see how in Europe, with the resilience and
Speaker 1: the strong health systems, how they were able to deal
Speaker 1: with millions of people flooding in to their countries. And
Speaker 1: you we have not seen that the increase. I mean,
Speaker 1: of course there has been some exacerbation of existing illnesses,
Speaker 1: but certainly not the death and certainly not the increase
Speaker 1: in morbidity that we're seeing in the northwest Ayria and
Speaker 1: in Turkey. You know, doctor, it's obviously hard to make
Speaker 1: a building that's invulnerable to a major earthquake, but I
Speaker 1: have read that building codes in this region were an
Speaker 1: issue with this specific one in perhaps exacerbating the injuries
Speaker 1: and the that's is that true? Are building codes an
Speaker 1: important part of the story? Yeah? Very important. I mean
Speaker 1: I think we sometimes building codes seem seem not tangible,
Speaker 1: but we should think of building codes like a helmet
Speaker 1: or a seat belt, where if you don't wear those,
Speaker 1: and if you don't implement and have inspections of building codes,
Speaker 1: buildings will fall down. And this is when you look at,
Speaker 1: for example, is some of the building codes in western
Speaker 1: United States or in Japan. They're very strong and they're enforced,
Speaker 1: and the earthquakes that happened that there are not nearly
Speaker 1: as even if they're of a significant magnitude, the results
Speaker 1: are not nearly as bad as what happened in Turkey.
Speaker 1: And in Turkey everyone knew that there the building codes
Speaker 1: are not being enforced, and bizarrely, they even had the
Speaker 1: possibility of paying a fine so that you should not
Speaker 1: We're not able to You're able not to follow the
Speaker 1: building codes because when you follow building codes properly, it
Speaker 1: is more expensive. And there was this push towards a
Speaker 1: economic boom in infrastructure and then building codes were not followed,
Speaker 1: and so we see this, this is preventable. And I
Speaker 1: would add that the same issue incurring is occurring in
Speaker 1: Istanbul and in terms of not following building codes. And
Speaker 1: Istanbul is much more packed than many of these other
Speaker 1: cities in Turkey and has previously had massive earth quakes,
Speaker 1: and so there's going to need Turkey is going to
Speaker 1: need to do a significant amount of retro fitting, which
Speaker 1: is more expensive, to make these buildings more earthquake proof.
Speaker 1: As you say, though, this is a situation that's going
Speaker 1: to be dealt with for years, and certainly the rebuild
Speaker 1: is going to take a long term. What are the
Speaker 1: longer term health implications as a result. Yeah, well, we're
Speaker 1: already seeing I guess these are more short terms in
Speaker 1: terms of diarrhea of watery diarrhea, increase in diarrhea. The
Speaker 1: longer term implications are there are many people that have
Speaker 1: had serious injuries, broken bones, crush injuries. There's there's going
Speaker 1: to need to be physiotherapy and rehabilitation. We're also going
Speaker 1: to be seeing people that are not able to get
Speaker 1: the care and or are not prioritizing that care because
Speaker 1: they've lost everything else, and so issues will see increases
Speaker 1: and consequences of not taking care of diabetes and hypertension,
Speaker 1: and furthermore, one of the most difficult areas will be
Speaker 1: mental health. I mean, I've been speaking with people on
Speaker 1: the ground just today, two people and not just the
Speaker 1: people of course that have been affected by the earthquake,
Speaker 1: but the caregivers themselves are not prepared for what they've seen.
Speaker 1: And what is even more difficult, I think is you
Speaker 1: have caregivers that are there on the ground who have
Speaker 1: also suffered, and so that you haven't just they're not
Speaker 1: just responding to a crisis, and they're being affected, and
Speaker 1: so mental health remains a problem. Extreme stress, and I
Speaker 1: can only imagine in terms of mental wellness. Thank you
Speaker 1: so much. We really appreciate it and important to keep
Speaker 1: this on everybody's radar, Doctor Paul Spiegel, Director of the
Speaker 1: Center for Humanitarian Health at John Hopkins Bloomberg School of
Speaker 1: Public Health. You're listening to the Bloomberg Business Week podcast.
