WEBVTT - Divisive Debt Maneuvers; Bank Stress Returns

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<v Speaker 1>Hello, and welcome to the Credit Edge of Weekly Markets podcast.

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<v Speaker 1>My name is James Crombie. I'm a senior editor at Bloomberg.

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<v Speaker 1>Today's guests are Reshmi Basu, who covers distressed debt for

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<v Speaker 1>Bloomberg News in New York. We're delighted to have you

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<v Speaker 1>on the show.

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<v Speaker 2>James, thank you so much for having me here. I

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<v Speaker 2>love your podcast.

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<v Speaker 1>Thank you. We're also very pleased to welcome Himanshu Bakshi,

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<v Speaker 1>who covers banks for Bloomberg Intelligence, also in New York.

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<v Speaker 3>Hi, James, thank you for having me today.

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<v Speaker 1>We'll be coming right back to Himanshu a little bit

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<v Speaker 1>later in the show, but before we do. Reshmi Basu

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<v Speaker 1>with Bloomberg News, you cover distressed debt in the US.

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<v Speaker 1>A lot of companies are running into trouble at the moment,

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<v Speaker 1>with interest rates rising and the economy slowing, potentially tipping

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<v Speaker 1>into a recession, maybe a hard landing. Stagflation, inflation and

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<v Speaker 1>volatility in the financial don't help. A lot of regional

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<v Speaker 1>banks are really struggling right now. What's the level of

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<v Speaker 1>distress in credit markets at the moment? Resh me, How

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<v Speaker 1>worried should we be? Well?

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<v Speaker 2>The days of cheap money are over as the FED

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<v Speaker 2>has steadily increased interest rates, and higher interest rates are

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<v Speaker 2>putting pressure on the cash flow for companies, especially for

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<v Speaker 2>tech names, and this is where we're seeing quite a

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<v Speaker 2>bit of distressed activity. You know, global default rates have

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<v Speaker 2>now reached the highest level since the twenty twenty pandemic,

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<v Speaker 2>and now over the last few months, we've seen several

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<v Speaker 2>high profile bankruptcies as you mentioned, you know, from banks

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<v Speaker 2>such as Silicon Valley to bed Bath and beyond. We're

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<v Speaker 2>seeing a number of companies entering into negotiations with their

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<v Speaker 2>lenders to extend the twenty twenty four maturity wall. You know,

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<v Speaker 2>for instance, data center operator six Terra is looking at

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<v Speaker 2>multiple options ranging from selling assets to our capital raised

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<v Speaker 2>to tackle heavy debtload. If they can't do that, then

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<v Speaker 2>it's going to end up filing for bankruptcy.

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<v Speaker 1>So the companies you mentioned they're in trouble, what are

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<v Speaker 1>they doing to sort of buy them? That has a

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<v Speaker 1>bit more time here, right.

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<v Speaker 2>This is a market where it's extremely challenging for people

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<v Speaker 2>to make money, and what we are seeing is that

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<v Speaker 2>some lenders, private equity owners, companies themselves are exploiting loopholes

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<v Speaker 2>in the credit agreements that allows for these contentious debt

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<v Speaker 2>maneuvers to take place. So, in industry terms, there's a termination.

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<v Speaker 2>There's a term called designation of an unrestricted subsidiary or

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<v Speaker 2>a drop down box, and that is something no one

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<v Speaker 2>ever wants to hear. But in layman terms, this means

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<v Speaker 2>that the company is moving assets from the collateral package

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<v Speaker 2>backing lenders loans away from their reach. So basically what

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<v Speaker 2>it kind of means is like, let's say I agree

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<v Speaker 2>to give a company a loan, and I believe there

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<v Speaker 2>were five businesses in this package. All of a sudden,

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<v Speaker 2>the company says, oops, no, not so fast, We're going

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<v Speaker 2>to take away two businesses from that enemy. And now

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<v Speaker 2>your recovery values are going to go down and those

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<v Speaker 2>assets have been taken away from you.

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<v Speaker 1>Let me just start you there, the collateral package, unrestricted subsidiary.

