1 00:00:05,080 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,480 --> 00:00:12,280 Speaker 1: with Jonathan Pharaoh and Lisa Abramowitz. Join us each day 3 00:00:12,320 --> 00:00:16,800 Speaker 1: for insight from the best and economics, geopolitics, financing, investment. 4 00:00:17,239 --> 00:00:22,000 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,560 Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,480 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. I'm pleased 7 00:00:30,480 --> 00:00:33,280 Speaker 1: to say that alongside us here at the global headquarters 8 00:00:33,280 --> 00:00:36,720 Speaker 1: of the International Monetary Fund in Washington, DC, Mohammed al Arion, 9 00:00:36,760 --> 00:00:40,640 Speaker 1: Bloomberg opinion columnist and Queen's College Cambridge president Mohammed Mnick, 10 00:00:41,080 --> 00:00:43,720 Speaker 1: Good morning. Can we stopped calling it a banking crisis? 11 00:00:43,760 --> 00:00:45,760 Speaker 1: This was not a banking question. Tell me why this 12 00:00:45,840 --> 00:00:48,800 Speaker 1: wasn't a banking crisis. A banking crisis is a crisis 13 00:00:48,800 --> 00:00:51,920 Speaker 1: of the banking system. This was a banking tremor. A 14 00:00:52,040 --> 00:00:56,680 Speaker 1: few banks that were caught offside and badly supervised went down. 15 00:00:57,280 --> 00:00:59,640 Speaker 1: The big banks are just fine, and we're seeing that. 16 00:00:59,640 --> 00:01:02,160 Speaker 1: In fact, the big banks are benefiting from this because 17 00:01:02,160 --> 00:01:04,880 Speaker 1: they've got two things. Not only are they viewed as safe, 18 00:01:05,480 --> 00:01:09,039 Speaker 1: but they've got diversified business models, and you saw what 19 00:01:09,080 --> 00:01:11,640 Speaker 1: happened to fake you, so that suddenly it is the 20 00:01:11,760 --> 00:01:14,920 Speaker 1: narrow bank that are riskies and it's the universal banks 21 00:01:14,959 --> 00:01:17,600 Speaker 1: that are resilient. If it wasn't a crisis, why do 22 00:01:17,640 --> 00:01:20,440 Speaker 1: you think the officials needed to use the systemic risk exception. 23 00:01:21,760 --> 00:01:24,880 Speaker 1: I think it crept up on them and they just 24 00:01:25,840 --> 00:01:28,080 Speaker 1: went a little bit too far. I understand why they 25 00:01:28,080 --> 00:01:29,679 Speaker 1: did it. I suspect I would have done it too, 26 00:01:30,280 --> 00:01:34,600 Speaker 1: but they post systemic risk. I think the deposit run 27 00:01:34,640 --> 00:01:37,200 Speaker 1: and the speed of the deposit run at First Republic 28 00:01:37,520 --> 00:01:41,720 Speaker 1: scared them a lot. But this was a failure of supervision. 29 00:01:42,280 --> 00:01:44,320 Speaker 1: We have to understand that this was a failure of supervision. 30 00:01:44,319 --> 00:01:46,560 Speaker 1: We have enough evidence now to show the extent to 31 00:01:46,600 --> 00:01:49,400 Speaker 1: which the FED failed in the supervision of First Republic. 32 00:01:49,560 --> 00:01:52,320 Speaker 1: So let's say absolutely, this is not a banking crisis. 33 00:01:52,600 --> 00:01:54,720 Speaker 1: This didn't rise to some kind of two thousand and 34 00:01:54,720 --> 00:01:57,600 Speaker 1: eight or even you know, potentially that's the nineteen eighties 35 00:01:57,640 --> 00:02:01,440 Speaker 1: type scenario. But is it credit crunch that we're going 36 00:02:01,480 --> 00:02:05,400 Speaker 1: to see evolve. Yeah, So we we're going through a 37 00:02:05,440 --> 00:02:09,880 Speaker 1: major transition which has made some business models incredibly stressed, 38 00:02:10,320 --> 00:02:13,200 Speaker 1: incredibly stressed and we're going to see that. We are 39 00:02:13,240 --> 00:02:15,399 Speaker 1: now focusing on the banks. You just wait to see 40 00:02:15,400 --> 00:02:18,840 Speaker 1: all the levet finance that has to refinance itself. We 41 00:02:18,919 --> 00:02:20,840 Speaker 1: talked a little bit about commercial real estate, but it 42 00:02:20,880 --> 00:02:23,480 Speaker 1: goes well beyond this. When you change to interest rate 43 00:02:23,480 --> 00:02:26,640 Speaker 1: paradigm as quickly as we did, you will catch people offside, 44 00:02:27,200 --> 00:02:29,480 Speaker 1: and some people will be able to get back on side. 45 00:02:29,600 --> 00:02:32,240 Speaker 1: Other people have business models that doesn't allow to get 46 00:02:32,680 --> 00:02:35,119 Speaker 1: back on