Speaker 1: Catch us live weekday afternoons from three to six Eastern
Speaker 1: on Bloomberg Radio, the Bloomberg Business app, and YouTube. You
Speaker 1: can also listen live on Amazon Alexa from our flagship
Speaker 1: New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: All right, So, yeah, we're trying to figure out if
Speaker 1: the walls are coming tumbling down here. You know, we've
Speaker 1: heard a lot of conversations that this isn't another banking crisis.
Speaker 1: But let's get to the cover story. At Bloomberg Business
Speaker 1: Week Magazine, it's a new double issue. It's available on newstands,
Speaker 1: Bloomberg dot com, Slash business Week always on the Bloomberg terminal.
Speaker 1: It's a finance section takeover. It could not be more timely.
Speaker 1: It is about the sudden unmaking of Silicon Valley Bank,
Speaker 1: which for for forty years really enmeshed itself in the
Speaker 1: venture capital community. So let's get to it. Lots of
Speaker 1: facets to this story. So with us is Bloomberg Markets
Speaker 1: Finance editor of BusinessWeek magazine, Pat Regnier. He's in our
Speaker 1: studio along with editor at large Eric Shatsker and the
Speaker 1: editor of the magazine Joel Weber. And we're gonna start
Speaker 1: with you, Jael. This is a story we continue to
Speaker 1: track some headlines on the Bloomberg about the banking community overall.
Speaker 1: How did you and your editors and your team kind
Speaker 1: of figure out how to actually cover it and put
Speaker 1: it to bed for this week? This was such a
Speaker 1: significant story and it broke it really a crazy time
Speaker 1: for us because of course also Silicon Value Bank not
Speaker 1: alone in this. You know, three banks and three US banks,
Speaker 1: and one week was significant. Obviously of those three, Silicon
Speaker 1: Value was the biggest, and that's why we wanted to
Speaker 1: really kind of lay make sure that we looked at
Speaker 1: that because there's a greater meaning to this bank. It
Speaker 1: relates to obviously Silicon Valley venture capital, private equity, and
Speaker 1: interest rates. And so you know, we've I think we
Speaker 1: spent ten years talking about the financial crisis, if not longer.
Speaker 1: This at the moment doesn't look like it's going to
Speaker 1: become quite like that. But you know, on that's balance sheet,
Speaker 1: Silicon Valley had us. As Eric writes, um, you know,
Speaker 1: really kind of strategy that you can call into question now,
Speaker 1: and that has raised a lot of eyebrows, and it's
Speaker 1: meant to me that you know, we might not be
Speaker 1: we might not through all of this yet, and so
Speaker 1: I wanted to make sure that in the magazine we
Speaker 1: we we flagged that in a big way. And Pat
Speaker 1: was the architect that kind of I mean, frankly, he
Speaker 1: hit this structure where it was like, we want to
Speaker 1: talk about Silicon Valley Bank, we want to talk about
Speaker 1: what happened in DC, which we also had as part
Speaker 1: of that package. And then Eric put a bow on
Speaker 1: it just to say, like, you know, there's a greater
Speaker 1: meaning here that is about the financialization of everything, and
Speaker 1: so we'll talk about probably all those threams, those three
Speaker 1: themes here. What was the thing that really stood out
Speaker 1: to you in this package of coverage in the magazine.
Speaker 1: One of the things that I really wanted to convey
Speaker 1: was how crazy the weekend felt. You know, I was
Speaker 1: sitting in a diner in Brooklyn and looking at my
Speaker 1: Twitter feed and watching not just the aftermath of a
Speaker 1: bank failure, but a very loud bank failure. This was
Speaker 1: probably one of the loudest failures of a regional bank
Speaker 1: that we've ever had. You could see, you could see
Speaker 1: the VC community sort of raising alarms, I think, in
Speaker 1: some ways on purpose, and it created a scary weekend,
Speaker 1: even though I think probably you know it, there was
Speaker 1: there was reason to think all along that this was
Speaker 1: not going to be allowed to get too far if
Speaker 1: people seem to understand it. But that but that anxiety
Speaker 1: that we came in on a Monday morning really said that,
Speaker 1: you know, we really just had to talk about something
Speaker 1: important has changed here that we could have a moment
Speaker 1: like this. Well, and I think, what's fascinating about this story.