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<v Speaker 1>There's lots of quite complicated terms in there. I just

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<v Speaker 1>wanted to break it down even more. We're saying that

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<v Speaker 1>when a company borrows money, they essentially they have something

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<v Speaker 1>that is worth something that the lenders will attach as

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<v Speaker 1>collateral and they expect that that will remain in their

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<v Speaker 1>reach when you know, when they're in this lending agreement,

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<v Speaker 1>and the companies are essentially taking this collateral and putting

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<v Speaker 1>it somewhere else.

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<v Speaker 2>Yeah exactly. So when you know a company does a

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<v Speaker 2>leverage buyout, you as a lender, we're a lend money

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<v Speaker 2>to the company, and you're believing that when you do

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<v Speaker 2>this loan that you have the amount of assets. And

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<v Speaker 2>now what the companies are doing are saying not again,

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<v Speaker 2>We're going to take away some of these assets and

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<v Speaker 2>give it to other lenders.

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<v Speaker 1>Okay, So the word drop down, the phrase drop down

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<v Speaker 1>does that what does that apply to?

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<v Speaker 2>Job down basically means that you are the company is

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<v Speaker 2>moving collateral away from the reach of lenders and putting

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<v Speaker 2>it into a separate legal entity, and at that entity

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<v Speaker 2>they can raise financing.

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<v Speaker 1>Okay, So lenders are not only losing the collateral, but

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<v Speaker 1>they're also kind of being exposed to the risk of

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<v Speaker 1>the company taking on more debt at another level of

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<v Speaker 1>the company.

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<v Speaker 2>Is that Yeah exactly, and they're kind of going to

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<v Speaker 2>be primed, which basically means that those lenders who lose

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<v Speaker 2>those assets are being pushed down to be payment line.

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<v Speaker 1>Okay, so where is this happening? Can you give us

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<v Speaker 1>any examples of what we're seeing right now.

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<v Speaker 3>Yeah.

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<v Speaker 2>You know, for instance, we covered a company Club Corp,

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<v Speaker 2>which is Apollo as Apollo is the private equity owner

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<v Speaker 2>and Club Corp operates private clubs and golf courses. And

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<v Speaker 2>the company recently informed lenders that it was moving to

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<v Speaker 2>business entities into legal and into like legal subsidiaries, which

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<v Speaker 2>basically means it's basically a precursor that the company is

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<v Speaker 2>going to probably raise financing at that box, and those

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<v Speaker 2>businesses have been kind of stripped array from lenders. And

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<v Speaker 2>reason why this is so interesting is because the company

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<v Speaker 2>was actually in negotiations with lenders to extend on near

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<v Speaker 2>term maturity. That deal fell apart, and shortly after the

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<v Speaker 2>company created an unrestricted box drop down box or basically

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<v Speaker 2>moved to business says Interleegal a different legal entity.

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<v Speaker 1>And is this quite common now, this drop down transaction?

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<v Speaker 1>Is it widespread in the industry.

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<v Speaker 2>Yeah, it's becoming common enough that we are seeing situations

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<v Speaker 2>where the lenders were banned together in a preventive move

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<v Speaker 2>with law firms and signed cooperation agreements, which basically is

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<v Speaker 2>telling a company we are united, don't try to do

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<v Speaker 2>these kind of aggressive debt maneuvers.

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<v Speaker 1>But it's not entirely new. We've seen these in the past, right, Yeah.

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<v Speaker 2>We saw it in twenty twenty seventeen with Jay krue

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<v Speaker 2>where it moved Made Well but at the time, which

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<v Speaker 2>was its kind of crown jewel into a drop down box,

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<v Speaker 2>and there's a lot of legal action that took place.

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<v Speaker 2>And then shortly after we saw you know, pet Smart

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<v Speaker 2>do the same thing where it moved Chruey it's online

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<v Speaker 2>pet Stow retailer into a different box, and Nieman Marcus

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<v Speaker 2>moved My Teresa again an online retailer, into a different box.

