WEBVTT - The Fed, Banks, and Credit Suisse 0:00:00.760 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.680 at Bloomberg dot com slash podcast. Let's check in with 0:00:21.800 --> 0:00:26.599 Ira Jersey, chief US interest rate strategist for Bloomberg Intelligence. 0:00:26.880 --> 0:00:30.040 So again, Ira, about all all I know about your business? 0:00:30.120 --> 0:00:32.159 I can sum up and believe me, I don't want 0:00:32.200 --> 0:00:34.120 to know anymore. I can sum up in one function 0:00:34.280 --> 0:00:38.080 WI RP and all I know is the markets tell 0:00:38.120 --> 0:00:40.519 me that rates are going to peak in May and 0:00:40.560 --> 0:00:43.839 then start going down. Are we going to hear anything 0:00:43.880 --> 0:00:46.400 like that from FED Chairman J Pale tomorrow? Well, I 0:00:47.159 --> 0:00:50.600 don't think so. I think actually Jay Powell will probably say, 0:00:50.640 --> 0:00:52.800 you know, we're still in inflation fighting mode. We're going 0:00:52.840 --> 0:00:54.960 to you know, hike one more time, and we're going 0:00:55.000 --> 0:00:59.040 to let the data guide us going forward. So so 0:00:59.080 --> 0:01:01.000 I think he's going to try to say that, Look, 0:01:01.280 --> 0:01:03.920 unless the unemployment rate goes up or inflation comes down 0:01:03.960 --> 0:01:05.760 a lot we're not going to be cutting interest rates. 0:01:05.760 --> 0:01:09.000 I think the financial market anks that we've seen over 0:01:09.040 --> 0:01:12.440 the last ten days or so is really what's what's 0:01:12.520 --> 0:01:14.480 driving the market to think that the Fed's going to 0:01:14.520 --> 0:01:17.120 wind up easing monetary policy a lot earlier than it 0:01:17.160 --> 0:01:19.880 was thinking just two or three weeks ago, and really 0:01:20.200 --> 0:01:22.800 not much has changed with the underlying economy. I think 0:01:22.840 --> 0:01:25.479 just the markets pricing in the risk that that will 0:01:25.520 --> 0:01:28.480 be contagient from what's going on with the banking sector. 0:01:29.080 --> 0:01:31.280 I a couple of months ago, you came onto the 0:01:31.319 --> 0:01:33.880 show and Ted and said that there was a cap 0:01:33.959 --> 0:01:36.520 on yield, especially on the front end of the curve, 0:01:36.560 --> 0:01:39.720 because rate cuts were being priced in. Are rate cuts 0:01:39.800 --> 0:01:43.000 still being priced in? Yeah, so so we're we're cutting. 0:01:43.480 --> 0:01:47.039 We're actually pricing for a few interest rate cuts, at 0:01:47.120 --> 0:01:49.080 least two interest rate cuts before the end of the year. 0:01:49.960 --> 0:01:52.160 And I think that you know that that's going to 0:01:52.560 --> 0:01:54.360 that's starting to be priced out now right. Some of 0:01:54.400 --> 0:01:56.120 the market acction that we've seen today, I think with 0:01:56.160 --> 0:02:00.800 some of the more explicit protection for the positors that 0:02:01.120 --> 0:02:03.320 governments are doing, the fact that we've tried to work 0:02:03.320 --> 0:02:06.279 out the credit suee situation, all of those things are 0:02:06.400 --> 0:02:09.280 making it the markets kind of reprice the cuts that 0:02:09.320 --> 0:02:11.920 were priced in UM. But but the you know, we 0:02:11.960 --> 0:02:13.680 still are going to price in cuts, right because at 0:02:13.680 --> 0:02:16.799 some point in the near future. UM. I still think 0:02:16.840 --> 0:02:19.360 that it's pretty likely and you know, we've thought this 0:02:19.400 --> 0:02:22.720 and this is only changed incrementally over the last week. UM. 0:02:22.880 --> 0:02:24.480 Is that is that the Fed's gonna hike one or 0:02:24.480 --> 0:02:25.920 two more times, and then they're going to and then 0:02:25.919 --> 0:02:28.440 they're going to pause, and then more than likely the 0:02:28.480 --> 0:02:30.920 next move is going to be a cut. The bigger question, 0:02:31.080 --> 0:02:35.840 I think is when will that first cut start, When 0:02:35.840 --> 0:02:38.560 will that first cup be and then the magnitude and 0:02:38.720 --> 0:02:42.880 pace of cuts thereafter, And the market is you