Speaker 1: It's not like this was a household name in the
Speaker 1: banking community SVB. Now it is, But I feel like
Speaker 1: that was a big part of telling this story of
Speaker 1: like who is this Pang and why are we also
Speaker 1: stressed out right, Well, obviously it wasn't an unfamiliar name
Speaker 1: if you were in the valley, and so like one
Speaker 1: of the one of the stories we wanted to tell
Speaker 1: was we have Ellen Hewett in who's our reporter in
Speaker 1: the valley, talking about just like how essential this was
Speaker 1: to to to sort of the wage, day to day
Speaker 1: life work for people in the startup community. And she
Speaker 1: said it was like waking up to a hell fire
Speaker 1: in your living in your very own living room, Like
Speaker 1: what you know, what, what's suddenly on fire here? Um?
Speaker 1: And uh, that dynamic was really powerful because it was
Speaker 1: all the same kinds of clients at all the same bank,
Speaker 1: all talking to each other and with a lot of cash.
Speaker 1: We've talked a lot about the fact that like there
Speaker 1: was something happening on the asset side of their balance sheet,
Speaker 1: but but the other thing that was happening was what
Speaker 1: was going on on the liability side of their balance sheet,
Speaker 1: which was they they had people who had who suddenly
Speaker 1: woke up to realize that they had reason to be nervous,
Speaker 1: which is not usually the case with most with most
Speaker 1: bank most banks, half of your half of the people
Speaker 1: who have half half of your money like, you know,
Speaker 1: it wouldn't matter which you did in your on your
Speaker 1: assets side. They don't need to run to the bank.
Speaker 1: They're ensure that money's insured. This was a very different situation. Yeah, Eric,
Speaker 1: I want to bring you in a little bit here
Speaker 1: because I love the headline on your comment on this
Speaker 1: issue arrogance, incompetence or both. What svb's failure really means.
Speaker 1: And I think, you know, it's interesting whenever we have
Speaker 1: a failure like this, the question often is, well, was
Speaker 1: this incompetence or was there actually sort of criminal behavior here?
Speaker 1: It doesn't seem like that with SVB, But I mean,
Speaker 1: can incompetence be so great that it sort of crosses
Speaker 1: the threshold into criminality? Incompetence is probably the best explanation
Speaker 1: for one half of what happened to SVB, and arrogance
Speaker 1: is probably the best explanation for the other half of
Speaker 1: what happened to SVB. Incompetence applies to the asset side
Speaker 1: of the balance sheet. The fact that they mismanaged duration
Speaker 1: risk is unconscionable for any banker, certainly a bank of
Speaker 1: SVB size. It was the sixteenth largest bank in the country.
Speaker 1: The arrogance though, applies to the liability side of the
Speaker 1: balance sheet, and what we mean by that is the
Speaker 1: fact that they clearly not just SVB, that they is
Speaker 1: bigger than SVB in its management. It also applies to
Speaker 1: the bank regulators the collective. They failed to recognize or
Speaker 1: appreciate that there was a different kind of con centration
Speaker 1: risk at the bank, and it had to do with
Speaker 1: the nature of the bank's deposits. Over the course of
Speaker 1: some twenty years, SVP SVB, excuse me, changed from being
Speaker 1: a bank that really did focus on the innovation economy,
Speaker 1: the startups in the Valley, in tech, in life sciences,
Speaker 1: medical devices, biotechnology, and became a bank that principally served
Speaker 1: the VC and private equity communities. And those ended up
Speaker 1: being massive depositors at SVB. And we know now that
Speaker 1: founder Collective COATU Management, Founder's fund, Peter Teel's fund all
Speaker 1: in a heartbeat withdrew those deposits and ordered their portfolio
Speaker 1: companies to do the same. That wouldn't happen, For example,
Speaker 1: at a Fifth Third Bank Corps that's the next largest
Speaker 1: bank after Silicon Valley Bank, it has six point one
Speaker 1: seven million individual accounts that fall under or the two
Speaker 1: hundred and fifty thousand dollar cap for Federal Deposit Insurance
Speaker 1: Corporation insurance. That means all of those six point one
Speaker 1: seven million accounts effectively were protected. And at Silicon Valley
Speaker 1: Bank that number was it was only equivalent to six
Speaker 1: percent of their deposits. Pat likes to talk about hot deposits.