side. Ground. Why am I saying this because 47 00:02:35,600 --> 00:02:39,639 Speaker 1: the some of the smaller banks have that issue. They 48 00:02:39,680 --> 00:02:43,120 Speaker 1: have higher funding costs, that deposits have become more flighty, 49 00:02:43,240 --> 00:02:45,120 Speaker 1: and they're going to have to contract their loan books 50 00:02:45,639 --> 00:02:48,040 Speaker 1: and they are making loans that the big banks will 51 00:02:48,080 --> 00:02:50,960 Speaker 1: not make. So yes, we are going to have a 52 00:02:51,000 --> 00:02:53,440 Speaker 1: reduction in credit contraction. We've got to talk about a 53 00:02:53,440 --> 00:02:55,799 Speaker 1: Federal Reserve. Raga Raja and a good friend of yours. 54 00:02:55,840 --> 00:02:58,120 Speaker 1: I know it was fantastic yesterday and I wish we 55 00:02:58,120 --> 00:03:00,679 Speaker 1: were alongside him. He was talking about some of the 56 00:03:00,720 --> 00:03:03,120 Speaker 1: blame lining at the fee of the Federal Reserve and 57 00:03:03,160 --> 00:03:06,120 Speaker 1: the unwitningness of this institution that we're sitting in this 58 00:03:06,200 --> 00:03:09,640 Speaker 1: morning to call out monetary policy officials for their role 59 00:03:10,000 --> 00:03:12,040 Speaker 1: in some of the instability. What would you stand on 60 00:03:12,080 --> 00:03:14,840 Speaker 1: that now, Mohammad, So, I think it's very important to 61 00:03:14,919 --> 00:03:19,720 Speaker 1: keep our central banks accountable. They are very important. As 62 00:03:19,720 --> 00:03:21,920 Speaker 1: you know. I'm a huge fan of central banks, and 63 00:03:21,960 --> 00:03:23,920 Speaker 1: when I criticize the FED, it really hurts me. But 64 00:03:23,960 --> 00:03:27,440 Speaker 1: it's important to have some accountability in the system. Why 65 00:03:27,919 --> 00:03:32,160 Speaker 1: because that is the basis of political independence, and no 66 00:03:32,200 --> 00:03:35,880 Speaker 1: one wants to erode the political independence of central banks. 67 00:03:36,400 --> 00:03:39,600 Speaker 1: But central banks have to own their mistakes and have 68 00:03:39,680 --> 00:03:42,600 Speaker 1: to learn from their mistakes to continue to enjoy something 69 00:03:42,640 --> 00:03:45,640 Speaker 1: that is very precious and very important for the system 70 00:03:45,680 --> 00:03:49,040 Speaker 1: as a whole, which is the ability to make policy 71 00:03:49,160 --> 00:03:52,560 Speaker 1: without having to go to Congress. One FED official this week, 72 00:03:52,640 --> 00:03:55,200 Speaker 1: in the last week at least, said the move from 73 00:03:55,280 --> 00:03:58,240 Speaker 1: zero to close to five percent in about twelve months 74 00:03:58,640 --> 00:04:01,560 Speaker 1: wasn't the problem with the banking system. You've talked about 75 00:04:01,560 --> 00:04:03,800 Speaker 1: a failure of bank management. Do you think that has 76 00:04:03,800 --> 00:04:06,480 Speaker 1: anything to do with it? A decade of zero interest 77 00:04:06,560 --> 00:04:09,400 Speaker 1: rates and then going from zero to five like that. 78 00:04:10,000 --> 00:04:13,720 Speaker 1: So we've had three stages of this tragedy. Stage one 79 00:04:14,040 --> 00:04:18,560 Speaker 1: was too loose for too long. Remember in March when 80 00:04:18,560 --> 00:04:20,599 Speaker 1: the inflation print was seven and a half percent. The 81 00:04:20,640 --> 00:04:22,840 Speaker 1: FED was still injecting liquid it into the economy. That's 82 00:04:22,880 --> 00:04:25,840 Speaker 1: much of last year. We should have started tightening policy 83 00:04:25,920 --> 00:04:31,719 Speaker 1: significantly a year ago. The second problem is that after 84 00:04:31,800 --> 00:04:36,120 Speaker 1: this whole long period, the FED mischaracterized inflation, so we 85 00:04:36,240 --> 00:04:42,040 Speaker 1: lost nine months of possible policy adjustments. When you start late, 86 00:04:42,480 --> 00:04:45,080 Speaker 1: you end up going higher and staying there for longer. 