know, 0:02:43.160 --> 0:02:47.079 basically had priced before all of this financial market turmoil 0:02:47.560 --> 0:02:51.200 um UM had been pricing basically very slow pace of 0:02:51.200 --> 0:02:54.320 cuts in twenty twenty four. UM. Now I think that 0:02:54.320 --> 0:02:56.839 that was always unlikely because when the Fed starts to cut, 0:02:56.840 --> 0:02:59.160 they're cutting because there's a there's usually a problem in 0:02:59.200 --> 0:03:04.200 the economy, and and they'll cut more aggressively. So the yeah, 0:03:04.200 --> 0:03:06.280 the market is pricing for cuts. It's actually pricing for 0:03:06.280 --> 0:03:09.040 cuts in the second half this year. I think though 0:03:09.320 --> 0:03:11.120 eventually those are going to be priced out in the 0:03:11.440 --> 0:03:14.440 next week or so, and I think that that could 0:03:14.440 --> 0:03:20.120 easily start tomorrow with J Powell's press conference And Ira, 0:03:20.240 --> 0:03:22.960 do you think FED Chairman J Powe will address the 0:03:23.480 --> 0:03:25.880 banking turmoil which is a phrase I've been using, I've 0:03:25.919 --> 0:03:28.520 been avoiding crisis. Do you think he will address it 0:03:28.639 --> 0:03:31.160 or will have to be maybe response to some questions 0:03:31.280 --> 0:03:33.640 or how do you think he need he deals with this? Yeah, 0:03:33.639 --> 0:03:36.560 I think turmoils the right word for it. Certainly it's 0:03:36.560 --> 0:03:39.360 not yet a crisis, right and the FED and other 0:03:39.400 --> 0:03:42.960 policymakers are working hard to avoid it becoming a crisis. 0:03:43.760 --> 0:03:46.800 But yeah, J Powell definitely has to address that, and 0:03:46.840 --> 0:03:48.640 I think the way that that they'll couch it, and 0:03:48.680 --> 0:03:50.920 I think that there will be something in the post 0:03:50.960 --> 0:03:53.440 meeting statement and then he'll be a little bit more detailed. 0:03:53.720 --> 0:03:56.280 In his opening remarks at the press conference, half an 0:03:56.280 --> 0:03:59.720 hour later, is saying we hiked interest rates by twenty 0:03:59.720 --> 0:04:02.560 five basis points because inflation is still a problem. We 0:04:02.640 --> 0:04:06.400 are aware that the banking sector has some issues. We 0:04:06.480 --> 0:04:09.480 are using our liquidity and funding facilities to the best 0:04:09.480 --> 0:04:13.120 of our ability, and we're using our credential regulatory authority 0:04:13.480 --> 0:04:16.120 in order to, you know, make sure that the financial 0:04:16.160 --> 0:04:18.080 sector is as safe and sound as we can make it. 0:04:18.320 --> 0:04:20.440 So I think that he'll try to different connect the 0:04:20.520 --> 0:04:25.200 monetary policy and the and the banking regulator and funding policy. 0:04:25.279 --> 0:04:27.000 All right, we're going to head down to Washington, DC. 0:04:27.160 --> 0:04:29.280 We thank you though for your comments here today our 0:04:29.440 --> 0:04:34.200 Jersey chief US Interest Rate Strategists. You're listening to the 0:04:34.279 --> 0:04:38.240 team Ken's our live program Bloomberg Markets weekdays at ten am, 0:04:38.240 --> 0:04:41.360 easting on Bloomberg dot com, the I Heart Radio app, 0:04:41.440 --> 0:04:44.359 and the Bloomberg Business app, or listen on demand wherever 0:04:44.440 --> 0:04:49.560 you get your podcast. Well, how's this for a headline 0:04:49.800 --> 0:04:54.320 on the Bloomberg terminal hike. You lose pause, you lose more. 0:04:54.680 --> 0:04:58.160 That's twenty five basis point FED call, and the author 0:04:58.200 --> 0:05:01.800 of that is Anna Wong, Chief us as for Bloomberg Economics, 0:05:02.040 --> 0:05:04.800 and give us a sense of kind of the tight 0:05:04.920 --> 0:05:09.000 rope this FED is walking right now as it begins. 