Speaker 1: You will not find hotterer deposits than the deposits that
Speaker 1: were and no longer are at Silicon Valley Bank. Still
Speaker 1: come on back in. Okay, so, Erica, You I think
Speaker 1: we're just a guiding presence and in a lot of
Speaker 1: just what we were thinking about in this package actually,
Speaker 1: and I do want to, you know, make sure that
Speaker 1: we spend this forward a little bit and think about
Speaker 1: what this could mean going forward. I mean, obviously this
Speaker 1: interest rate thing that SVB got really wrong. Is it
Speaker 1: a question at this point of like, you know, SVB
Speaker 1: did it wrong, but like who else didn't? And you
Speaker 1: know this this lag that we've talked about a little
Speaker 1: bit before with interest rates, how else are you kind
Speaker 1: of just thinking about where else this could show up
Speaker 1: in the financial eCos Well? I was already thinking about
Speaker 1: First Republic and just to revisit a few of the
Speaker 1: headlines of the past hour. It just got thirty billion
Speaker 1: dollars of deposits from a number of big banks, including
Speaker 1: Bank of America and JP Morgan. So yes, that was
Speaker 1: a problem, and there may be other regional banks that
Speaker 1: similarly mismanage their interest rate risk. We don't know all
Speaker 1: of the details. It's very important to say that because
Speaker 1: some of these banks actually are smart and do hedge.
Speaker 1: Some of that interest rate exposure didn't happen at Silicon
Speaker 1: Valley Bank. Quite probable that it didn't happen elsewhere as well.
Speaker 1: But beyond the quality of the asset side of the
Speaker 1: balance sheet, there are other things to think about that
Speaker 1: we've been talking about and which undoubtedly we will end
Speaker 1: up covering here at Bloomberg in many different ways. The second, third, fourth,
Speaker 1: and fifth order effects like corporate treasurers asking themselves, do
Speaker 1: I really want to have money in deposit accounts any longer?
Speaker 1: Why shouldn't I take the excess cash that I've got
Speaker 1: and sweep it into a money market fund. It'll earn
Speaker 1: a higher yield to begin with, and it will be
Speaker 1: protected because if it's a money market fund that's invested
Speaker 1: in treasuries, and agencies. It has the backing of the
Speaker 1: US government. This is not I mean, these things are
Speaker 1: going to play out over the next weeks, months, quarters,
Speaker 1: possibly years, and it might not be a serious issue
Speaker 1: in the short run because there are so many federal
Speaker 1: facilities now in place to backstock the banking system. But
Speaker 1: these changes will happen, they will take place, they will
Speaker 1: transform the American banking landscape. I wouldn't be surprised if,
Speaker 1: maybe even as little as eighteen months from now, things
Speaker 1: look vastly different. Pat. I want to bring you back
Speaker 1: in here because I do think about this perfect storm
Speaker 1: of think about in a year, what has happened with
Speaker 1: the interest rate environment. That's one thing to think about.