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<v Speaker 2>But you know, with pet Smart and My Teresa, we

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<v Speaker 2>actually saw those entities do go public. And in these

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<v Speaker 2>kind of more recent situations, we're not seeing those new

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<v Speaker 2>businesses go into like you know, be spun off into

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<v Speaker 2>a publicly listed company. We're actually seeing those companies such

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<v Speaker 2>as like a curt of Simmons, which it did a

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<v Speaker 2>deal in twenty twenty going to Chapter eleven.

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<v Speaker 1>But so in the past, these these maneuvers have actually

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<v Speaker 1>worked and they've saved companies.

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<v Speaker 2>They and you actually saw them being able to spend

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<v Speaker 2>off those assets into a publiclisted company and those proceeds

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<v Speaker 2>would then be used to pay off the lenders.

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<v Speaker 1>But in this case, because the IPO market isn't as hot,

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<v Speaker 1>we think that these won't work this time.

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<v Speaker 2>Yeah, and we're seeing, you know, in Kora, which is

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<v Speaker 2>an aerospace supply, or we're seeing you know, we're hearing

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<v Speaker 2>you know, we're hearing that they're having liquidity issues. Obviously

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<v Speaker 2>we had sort of semons and Envision is another company.

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<v Speaker 1>So the main difference is then between prior use of

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<v Speaker 1>the dropdown and what we're seeing now is just the

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<v Speaker 1>exit to the IPO. Is that right?

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<v Speaker 3>No?

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<v Speaker 2>I think we saw that quite a bit in the

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<v Speaker 2>beginning that you know, the companies would say like, look like,

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<v Speaker 2>even though we're removing these assets from you, eventually we're

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<v Speaker 2>going to do some type of we'll make it a

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<v Speaker 2>publicly traded company and you're going to see value from

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<v Speaker 2>this IPO.

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<v Speaker 1>So we're talking about something that is really not very

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<v Speaker 1>good for the creditor. Right, So how are they reacting

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<v Speaker 1>to this other than organizing, what are they doing to

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<v Speaker 1>be able to protect themselves in these situations?

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<v Speaker 2>They're filing lawsuits. We saw that with Mike Tell, We've

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<v Speaker 2>seen it with in Kora, that there's a lot of

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<v Speaker 2>lawsuits coming and they're basically calling these deals as kind

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<v Speaker 2>of sham transactions, and they're not done in good faith negotiations,

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<v Speaker 2>and they are a complete manipulation of the documents that

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<v Speaker 2>they initially agree to.

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<v Speaker 1>Have we seen any of these lawsuits succeed orre they

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<v Speaker 1>still working their way through the courts.

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<v Speaker 2>They're still working their race through the court. So we

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<v Speaker 2>don't have a great amount of case law. But one

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<v Speaker 2>thing we did see in Certi Simmon's bankruptcy court is

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<v Speaker 2>that the bankruptcy judge did kind of give a nod

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<v Speaker 2>to the aggressive or egregious debt maneuvers.

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<v Speaker 1>Very interesting. So before we talked to Himanshubacshi at Bloomberg Intelligence,

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<v Speaker 1>what's the next big story to watch on your beat? Reshmi?

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<v Speaker 1>What are we looking for next?

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<v Speaker 2>I think we're going to be seeing more cooperation agreements.

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<v Speaker 2>That's something that we're working on for tech company, and

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<v Speaker 2>we're definitely going to see more drop downs for many companies.

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<v Speaker 2>In particular, we're seeing a lot of it in the

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<v Speaker 2>tech software space.

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<v Speaker 1>So cooperation agreements, what are they?

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<v Speaker 2>Cooperation agreements are just basically when the lender is kind

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<v Speaker 2>of bound together for a united front, and you know

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<v Speaker 2>you basically kind of have to inform your lenders if

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<v Speaker 2>you plan to sell your loan.

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<v Speaker 1>Great stuff, Rashmi Bessie from Bloomberg News, thanks so much

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<v Speaker 1>for joining us. Thanks for having me read all of

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<v Speaker 1>Reshmi's scoops on the Bloomberg terminal and of course at

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<v Speaker 1>Bloomberg dot Com. Moving on to another key part of

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<v Speaker 1>credit markets. As I mentioned earlier, we're delighted to have

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<v Speaker 1>on the show Haymanschu Bakshi, who covers banks at Bloomberg Intelligence.