0:05:08.839 --> 0:05:13.040 It's it's two day meeting, right So on one hand, 0:05:13.240 --> 0:05:16.920 the FED has a very compelling case to pause, as 0:05:17.000 --> 0:05:21.280 many people want them to because you know, the financial market, 0:05:21.279 --> 0:05:23.240 it's very skittish. We're still in the middle of the 0:05:23.279 --> 0:05:25.880 banking crisis. You don't know which shoe is going to 0:05:25.960 --> 0:05:29.840 drop tomorrow. On the other hand, inflation is still at 0:05:29.920 --> 0:05:33.120 forty year high, and in fact, inflation and in this 0:05:33.200 --> 0:05:36.880 current you know, banking crisis is the highest in any 0:05:36.880 --> 0:05:39.599 other banking crisis in the last one hundred and forty 0:05:39.680 --> 0:05:42.480 years we found. So there's still a very good case 0:05:42.520 --> 0:05:45.080 to continue hiking. This is why it will be a 0:05:45.160 --> 0:05:49.200 very very tough decision tomorrow. And you use the term 0:05:49.200 --> 0:05:51.719 banking crisis, and I've been hesitant to use that term. 0:05:51.800 --> 0:05:53.920 I'm not sure what it is. It's it's not two 0:05:53.960 --> 0:05:57.360 thousand and eight. To me, give us a sense, your 0:05:57.360 --> 0:06:00.880 sense as a trained economist, how serious is this that 0:06:01.080 --> 0:06:04.440 what we've experienced over the past couple of weeks. Well, 0:06:04.480 --> 0:06:07.839 I so, first of all, I think in the compared 0:06:07.880 --> 0:06:12.320 to all the other banking crisis, which is defined as 0:06:12.920 --> 0:06:16.080 a bank run that could lead to closure, merging, or 0:06:16.160 --> 0:06:20.560 take over one or more financial institutions, well, I think 0:06:20.600 --> 0:06:24.640 this bank run that we're seeing is not as crazy 0:06:24.760 --> 0:06:28.839 as the past nine bank runs in a banking crisis 0:06:28.880 --> 0:06:30.919 in the past one hundred and forty years. But it 0:06:30.960 --> 0:06:33.960 could get worse. I'm not saying it won't, but but 0:06:34.240 --> 0:06:38.000 I think that, you know, the economic impact of the 0:06:38.040 --> 0:06:42.840 current crisis, I'm our predictions is that it is not 0:06:42.920 --> 0:06:46.560 as severe as the previous ones. Well, Anna Paul Sweeney 0:06:46.560 --> 0:06:48.480 mentioned this earlier in the show. You made a pretty 0:06:48.520 --> 0:06:51.360 exciting call about five percent of a terminal rate. Then 0:06:51.440 --> 0:06:54.159 we had Jamie Diamond talk about a six percent terminal rate, 0:06:54.680 --> 0:06:57.120 which kind of got the markets excited as well. As 0:06:57.120 --> 0:06:59.520 we talk about this banking termoil, is there a possibility 0:06:59.560 --> 0:07:03.440 that the term all weight goes in the other directions? Well, 0:07:03.480 --> 0:07:07.240 you know, the terminal rate was going to five point 0:07:07.279 --> 0:07:11.040 seven five before the the collapse of the SVP. It 0:07:11.080 --> 0:07:13.600 was the heading towards the direction of six, right, But 0:07:13.720 --> 0:07:17.800 now it's fallen back to just right below five. And 0:07:18.080 --> 0:07:21.160 I think that given our prediction of what the fight 0:07:21.200 --> 0:07:24.240 would do, which is another hike of twenty five pips 0:07:24.520 --> 0:07:27.480 so that they get determined the FI funds rate to 0:07:27.560 --> 0:07:30.680 five percent, maybe there will signal in the SEP just 0:07:30.840 --> 0:07:33.640 in other twenty five pips and then that would get 0:07:33.720 --> 0:07:36.560 us to five point two five in May and perhaps 0:07:36.640 --> 0:07:39.720 pause and hold at that level in the rest of 0:07:39.720 --> 0:07:42.400 the year. And where are we in terms of the 0:07:42.520 --> 0:07:48.280 discussion about the economy and recession. Where where do you 0:07:48.280 --> 0:07:52.760 think that argument stands right now? I think that this 0:07:52.920 --> 0:07:57.000 is the times where the model is kind of syndicating themselves. 0:07:57.280 --> 0:08:01.720 The model of one hundred percent recession can basically the 0:08:01.800 --> 0:08:06.120 model takes past recession as inputs, and in the past recessions, 0:08:05.560 --> 0:08:10.080 whenever the FED raises rates this rapidly, something breaks, and 0:08:10.120 --> 0:08:13.240 the models are telling us something will break before September. 