Speaker 1: Also the role of social media and creating a velocity,
Speaker 1: certainly with SVB. And then you've got what Eric writes
Speaker 1: about this financialization of our world and increasingly the role
Speaker 1: of private markets that don't necessarily have the transparency. You
Speaker 1: put that together and you're like, well, of course we're
Speaker 1: gonna have some problems. Yeah. You know, after we closed
Speaker 1: this issue, I called my dad. My dad worked in
Speaker 1: the savings and loan industry during the savings and loan crisis,
Speaker 1: and he ended up working for the Resolution Trust Corporation,
Speaker 1: which was the government agency that did the bailout. So
Speaker 1: you called me in. He said, you know, I thought
Speaker 1: we had another five years before another one of these.
Speaker 1: Why do they keep happening so fast? And why don't
Speaker 1: people learn? And I think, you know that's going to
Speaker 1: be the big question we're gonna be asking ourselves is
Speaker 1: why do we not understand how fundamentally risky a bank is?
Speaker 1: You know, we think of banks as safe. It's actually
Speaker 1: an important part of how banking works is that it
Speaker 1: they project safety. You know, they always used to build
Speaker 1: banks to look like Roman temple so that they would
Speaker 1: look like they were very safe. But the reason we
Speaker 1: do that and we feel safe is because they're actually
Speaker 1: considerably riskier than putting your money in a money market
Speaker 1: fundance backed by t builds. They're actually doing something risky
Speaker 1: and they have to be watched and watched quite carefully,
Speaker 1: but they're doing something essential. Let's not forget about that.
Speaker 1: Without fractional reserve banking, I'm not going to get into
Speaker 1: details about what that means, please look it up on Google.
Speaker 1: And without credit creation, which something we do understand the
Speaker 1: transformation of liabilities i e. Deposits into assets i e. Loans.
Speaker 1: We would not have the economy that we have. You
Speaker 1: couldn't take a dollar for dollar. You need one dollar
Speaker 1: of liabilities effectively transformed into ten dollars of assets. It
Speaker 1: correct velocity of money in addition to economic growth an opportunity.
Speaker 1: If you couldn't borrow to invest in your company, you know,
Speaker 1: your hands would be severely tied. You wouldn't all of
Speaker 1: these things that that individuals and even and small businesses need.
Speaker 1: So many of those things would be effectively unavailable, which
Speaker 1: I can grab him a story. That's why when a
Speaker 1: bank fails, it's so essential to figure out what happened
Speaker 1: and ensure the same mistakes won't be made again. That's
Speaker 1: why we did this, and that's why we put it
Speaker 1: on the cover, and that's why we'll be talking about it.
Speaker 1: I think for you know, hopefully a little while longer.
Speaker 1: And to that end, I do think that the repercussions
Speaker 1: of this are still playing out, and that's why I
Speaker 1: also we haven't talked about the second piece of this package,
Speaker 1: which is worth mentioning. But it's also why Jamie Diamond
Speaker 1: was in DC yesterday talking with Treasury Secretary Janet Yellen
Speaker 1: to make sure that you know, this thirty billion that
Speaker 1: ended up in First Republic could could happen, right, and
Speaker 1: that that actually, you know, it shows how much attention
Speaker 1: there is on this stuff. And you know, of course
Speaker 1: you'd call in the guy from the financial crisis to
Speaker 1: make sure that everything goes smoothly. Eric I also wonder
Speaker 1: if he has sort of zoom out and look at
Speaker 1: it from a macro level. Was there a bubble in
Speaker 1: venture capital after a decade of low interest rates that
Speaker 1: just popped? You know? Is the is the golden age
Speaker 1: of the quote unquote founder over after this? I just
Speaker 1: got a bat Well, that's an excellent question. I think
Speaker 1: you can only call a bubble after it's actually happened
Speaker 1: and the dust settles. And I don't think we're quite
Speaker 1: there yet. We're not there where we can look back
Speaker 1: and say it was a bubble. There's no question there
Speaker 1: was way too much liquidity there probably still is. We
Speaker 1: said it the other day, Carol je Powell secretly might
Speaker 1: be not glad, but boy, a bank collapsure does help
Speaker 1: to tighten financial conditions and make it easier to get
Speaker 1: a rein on inflation. Now it's a really good point, right,
Speaker 1: because you've got to look at this all the big
Speaker 1: picture here robably not as preferred filing. You guys, all right,
Speaker 1: we gotta run Fat Regney or Market Markets and Finance
Speaker 1: editor a Bloomberg Business Week Editor at Large, Eric Shouts
Speaker 1: Garb Bloomberg News and Joe Weber, Editor Bloomberg Business Week. Folks,
Speaker 1: it's a finance takeover. It's the cover. It's a must
Speaker 1: read for the weekend. This is Bloomberg Radio, a journal. Yeah,
Speaker 1: but you let me drive. Oh no, no, no, no, honey, please,
Speaker 1: I'll do the riding gravels. I want to drive. It's
Speaker 1: good question. This is the drive to the globe coming well,
Speaker 1: Brian up shoving down on Bloomberg Radio. All right, everybody,
Speaker 1: just under eighteen minutes left in today's trading session. You
Speaker 1: are listening in watching Bloomberg Business Week on this Thursday,
Speaker 1: Carol Master along with Mike Reagan. Let's get to it
Speaker 1: with our guests. Great to have back with us. Vans Howard.