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<v Speaker 1>What's going on with the banks, Himanshu was We've discussed

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<v Speaker 1>a few times already on this show. In March, there

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<v Speaker 1>were serious issues, a regional banking crisis in the US,

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<v Speaker 1>the downfall of Silicon Valley Bank, a niche lender in

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<v Speaker 1>the tech sector, and also to the wineries in California.

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<v Speaker 1>Then much more worrying Credit Swiss imploded, one of the

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<v Speaker 1>biggest fans institutions in the world, heavily involved in all

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<v Speaker 1>parts of the credit markets, brought down and forced into

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<v Speaker 1>a fire sale with ubs. Now First Republic is teaching.

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<v Speaker 1>Is the banking crisis over in your view?

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<v Speaker 3>Manchu, Hey, Gems, thanks again for having me today. So

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<v Speaker 3>is the banking crisis over. I think the answer is

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<v Speaker 3>the worst of the crisis is over, but the banking

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<v Speaker 3>system remains under pressure. And the reason I say that

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<v Speaker 3>is because inflation, even though it's easy, it still remains high,

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<v Speaker 3>which means the Federal Reserve will need to continue to

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<v Speaker 3>raise interest rates, which means that the issue we save

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<v Speaker 3>with some of the banks that failed in March was

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<v Speaker 3>rising losses on the investment portfolio. That will continue to increase.

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<v Speaker 3>But the change we are seeing now is that the

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<v Speaker 3>focus has shifted from all banks globally to a few

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<v Speaker 3>banks with those radiosyncratic risk So even though it'll take

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<v Speaker 3>some time for positors, investors confidence to come back, I

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<v Speaker 3>think most of the crisis is behind us.

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<v Speaker 1>So you look at the eighty one market, that's the

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<v Speaker 1>riskiest form of bank debt credit Swiss wrote there's down

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<v Speaker 1>to zero, even though equity holders got something back. That

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<v Speaker 1>was a major event for that market, and we saw,

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<v Speaker 1>you know, a lot of panic and a lot of

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<v Speaker 1>people saying that the market had been killed by that transaction.

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<v Speaker 1>But more recently we saw a deal in Asia, so

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<v Speaker 1>the market, you know, it's not completely dead. What about

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<v Speaker 1>in the countries that you cover?

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<v Speaker 3>So I cover Canadian and Australian banks. These are among

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<v Speaker 3>the highest rated banks in the world, from mid singlely

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<v Speaker 3>to high double A. I think the market remains open

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<v Speaker 3>for these highly rated institutions, and we saw that in March.

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<v Speaker 3>If you looked at Australian or Canadian banks eighty one securities,

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<v Speaker 3>they widened along with all the market, although all the

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<v Speaker 3>other financial institutions, but they widened less than most banks globally,

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<v Speaker 3>and so I think markets will remain open. But one

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<v Speaker 3>thing that I would like to highlight is additional Tier

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<v Speaker 3>one capital is not a requirement for banks. The optimal

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<v Speaker 3>level the regulator asked banks to hold is about one

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<v Speaker 3>point five percent of their risk created assets. Most of

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<v Speaker 3>the banks under my coverage already are at that level

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<v Speaker 3>or exceed that level, so they don't have an urgent

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<v Speaker 3>need to come to market to issue eighty one securities.

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<v Speaker 3>Uh And because these banks are so well capitalized, they

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<v Speaker 3>don't need to issue because as I said, the one

0:12:32.160 --> 0:12:35.400
<v Speaker 3>point eighty one as a percentage of risk created assets,

0:12:35.400 --> 0:12:39.240
<v Speaker 3>it's not a requirement. Is it's an optimal level. But

0:12:39.280 --> 0:12:42.040
<v Speaker 3>if you have enough core equity, core capital, you don't

0:12:42.080 --> 0:12:43.200
<v Speaker 3>even need to issue that much.