0:08:13.640 --> 0:08:16.880 So we just updated our models. Those those things are 0:08:16.880 --> 0:08:20.160 still telling us that a recession will hit before by 0:08:20.200 --> 0:08:23.680 the time of September this year. Anna, there was a 0:08:23.720 --> 0:08:26.480 great chart on the Bloom Interminal about the financial conditions 0:08:26.520 --> 0:08:29.320 index and how is in a restrictive territory. But I 0:08:29.320 --> 0:08:33.160 think of like eighty three basis points worth of restrictive territory, 0:08:33.640 --> 0:08:37.280 and I'm wondering how much of this kind of chaos, 0:08:37.320 --> 0:08:40.600 which from what I understand, the consensus consensus is that 0:08:40.640 --> 0:08:45.920 it's idiosyncratic, is actually an overreaction as opposed to perhaps 0:08:46.040 --> 0:08:50.160 doing the job of the FED for the FED. Well, 0:08:50.160 --> 0:08:52.760 you know, this gets back to the question of what 0:08:52.920 --> 0:08:57.600 is financial conditions? And remember a month ago everybody was 0:08:57.640 --> 0:09:02.640 saying why why why, Powell saying that financial conditions tightened 0:09:02.800 --> 0:09:07.600 when the financial Conditions index on the terminal, and as 0:09:07.679 --> 0:09:11.640 do other indexes of their show that it has eased. Well. 0:09:11.920 --> 0:09:14.400 One thing that the Food pays a lot of attention 0:09:14.480 --> 0:09:19.000 to is credit lending standards, right, and this is the 0:09:19.080 --> 0:09:21.600 kind of channel that most people are talking about now 0:09:21.640 --> 0:09:25.480 with this banking crisis and how they could cause the 0:09:25.559 --> 0:09:29.760 economy to contract. But the thing is bank lending has 0:09:29.840 --> 0:09:34.920 been declining and contracting very sharp even before the banking 0:09:34.920 --> 0:09:39.120 crisis because of the rise in interest rate. So I 0:09:39.200 --> 0:09:42.080 think to a degree when people say financial conditions is 0:09:42.080 --> 0:09:46.440 tightening right now and the economy is going to contract 0:09:46.520 --> 0:09:49.920 more deeply, well to a very much high degree, that 0:09:50.160 --> 0:09:52.760 already kind of happened. It was in training the last 0:09:52.760 --> 0:09:56.160 six months before the banking crisis. So I think it's 0:09:56.280 --> 0:09:59.280 kind of an overreaction right now in that sense. And 0:09:59.559 --> 0:10:04.160 I know economists and FED watchers really parse the words 0:10:04.320 --> 0:10:06.559 of the FED chairman during his press conference, his or 0:10:06.559 --> 0:10:09.080 her pressed conference. What are you really going to be 0:10:09.120 --> 0:10:11.960 focused on tomorrow when we do get to Q and 0:10:12.000 --> 0:10:15.040 A with FED Chairman Powell, I will be focused on 0:10:16.000 --> 0:10:19.959 whether he draws the line between monitor policy and financial 0:10:20.000 --> 0:10:24.920 stability tools. I think he will channel Christine Lagarde and 0:10:25.040 --> 0:10:29.000 say that inflation is still too high. We've got to 0:10:29.160 --> 0:10:33.360 use interest rate policy to fight inflation financial stability. We 0:10:33.400 --> 0:10:37.400 have enough tools to support them, using our discount window 0:10:37.480 --> 0:10:40.319 and all the liquidity tools that we have developed over 0:10:40.360 --> 0:10:43.200 the past you know, fifteen years. We know we have 0:10:43.320 --> 0:10:46.160 confidence in the banking crisis. So he has to come 0:10:46.200 --> 0:10:49.320 out with a lot of confidence about the US banking 0:10:49.360 --> 0:10:52.079 crisis so that people are not further spooked, but at 0:10:52.080 --> 0:10:55.079 the same time show that the FED is serious about 0:10:55.120 --> 0:10:58.920 fighting inflation and a thirty seconds here, do you think 0:10:58.960 --> 0:11:02.520 that the chair will speak about the possibility of pausing 0:11:02.760 --> 0:11:06.320 quantitative tightening or anything with that regard to bond purchases 0:11:06.600 --> 0:11:11.440 or selling. No, but I think he will be very 0:11:11.480 --> 0:11:15.079 clear that the usage of account window and the expansion 0:11:15.120 --> 0:11:17.360 of veil and sheets through with his account window is 0:11:17.440 --> 0:11:21.880 not saying that the QT is effectively dead. But then 0:11:21.920 --> 0:11:25.760 they will continue to monitor the situation of reserves demand 0:11:25.920 --> 0:11:29.400 to make sure that there wouldn't be some discontinuous fights. 