Speaker 1: He's CEO and portfolio manager at Howard Capital Management. They're
Speaker 1: a registered investment advisor, roughly five billion in assets under management.
Speaker 1: They've got mutual funds ETFs, growth tactics, income, dividend, lots
Speaker 1: going on. So let's talk about strategy and news and
Speaker 1: the markets with vans Um. Good to have you back.
Speaker 1: How are you? Thank you? It's great to be back.
Speaker 1: So is it great to be back in this environment?
Speaker 1: Which wonderful to be here with you? Well, talk to
Speaker 1: us about this environment because you know, day to day
Speaker 1: the sentiment seems to change. We've got a rally underway
Speaker 1: in stocks. We've had some crazy treasury action, quite a
Speaker 1: move from peak to trough, if you will, right over
Speaker 1: the last week. If you look at that two year note,
Speaker 1: how how do you see the market environment and the
Speaker 1: opportunities in it? You know, Carol, you and I Mike
Speaker 1: were talking a minute ago about the the the owaight
Speaker 1: crash and a lot of people maybe don't run around
Speaker 1: for that, or they don't remember how frightening that was
Speaker 1: when you you know, you went to bed at night
Speaker 1: and you know Bear Stearns was at thirty eight forty bucks,
Speaker 1: a shaar. We woke come the next day there were
Speaker 1: seventy five cents, right, and for those of us covering it,
Speaker 1: we didn't even go to sleep because the news headlines
Speaker 1: just kept coming it just kept coming and it was
Speaker 1: unbelievably amazing and it was frightening. And that was probably
Speaker 1: the closest we've come in my gem, you know, in
Speaker 1: my age an you wait for a complete meltdown like
Speaker 1: the twenty nine crash. Is this that? Now? I don't
Speaker 1: think this is that? But I got to tell you,
Speaker 1: whenever they say a bank has failed, it makes me
Speaker 1: I get to my attention really really quick, because that's
Speaker 1: the worst that you can have in a financial crisis.
Speaker 1: In a financial crisis like this garden variety of markets,
Speaker 1: they come, they go, But when banks implode, you've got
Speaker 1: a serious problem. It's like, you know, that's that's when hey, Houston,
Speaker 1: you've got a problem, and so wake up. Yeah, and fans,
Speaker 1: you know, it's it's easy, I think, to get lulled
Speaker 1: into a sense of complacency when you look at the
Speaker 1: market reaction to this news, SMP up one point nine percent,
Speaker 1: you know, but this isn't over. I feel like, I mean,
Speaker 1: are we gonna be talking about a different bank tomorrow,
Speaker 1: next week and the week after? And I think that's
Speaker 1: what all managers are looking at right now, is where's
Speaker 1: the real risk here? We de risk not because the
Speaker 1: HC on bioline, which is I propride to indicator with
Speaker 1: negative because it really came close to turning negative. But
Speaker 1: it's just right there on the cusp. We we de
Speaker 1: risk because it hit our stop, our stop losses for
Speaker 1: a bunch of positions there risk. We do risk on
Speaker 1: Friday and Monday and Tuesday, and so they took us
Speaker 1: out of a lot of more, out of a lot
Speaker 1: of out of a lot of the market there. So
Speaker 1: we're in about thirty five to forty percent cash right
Speaker 1: now out of the five bigon that we trade. And
Speaker 1: I always want to know, is that normal? No, that's
Speaker 1: not normal for you. It is not normal. Only when
Speaker 1: the HC on bioline, well it hit stops. It just hit.