0:12:43.640 --> 0:12:46.240
<v Speaker 1>You've talked a bit about extension risk in what you've

0:12:46.280 --> 0:12:47.959
<v Speaker 1>been writing. What does that mean and why should we

0:12:48.040 --> 0:12:48.600
<v Speaker 1>care about it?

0:12:48.840 --> 0:12:52.000
<v Speaker 3>So extension risk is basically, when you buy an eighty

0:12:52.040 --> 0:12:55.360
<v Speaker 3>one security of a bank, you are assuming that the

0:12:55.360 --> 0:12:57.240
<v Speaker 3>bank will call those security on the first called it

0:12:58.040 --> 0:13:03.439
<v Speaker 3>and banks under my cover, for example Australia. Australian banks

0:13:03.440 --> 0:13:05.599
<v Speaker 3>in the past have always called eighty one securities on

0:13:05.640 --> 0:13:09.000
<v Speaker 3>the first call date and that's how those securities are priced.

0:13:09.720 --> 0:13:13.120
<v Speaker 3>We still expect Australian banks to call the eighty one

0:13:13.120 --> 0:13:15.360
<v Speaker 3>securities on the first call date. The a couple of

0:13:15.400 --> 0:13:19.200
<v Speaker 3>structural reasons why they would do that because the eighty

0:13:19.200 --> 0:13:23.160
<v Speaker 3>one high bits. For example, they have a mandatory convusion

0:13:23.280 --> 0:13:26.400
<v Speaker 3>date three month three years after the first call date,

0:13:26.679 --> 0:13:28.680
<v Speaker 3>so for them, it makes sense to call the eighty

0:13:28.720 --> 0:13:32.319
<v Speaker 3>one securities of the first called aid. For Canadian banks,

0:13:32.760 --> 0:13:35.480
<v Speaker 3>they are not known for calling the eighty one securities

0:13:35.520 --> 0:13:37.440
<v Speaker 3>on the first cal date, so we don't expect them

0:13:37.800 --> 0:13:40.880
<v Speaker 3>to call the eighty ones. But Australian banks we two thinks.

0:13:41.040 --> 0:13:43.840
<v Speaker 3>So in terms of extension risk, I see a little

0:13:43.880 --> 0:13:46.320
<v Speaker 3>bit for Canadian banks, but not for Australian banks.

0:13:46.440 --> 0:13:49.000
<v Speaker 1>Okay, So over all the financial institutions. Where do we

0:13:49.040 --> 0:13:49.679
<v Speaker 1>go from here?

0:13:50.679 --> 0:13:53.800
<v Speaker 3>I think, as I said before, the risk has shifted

0:13:54.240 --> 0:13:57.200
<v Speaker 3>to a few banks with idiosyncreative risk, and what I

0:13:57.240 --> 0:14:00.800
<v Speaker 3>mean by that is banks with more on show loans,

0:14:01.679 --> 0:14:03.760
<v Speaker 3>what we're seeing with First Republic, where you have a

0:14:04.760 --> 0:14:09.400
<v Speaker 3>interest only mortgages on your balance sheet. So the focus

0:14:09.400 --> 0:14:12.120
<v Speaker 3>has shifted to those kinds of banks. So I think

0:14:12.200 --> 0:14:16.079
<v Speaker 3>overall the risk is going down. But something to watch

0:14:16.080 --> 0:14:19.640
<v Speaker 3>out is what will be the impact of the crisis

0:14:19.640 --> 0:14:23.720
<v Speaker 3>we had in March on the economy, the economic growth

0:14:23.760 --> 0:14:29.640
<v Speaker 3>and credit growth. And that's important why because if we

0:14:29.720 --> 0:14:34.720
<v Speaker 3>see a significant technique of underwriting standards from here on,

0:14:35.800 --> 0:14:39.600
<v Speaker 3>that will have an impact on households and businesses, which

0:14:39.640 --> 0:14:41.920
<v Speaker 3>will in turn have an impact on the labor market

0:14:42.080 --> 0:14:46.880
<v Speaker 3>right and that will put pressure on borrowers low in

0:14:46.920 --> 0:14:51.480
<v Speaker 3>the credit spectrum. And if we have that, that will

0:14:51.600 --> 0:14:56.880
<v Speaker 3>have an impact on the bank's asset quality. And that's

0:14:56.880 --> 0:15:00.000
<v Speaker 3>what we're watching right now. So I cover the big

0:15:00.080 --> 0:15:03.280
<v Speaker 3>give US credit card issues, and what I'm watching is

0:15:03.480 --> 0:15:08.040
<v Speaker 3>asset quality for card issus. With more subprime loans.