0:11:30.600 --> 0:11:35.480 Thirty seconds here, what would be a mistake by pal tomorrow? Anna, 0:11:35.600 --> 0:11:38.320 I think a mistake it would be if he paused 0:11:38.600 --> 0:11:43.839 great hikes and also to signal imminent pause. All right, 0:11:43.920 --> 0:11:47.160 great stuff, Anna Wong Chief, you as economists Bloomberg Economics. 0:11:47.160 --> 0:11:52.080 I love this academic background BA and economics and statistics 0:11:52.080 --> 0:11:54.560 from Berkeley. I mean, who does that? And then she 0:11:54.720 --> 0:11:57.000 doubles down on this whole thing. It's a PhD in 0:11:57.040 --> 0:12:01.240 economics from the University of Chicago. It's Matthey. It is 0:12:01.320 --> 0:12:04.240 It's very Matthey. But that's why, that's why she's the chief. 0:12:04.280 --> 0:12:07.160 He's economist of Bloomberg Economic Yeah, and she was, you know, 0:12:07.240 --> 0:12:09.240 she's been in the government and you know, so she 0:12:09.280 --> 0:12:12.280 knows how this whole thing works. Former FOOO Reserve Principal 0:12:12.320 --> 0:12:14.680 economist for five years, so she was at the FED. 0:12:15.040 --> 0:12:18.240 She knows what levers get pulled, and she knows what 0:12:18.360 --> 0:12:21.439 data points are really important to this federal feeder reservant, 0:12:21.440 --> 0:12:24.000 to this FED chairman. So we love having access to 0:12:24.280 --> 0:12:26.360 the great mind of Annawank Chief. He as economist for 0:12:26.400 --> 0:12:30.440 Bloomberg Economics. She's based down in Washington, DC. You're listening 0:12:30.480 --> 0:12:34.000 to the tape cancer our live program Bloomberg Markets weekdays 0:12:34.000 --> 0:12:37.280 at ten am Eastern on Bloomberg Radio, the tuning half, 0:12:37.320 --> 0:12:40.160 Bloomberg dot Com, and the Bloomberg Business alf You can 0:12:40.200 --> 0:12:43.440 also listen live on Amazon Alexa from our flagship New 0:12:43.520 --> 0:12:49.480 York station. Just say Alexa play Bloomberg eleven thirty. All right, 0:12:49.520 --> 0:12:52.280 here's the conversation of the morning for me. Here's a guy, 0:12:52.559 --> 0:12:56.240 Jerome Julius, senior credit analyst covers the European banks for 0:12:56.320 --> 0:12:58.839 Bloomberg Intalent and she joined in twenty nineteen, which means 0:12:58.880 --> 0:13:00.800 I did not hire him, but I you're really really 0:13:00.840 --> 0:13:03.640 good things about him. You know, before Bloomberg, he was 0:13:03.640 --> 0:13:06.600 at Merrill Lynch and Barkley's and you know, Fitch Ratings. 0:13:06.640 --> 0:13:09.480 So he's been around the block a few times. And 0:13:09.520 --> 0:13:12.520 he's gonna explain to me what is an eighty one 0:13:12.640 --> 0:13:14.960 bond and why do I care about it? Because boy, 0:13:15.160 --> 0:13:16.920 I'm hearing a lot about that in the context of 0:13:17.000 --> 0:13:21.720 UBS's acquisition of Credit Swiss. So we welcome Drone Julius, Dron. 0:13:21.840 --> 0:13:24.520 What do you got for us? Hi? Thanks, thank you 0:13:24.559 --> 0:13:30.040 for inviting me along. Right, So at one bombs? What 0:13:30.679 --> 0:13:34.600 are they? Eighty one? It stands for additional Tier one 0:13:34.880 --> 0:13:39.080 and it's an instrument that's used by banks, mostly outside 0:13:39.080 --> 0:13:45.680 of the US for the regulatory capital purposes. They are 0:13:45.720 --> 0:13:48.280 the most junior type of bombs. And they said just 0:13:48.320 --> 0:13:54.160 above Corman equity, so just above the shareholders, and they share. 0:13:54.200 --> 0:13:56.480 They are a bit equity like they share with equity. 0:13:56.640 --> 0:14:00.440 A couple of features that make them equity. They are 0:14:00.480 --> 0:14:03.160 perpetual instruments, although the issue does have a call option 0:14:03.240 --> 0:14:08.520 on all those bonds. They've got a discretionary coupon that 0:14:08.679 --> 0:14:12.120 differs from pretty much every other fixed income instrument which 0:14:12.200 --> 0:14:15.679 has a which have must pay coupons, right, and the 0:14:15.760 --> 0:14:19.520 discretionary coupon is similar to a diffidend on a stock. 