Speaker 1: It triggered stops that we had in and we're glad
Speaker 1: that we had them. But this market is going to
Speaker 1: be incredibly volatile. It's it's you know, you're walking, you
Speaker 1: feel like you're running in quicksand right now, and you're
Speaker 1: not sure which way to go right after, you know,
Speaker 1: north or south events. I'm kind of a market nerd,
Speaker 1: So when I hear proprietary indicator, my ears perk up.
Speaker 1: Could you could you tell some of the inputs of
Speaker 1: the HCM byline indicator. The ACM buyline is a lot
Speaker 1: less complicated than people think. It's actually a number of
Speaker 1: of indexes that are averaged together to create our own
Speaker 1: proprietary index, and then our moving average is our own
Speaker 1: mathematical equation to a moving average. Equity are various asset
Speaker 1: classic equities, all equities, because that's really what we're looking at.
Speaker 1: So we're not really thinking about bonds as far as
Speaker 1: investing in stocks. So but that did stay positive. But
Speaker 1: you know, Mike, another thing that's very disturbing is the
Speaker 1: two hundred day moveing average on the SMPA one negative.
Speaker 1: It close below that now. I think it might close
Speaker 1: back above there today, So that would be a positive sign.
Speaker 1: And I know a lot of managers are looking at that,
Speaker 1: a lot of individuals are looking at that. We do
Speaker 1: hope that it closes above there. But you know, when
Speaker 1: banks start to come unwound, that is that is that's
Speaker 1: not good. So yeah, I do what so right, So
Speaker 1: cash is the place you would tell everybody to go
Speaker 1: right now or no, I mean you're still in it.
Speaker 1: You still have equity exposure. We do. We've got about
Speaker 1: sixty percent. We were buying bil, which is bill. It's
Speaker 1: so one to three month treasuries, and I think flash
Speaker 1: US has got really if it was, it's just liquid,
Speaker 1: it's very fluid, and we're making a decent rate of return.
Speaker 1: But you know, I'll tell you what we've got to
Speaker 1: watch out for is what is the FED going to do?
Speaker 1: And you know, everybody seems to think that the Fed's
Speaker 1: mandate is to crush inflation. The fence mandate is to
Speaker 1: create stability in our markets. That's key one. Well did
Speaker 1: the FED create this problem? Did the Fed create instability
Speaker 1: in our markets by raising rates too far too fast
Speaker 1: that nobody could keep up? Or the Fed keep keep
Speaker 1: create problems by keeping it low for too long? That
Speaker 1: one too, And there's a case on both sides of
Speaker 1: the equation, but it needs to be monitored on both
Speaker 1: sides of that equation. Too much, too fast or too
Speaker 1: low for too long. Either way, they've got to get
Speaker 1: a handle on this and done because, like like you said, Mike,
Speaker 1: when you have treasuries that that that that kill a bank.
Speaker 1: That's weird. That's not something weird I think it is.