0:15:07.840 --> 0:15:10.080
<v Speaker 1>Surely we're going to be running into trouble and credit cards.

0:15:10.080 --> 0:15:12.800
<v Speaker 1>Though with the consumer when we tip into recession. I mean,

0:15:12.800 --> 0:15:13.720
<v Speaker 1>are you're not worried about that?

0:15:14.320 --> 0:15:17.160
<v Speaker 3>Not really, Because all the US card is shows that

0:15:17.200 --> 0:15:20.880
<v Speaker 3>I covered, they have ample allowance for credit losses. And

0:15:20.960 --> 0:15:23.640
<v Speaker 3>what I mean by ample, so all the card is

0:15:23.640 --> 0:15:27.800
<v Speaker 3>shows have reserved assuming that unemployment will peak at five percent.

0:15:28.360 --> 0:15:31.760
<v Speaker 3>That's what our in house Bloomberg view is. Even if

0:15:31.840 --> 0:15:35.960
<v Speaker 3>unemployment goes above five percent. We know that the Federal

0:15:36.000 --> 0:15:39.040
<v Speaker 3>Reserve last year stress tested all these card issuers at

0:15:39.120 --> 0:15:45.480
<v Speaker 3>ten percent peak unemployment, So banks have time to add

0:15:45.480 --> 0:15:49.200
<v Speaker 3>more provisions to their reserves, and on top of that,

0:15:49.240 --> 0:15:52.680
<v Speaker 3>they have ample capital to absorb any unexpected losses. So

0:15:52.760 --> 0:15:56.760
<v Speaker 3>I don't think it's a big issue for it's a

0:15:56.760 --> 0:16:00.040
<v Speaker 3>big concern for credit card is shows now. Obviously the

0:16:00.080 --> 0:16:04.200
<v Speaker 3>bonds will remain sensitive to a recession, but I think

0:16:04.200 --> 0:16:06.320
<v Speaker 3>the credit profile of all the US cardish shows should

0:16:06.320 --> 0:16:07.160
<v Speaker 3>be stable.

0:16:07.480 --> 0:16:10.080
<v Speaker 1>Are there any that are particularly concerning to you? I mean,

0:16:10.240 --> 0:16:13.200
<v Speaker 1>obviously places like Amex that have sort of high net

0:16:13.200 --> 0:16:16.040
<v Speaker 1>worth customers, they're pretty be okay. But the other ones

0:16:16.080 --> 0:16:18.480
<v Speaker 1>that maybe you know, give cards out to Banana Republic

0:16:18.600 --> 0:16:20.480
<v Speaker 1>or whatever, are they not going to be struggling a bit?

0:16:21.160 --> 0:16:23.480
<v Speaker 3>So yeah, as you said, Amex. Yes, they have a

0:16:23.560 --> 0:16:27.040
<v Speaker 3>more affluent super prime client base, so Amex should be fine.

0:16:27.160 --> 0:16:30.880
<v Speaker 3>Discovers another one that I cover, again more prime focus.

0:16:31.520 --> 0:16:35.280
<v Speaker 3>But the two that I'm looking carefully, I think the

0:16:35.280 --> 0:16:37.520
<v Speaker 3>first one is Capital One because about thirty percent of

0:16:37.560 --> 0:16:40.560
<v Speaker 3>their loan book is subprime, fifty percent of their auto

0:16:40.600 --> 0:16:43.160
<v Speaker 3>loan book is subprime. And then the other one is

0:16:43.200 --> 0:16:46.920
<v Speaker 3>Synchrony Financial, about twenty seven percent of their loan book

0:16:47.000 --> 0:16:49.360
<v Speaker 3>is subprime. So those are the two we are watching.