0:14:20.360 --> 0:14:23.720 They've also got a principle most absorption language that means 0:14:23.720 --> 0:14:27.280 that they have a certain triggers set in motion is activated, 0:14:27.440 --> 0:14:30.240 than an investor could could lose all of its all 0:14:30.240 --> 0:14:33.520 of its money. Um, so they're going a nutshell. Other 0:14:33.960 --> 0:14:37.720 key features of an eighty one bond, it's it's a 0:14:37.760 --> 0:14:41.040 big market. It started in twenty thirteen, and you know, 0:14:41.040 --> 0:14:44.440 it's a ten about ten years ago, and I can't 0:14:44.440 --> 0:14:46.560 remember talking about how much is outstanding, but it's pretty 0:14:46.640 --> 0:14:48.800 much every bank in Europe and that's the area that 0:14:48.840 --> 0:14:51.040 I did I focus on, has got some of those 0:14:51.040 --> 0:14:53.680 instruments outstanding, some more than others. But it's it's a 0:14:53.680 --> 0:14:57.960 big market. Well, then fold into us the idea or 0:14:57.960 --> 0:15:00.360 folding the idea as you say that the Swiss eighty 0:15:00.440 --> 0:15:03.880 one story is just that, a Swiss story. At the 0:15:04.000 --> 0:15:06.040 end of the day, how are you seeing the read 0:15:06.120 --> 0:15:09.480 through into whether or not people still want to touch 0:15:09.760 --> 0:15:15.960 this type of bondum. So, so, what happens with Credit 0:15:16.040 --> 0:15:19.800 Squiss is that the eighty one bombs issued by Credit 0:15:19.840 --> 0:15:24.640 Suis have effectively been wiped out right, They've been written 0:15:24.880 --> 0:15:30.280 down to zero, while the credit shareholders walked away with 0:15:31.080 --> 0:15:33.600 three billion Swiss francs. No, that's not a lot of money, 0:15:34.280 --> 0:15:36.040 but it's also much about the money. It's about the 0:15:36.120 --> 0:15:43.200 principle that the claims hierarchy if your life has been abandoned, 0:15:43.240 --> 0:15:46.640 has been turned all its heads, because normally you shouldn't 0:15:46.680 --> 0:15:51.680 see shareholders with some recoveries while eighty one bombholders are 0:15:51.760 --> 0:15:55.080 wiped out. And that's the huge controversy that you've seen 0:15:55.680 --> 0:15:59.560 play out yesterday and for a long time to come. 0:15:59.680 --> 0:16:03.920 I am now, what's the read across um. It's um, 0:16:04.440 --> 0:16:06.120 you know, it's it's not it's not a perfect read, 0:16:06.120 --> 0:16:09.400 of course, because Switzerland has got its own jurisdiction. It's 0:16:09.400 --> 0:16:14.520 not part of the European Union. UM, the UK has 0:16:14.520 --> 0:16:19.000 a different sort of set of rules again, but they're 0:16:19.000 --> 0:16:24.600 all broadly similar and UM they're also bolved by the 0:16:24.680 --> 0:16:30.480 same constituencies across the globe the eighty one bonds, so 0:16:31.400 --> 0:16:35.440 there is certainly a reader course. UM. I think what 0:16:35.560 --> 0:16:39.240 it has done is it has UM made eighty one 0:16:39.280 --> 0:16:45.560 bond holders potential investors, UM wonder if they shouldn't require 0:16:46.000 --> 0:16:48.040 or the amount of higher yields on US board. And 0:16:48.080 --> 0:16:51.400 that's why you saw us everyones sell off yesterday. There's 0:16:51.400 --> 0:16:53.840 been a bit of a recovery today, to be honest, 0:16:54.200 --> 0:16:58.520 But yesterday, all of a sudden, both across UM, across 0:16:58.520 --> 0:17:02.080 all currencies that every one boards, they they sort of 0:17:02.120 --> 0:17:06.160 bye between four to eight points on on average. And 0:17:06.400 --> 0:17:09.760 that really is a reflection of the fact that UM, 0:17:09.800 --> 0:17:11.840 you know, all of some as they're come to realize 0:17:11.880 --> 0:17:14.680 that in a similar situation worre to play out elsewhere, 0:17:15.440 --> 0:17:18.280 they may end up with nothing, while share all