Speaker 1: It's not on my bingo card that You've talked about enough, right, Mike,
Speaker 1: Like we always talk about treasuries. That's your safe haven,
Speaker 1: that's where you go right right, Well, and of course
Speaker 1: in this case, it was well, what part of the
Speaker 1: treasury curve were you invested in? They were clearly too
Speaker 1: far on the long end. But you know, not even
Speaker 1: the type of thing that's in a bank stress test typically,
Speaker 1: that's right. And you look at what happened there with
Speaker 1: with with SVB. But another thing too, when you look
Speaker 1: at that bank, they were doing loans they probably shouldn't
Speaker 1: have done. They're playing venture capitalist with bank money. Yeah,
Speaker 1: and I don't really agree with that either. That the
Speaker 1: sixteenth largest bank in the country I know there and
Speaker 1: their assets balloon they did, and so you have to
Speaker 1: ask yourself why did they balloon? And that's the reason.
Speaker 1: What they were doing was what they probably shouldn't have
Speaker 1: been doing. You know, you talk about your HCM byline,
Speaker 1: your proprietary indicator. Um, what you're seeing in that indicator,
Speaker 1: is it similar to what I don't know how long
Speaker 1: that indicator has been around for you guys, But take
Speaker 1: us back to some other kind of crisis moments or
Speaker 1: critical juncture, you know, junctures in the trade. Have you
Speaker 1: seen a similar move? Yeah, oh yeah. And we've had
Speaker 1: the HCM byline since the mid nineties, which we've worked
Speaker 1: on it and tried to make it better and better
Speaker 1: and better. But it called the Oeight crash really really well.
Speaker 1: It pulled us out the second wee get January of
Speaker 1: O eight and we really sat in catch pretty much
Speaker 1: the whole year. And you know, as a trend indicator,
Speaker 1: it can get whipsawed occasionally. What about as the PoTA
Speaker 1: as we went into the pandemic, Oh, we think they
Speaker 1: called it beautifully and we made I made more money
Speaker 1: in the pandemic than any other year I've ever made.
Speaker 1: I mean, we pulled out almost sixty percent of cash
Speaker 1: we're forty percent and invested at the bottom. We came
Speaker 1: back in on March twenty fourth of that same year.
Speaker 1: You know, the bear market only lasted twenty yeah. Yeah,
Speaker 1: And so we caught that whole up trind with sixty
Speaker 1: percent of our cash and actually made a fortune. And
Speaker 1: so it was really panned out pretty well for you.
Speaker 1: You know, That's what's so funny is we're talking about
Speaker 1: all these risks out there, all this sour mood I'm
Speaker 1: looking at SMP still up three percent on the year.
Speaker 1: What would you need to see to get you know,
Speaker 1: double fisted bullish towards stocks. Do we need like that
Speaker 1: capitulation where everything sells and the markets just takes a
Speaker 1: steep dive. Well, like I said, the reason we de
Speaker 1: risk wasn't because the byline went positive. When the byline
Speaker 1: is positive, we liked to buy stocks and owned stocks
Speaker 1: and hold them for the longer term. We de risk
Speaker 1: because it just hit stop losses. We'll be looking to
Speaker 1: get back in due to the fact that the BIDO
Speaker 1: line is positive. Now, it's not a very active indicator.
Speaker 1: I mean, I wish you'd never go negative none, I
Speaker 1: never have to de risk, But that's not realistic. You know,
Speaker 1: look at O wait, look at the pandemic. Look at
Speaker 1: what happened in January of twenty twenty two. Right, And
Speaker 1: another thing too, we got to look at Mike Carroll
Speaker 1: is you got to take the well, I don't know
Speaker 1: what the market's going to do next week, or Nikki
Speaker 1: or nobody else does. I don't know if we're going
Speaker 1: to go into a recession. Nobody else does either. So
Speaker 1: with a good trend indicator at least you know what
Speaker 1: the trend's doing. Yeah. That's a really good point, right,
Speaker 1: because we all try to Yeah we all knew, yeah,
Speaker 1: but exactly. But if you have a better indication of
Speaker 1: the idea where the trendline is going, that can help
Speaker 1: them to pick your assets and certainly portfolio. Thank you
Speaker 1: so much, good to have you back with us fans
Speaker 1: Howard Chief executive Officer, Portfolio Manager and Howard Capital Management
Speaker 1: Here in our Bluebird Interactive Burger Studio. This is the
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