0:16:49.880 --> 0:16:54.160
<v Speaker 3>But these two banks also have higher alarms for credit

0:16:54.200 --> 0:16:56.320
<v Speaker 3>losses than the other two piers I mentioned with more

0:16:56.320 --> 0:16:59.840
<v Speaker 3>prime focus, and they also have higher capital. And so

0:17:00.000 --> 0:17:02.840
<v Speaker 3>even though they are taking more risk, they are actually

0:17:03.640 --> 0:17:06.200
<v Speaker 3>when the underwrite, the underwrite to the risk, they understand

0:17:06.200 --> 0:17:08.480
<v Speaker 3>what the risk is, they have higher margins, they have

0:17:08.600 --> 0:17:12.240
<v Speaker 3>more capital against that risk. So as I said, even

0:17:12.280 --> 0:17:15.280
<v Speaker 3>though their bond spreads may remain sensitive in a downtown,

0:17:15.880 --> 0:17:18.040
<v Speaker 3>overall the credit profile of even these two banks should

0:17:18.040 --> 0:17:18.479
<v Speaker 3>be fine.

0:17:18.840 --> 0:17:21.919
<v Speaker 1>So you sound remarkably up beaten optimistic, and you know

0:17:21.960 --> 0:17:23.960
<v Speaker 1>this is a credit show, and I'm very pessimistic, And

0:17:24.000 --> 0:17:27.080
<v Speaker 1>does Reshmi was saying earlier, there's a ton of things

0:17:27.080 --> 0:17:30.240
<v Speaker 1>to worry about. What keeps you up worrying mindshew.

0:17:30.520 --> 0:17:33.199
<v Speaker 3>I think, as I said before, the one thing that

0:17:33.200 --> 0:17:36.280
<v Speaker 3>I'm looking at is the impact of the banking crisis

0:17:36.359 --> 0:17:41.280
<v Speaker 3>on the economy and the credit growth. Because, as I said,

0:17:41.280 --> 0:17:45.080
<v Speaker 3>the subprime blenders that we're looking at, Capital One and

0:17:45.240 --> 0:17:49.800
<v Speaker 3>Synchrony I mentioned, they still have good regulatory supervision. So

0:17:49.840 --> 0:17:52.560
<v Speaker 3>those are not the banks that I'm concerned about. I

0:17:52.600 --> 0:17:55.440
<v Speaker 3>think the risk lies more in the small non bank

0:17:55.440 --> 0:17:59.520
<v Speaker 3>financial institutions, which they don't have much regulatory supervision, and

0:17:59.560 --> 0:18:02.560
<v Speaker 3>that's why concerned about. I don't cover those companies, but

0:18:02.840 --> 0:18:05.320
<v Speaker 3>I think the risk is over there in my view.

0:18:05.880 --> 0:18:08.520
<v Speaker 1>Thanks very much, she Manchu Bakshi of Bloomberg Intelligence.

0:18:08.560 --> 0:18:09.320
<v Speaker 3>Thank you, James.

0:18:09.480 --> 0:18:11.840
<v Speaker 1>You can see all of his analysis on the Bloomberg Terminal.

0:18:12.080 --> 0:18:14.000
<v Speaker 1>There's a ton of stuff going on in that sector,

0:18:14.040 --> 0:18:16.639
<v Speaker 1>so do check it out. And thanks again to Reshmi

0:18:16.640 --> 0:18:17.920
<v Speaker 1>Basu from Bloomberg News.

0:18:18.920 --> 0:18:19.680
<v Speaker 2>Thanks so much.

0:18:20.000 --> 0:18:22.119
<v Speaker 1>Read all of her scoops on the terminal and at

0:18:22.119 --> 0:18:25.520
<v Speaker 1>Bloomberg dot com. I'm James Crumby. It's been a pleasure

0:18:25.600 --> 0:18:27.880
<v Speaker 1>having you. See you next week on the Credit Edge