of 0:17:18.359 --> 0:17:21.600 us still gets some recovery. Yeah, if I were, you know, 0:17:22.119 --> 0:17:26.399 an a one bondholder, I'd be upset too, but it 0:17:26.480 --> 0:17:28.439 was in their perspective, so you know, shame on me, 0:17:28.520 --> 0:17:30.960 I guess I don't know, So Jaron talk to us 0:17:31.000 --> 0:17:35.000 about just the credit market for European banks in general 0:17:35.440 --> 0:17:39.040 these days post Credit Swiss and you know the threat 0:17:39.040 --> 0:17:42.919 of you know, are concerned about a recession Howard banks, 0:17:43.080 --> 0:17:48.080 bonds trading in general these days. Well it's uh, you know, 0:17:48.240 --> 0:17:54.159 everything is it's clearly a trading wide particularly well it's 0:17:54.160 --> 0:17:56.320 all started with the Silicon Valley Bank grad that also 0:17:56.800 --> 0:18:00.800 had its repercussions over in Europe, and that's also was 0:18:00.880 --> 0:18:05.480 the trigger I think of the of the problems that 0:18:06.240 --> 0:18:09.320 engulfed Credit Suiss. You're playing a little bank in Silicon 0:18:09.400 --> 0:18:14.879 Valley for European credit wars, don't go down that route. Um, 0:18:16.320 --> 0:18:20.480 people were looking around, Uh you know, are there any 0:18:20.480 --> 0:18:23.960 other banks that have liquidity problems? And the really course 0:18:24.040 --> 0:18:28.480 wasn't wasn't perfect because you know, Silicon Valley Bank, Uh, 0:18:28.520 --> 0:18:31.000 you know, the key one of the key problems there 0:18:31.119 --> 0:18:34.000 was this the unrelized gains on it's health. The majority 0:18:34.000 --> 0:18:38.600 portfolio that didn't apply to Credit Swiss. It doesn't, of 0:18:38.600 --> 0:18:41.760 course a large bomb portfolio, but the large majority of 0:18:41.800 --> 0:18:44.280 that was in its training book, was already marked and market. 0:18:44.440 --> 0:18:46.240 That wasn't the issue. The issue was the fact that 0:18:46.560 --> 0:18:51.160 credit swees already had some liquidity problems in the fourth quarter, 0:18:51.240 --> 0:18:55.560 there were huge outflows, and um, it's it's perhaps not 0:18:55.680 --> 0:19:00.200 a surprise that if liquidity concerns come to the all 0:19:00.200 --> 0:19:02.840 that's that's that inst this I started to get jittery 0:19:02.960 --> 0:19:08.760 about about companies, about banks that have had liquid holes 0:19:08.760 --> 0:19:12.440 in the past. So we had a fifty basis point 0:19:12.800 --> 0:19:15.080 a hike from the ECB last week. We've got a 0:19:15.119 --> 0:19:19.280 Bank of England decision this Friday, I believe, March twenty third, 0:19:19.280 --> 0:19:23.600 eight am I believe for for that for those folks, 0:19:23.600 --> 0:19:27.720 how well are the bond market or the bond holders 0:19:27.960 --> 0:19:31.240 digesting about fifty basis point rate hike and what still 0:19:31.320 --> 0:19:36.560 might be a very hawkish meeting and decision this Friday. Well, 0:19:36.680 --> 0:19:41.480 I'm not an expert, uh, you know, the the central 0:19:41.520 --> 0:19:45.879 bank rates, the policy rates and everything. Um, what I 0:19:45.920 --> 0:19:51.480 would say is that in general, higher rates should be 0:19:51.520 --> 0:19:53.399 a good thing for banks, right because until you know, 0:19:53.440 --> 0:19:56.239 for the past decade, everybody was complaining about how low 0:19:56.359 --> 0:19:59.720 rates were and how that depressed the returns that banks 0:19:59.760 --> 0:20:02.639 were to make. So that's not finally changing. Rates are 0:20:02.640 --> 0:20:05.800 going up, margins are going up. That interesting becomes going 0:20:05.840 --> 0:20:08.360 up for the large majority of banks. But there are 0:20:08.359 --> 0:20:10.639 some side effects and you know the unrealized games on 0:20:10.680 --> 0:20:15.720 healthy maturity boomboogs is one of them. But overall that 0:20:15.920 --> 0:20:19.600 interesting income should benefit from higher rates. The question mark is, 0:20:19.680 --> 0:20:23.879 and I heard you rest referred to it before I 0:20:24.160 --> 0:20:27.600 joined the call is what does that do to landing? 0:20:27.760 --> 0:20:31.960 You know, what do to economy and to the UH 0:20:32.280 --> 0:20:34.800 to long demands and the willing is also bank still 0:20:34.840 --> 0:20:36.639 to land and that's you know that that is one 0:20:36.640 --> 0:20:39.000 of the big announcewers. All right, John, thank you so 0:20:39.080 --> 0:20:41.680 much for joining us. John Julius, he's a senior credit 0:20:41.680 --> 0:20:45.400 analyst for the European banks at Bloomberg Intelligence based in London. 0:20:47.800 --> 0:20:51.200 You're listening to the Team cancer a live program Bloomberg 0:20:51.280 --> 0:20:54.639 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:20:54.720 --> 0:20:57.320 the I Heart Radio app, and the Bloomberg Business app. 0:20:57.400 --> 0:21:03.119 We're listening on demand wherever you get your podcast. Clearly, 0:21:03.119 --> 0:21:06.160 one of the lead stories for the last week plus 0:21:06.240 --> 0:21:10.320 has been this UBS and credit Swiss situation, and we 0:21:10.440 --> 0:21:14.399 just had Jerome Julius on from Bloomberg Intelligence. He follows 0:21:14.440 --> 0:21:17.240 the credit side of it, and I note that Bloomberg 0:21:17.280 --> 0:21:20.480 Intelligence is going to be hosting a webinar this Friday, 0:21:20.840 --> 0:21:23.520 and this is and they're focusing closely solely on this 0:21:23.600 --> 0:21:26.920 UBS credit Swiss thing and the implications for the space. 0:21:26.960 --> 0:21:29.000 And we've got an all star lineup. Alison Williams, who 0:21:29.080 --> 0:21:32.080 is our senior bank analyst in the US, covers UBS 0:21:32.200 --> 0:21:35.399 and credit Swiss. Jerome Julius who we just spoke with. 0:21:35.520 --> 0:21:38.960 He covers the European banks from the credit side, so 0:21:38.960 --> 0:21:40.880 we can go to that at one issue. And then 0:21:40.920 --> 0:21:44.960 Elliot Stein, he's ahead of our litigation here at Bloomberg Intelligence. 0:21:44.960 --> 0:21:46.679 He can go to the you know, the whole angle 0:21:46.720 --> 0:21:49.480 about will there be some of these at one bondholders 0:21:49.480 --> 0:21:52.480 with ab sewing and kind of what's the outlook there. 0:21:53.000 --> 0:21:54.920 Details on this you can find if you're a terminal 0:21:55.000 --> 0:21:58.320 user go to s m n R go and if 0:21:58.359 --> 0:21:59.959 you're not a terminal user, you can find it all 0:22:00.119 --> 0:22:04.639 the information out on social media, I know on Twitter 0:22:04.800 --> 0:22:08.040 at BBG Intelligence go check that out. They have all 0:22:08.040 --> 0:22:10.760 the details there. We've already got a bunch of investors 0:22:10.800 --> 0:22:13.320 signed up. So if you want to get smart on 0:22:13.320 --> 0:22:15.600 this UBS Credit Swiss thing and what it means maybe 0:22:15.600 --> 0:22:18.000 for the space going forward, this webinar could be a 0:22:18.040 --> 0:22:21.000 good spot to start. Speaking of that. You can also 0:22:21.160 --> 0:22:24.960 read the great work from and listen to a Shnale 0:22:25.080 --> 0:22:27.680 Bassok on Bloomberg Media all over the place. She is 0:22:27.680 --> 0:22:30.320 our Wall Street reporter. She's been covering this story. And 0:22:30.400 --> 0:22:33.000 I guess one of the angles, Shale and thanks coming 0:22:33.040 --> 0:22:35.719 into our Bloomberg studio here. One of the angles is 0:22:36.160 --> 0:22:40.760 what happens to this Credit Swiss First Boston spin out 0:22:40.840 --> 0:22:44.320 led by one mister Michael Klein, banker to the stars. 0:22:44.560 --> 0:22:47.399 What's the status of that thing? A banker to very 0:22:47.440 --> 0:22:50.080 specific powerful stars that have lost a lot of money 0:22:50.119 --> 0:22:52.159 recently on Credit Swiss. So I think that that's an 0:22:52.200 --> 0:22:55.280 important element of a lot of this is where does 0:22:55.320 --> 0:22:59.560 Michael Klein stand in a lot of the discussions. Remember, 0:22:59.600 --> 0:23:02.359 Michael Line was once a board member of Credit Swees. 0:23:02.400 --> 0:23:04.480 He was supposed to become the leader of this First 0:23:04.520 --> 0:23:08.240