87 00:04:45,320 --> 00:04:48,679 Speaker 1: That is the logic. That is why timely policy responses 88 00:04:48,720 --> 00:04:52,039 Speaker 1: are so important. So, of course this interest rate cycle 89 00:04:52,080 --> 00:04:54,480 Speaker 1: has been mishandled. Of course it has had an impact 90 00:04:54,839 --> 00:04:57,919 Speaker 1: on what we are seeing in terms of not only 91 00:04:58,000 --> 00:05:00,719 Speaker 1: financial turbulence, but all so what we're going to see 92 00:05:00,720 --> 00:05:04,760 Speaker 1: in terms of economic turbulence. Your cambridge there is a 93 00:05:04,839 --> 00:05:10,160 Speaker 1: spectacular stained glass window of a ven diagram. It is 94 00:05:10,200 --> 00:05:13,839 Speaker 1: just a remarkable stained glass window. There are forty two 95 00:05:13,880 --> 00:05:17,440 Speaker 1: circles here at the IMF, and they're trying to find 96 00:05:17,600 --> 00:05:22,880 Speaker 1: a ven diagram of politics economics debate. That gets to 97 00:05:23,000 --> 00:05:26,760 Speaker 1: a common theme. I can't find the common theme this 98 00:05:26,920 --> 00:05:29,400 Speaker 1: time around? What is it? So I was surprised when 99 00:05:29,400 --> 00:05:31,440 Speaker 1: in the six o'clock hour you said, there's all these 100 00:05:31,440 --> 00:05:34,720 Speaker 1: issues and there's no common theme. That's absolutely a common theme, 101 00:05:35,160 --> 00:05:38,320 Speaker 1: and the common theme is a world of deficient aggregate supply. 102 00:05:39,240 --> 00:05:41,600 Speaker 1: We have gone from a world of deficient aggregate demand 103 00:05:41,760 --> 00:05:43,800 Speaker 1: that was a story out there the global financial crisis 104 00:05:44,200 --> 00:05:47,760 Speaker 1: to a world of deficient aggregate supply. You get inflation, 105 00:05:48,720 --> 00:05:54,400 Speaker 1: you get interstate hikes, you get more inequality both nationally 106 00:05:54,480 --> 00:05:58,000 Speaker 1: and globally. And I could go down the list, and 107 00:05:58,360 --> 00:06:02,240 Speaker 1: if you under response, if you're underreact to that shift, 108 00:06:03,000 --> 00:06:05,480 Speaker 1: then you start digging all sorts of issues. Brilliant, But 109 00:06:05,640 --> 00:06:08,679 Speaker 1: the heart of the matter is Ambrose Evans Priture absolutely 110 00:06:08,800 --> 00:06:12,160 Speaker 1: nails this with the Neo Viccellian essay today in the Telegraph. 111 00:06:12,200 --> 00:06:15,400 Speaker 1: The bottom line is there's too much money out there 112 00:06:15,440 --> 00:06:20,600 Speaker 1: and not enough investable opportunities on a global basis. We've 113 00:06:20,640 --> 00:06:23,160 Speaker 1: been this way for a while. Is it a generational 114 00:06:23,240 --> 00:06:26,159 Speaker 1: issue where we're never going to escape this trap of 115 00:06:26,279 --> 00:06:31,280 Speaker 1: just too much money chasing not enough constructive ideas. So 116 00:06:31,279 --> 00:06:35,360 Speaker 1: we certainly have too much money. What I would love 117 00:06:35,440 --> 00:06:37,560 Speaker 1: to discuss with him, is it notion that we don't 118 00:06:37,600 --> 00:06:41,120 Speaker 1: have enough investment opportunities. We are going through major transition, 119 00:06:41,160 --> 00:06:45,160 Speaker 1: the energy transition is a major investment opportunity. Let's talk 120 00:06:45,200 --> 00:06:48,400 Speaker 1: about the market failures that mean that we haven't been 121 00:06:48,440 --> 00:06:52,960 Speaker 1: able to take advantage of this important window in terms 122 00:06:53,000 --> 00:06:56,279 Speaker 1: of investments. And we can have a long discussion about 123 00:06:56,760 --> 00:06:58,680 Speaker 1: what the US has done, and I know it upsets 124 00:06:58,680 --> 00:07:01,080 Speaker 1: the EU appearance, but they're white. They're trying to address 125 00:07:01,160 --> 00:07:04,560 Speaker 1: market failures in order to have more private public partnerships 126 00:07:04,760 --> 00:07:07,760 Speaker 1: to invest in an area that is critically underinvested. A 127 00:07:07,800 --> 00:07:12,960 Speaker 1: brilliant idea, can he run the port authority look funnel? 128 00:07:13,120 --> 00:07:16,000 Speaker 1: Mohammed is raised in a really really important issue. This 129 00:07:16,080 --> 00:07:17,960 Speaker 1: is not with the benefit of hindsight. We set it 130 00:07:18,000 --> 00:07:21,400 Speaker 1: at the time. Germany and the European countries, who had 131 00:07:21,440 --> 00:07:25,480 Speaker 1: the luxury of incredibly acceptionally low interest rates didn't make 132 00:07:25,480 --> 00:07:28,320 Speaker 1: the move to invest in a way that they should 133 00:07:28,320 --> 00:07:30,520 Speaker 1: have done well the way I would in Davos. It's simple. 134 00:07:30,560 --> 00:07:34,120 Speaker 1: There's all these fancy plagards and marketing ideas of infrastructure 135 00:07:34,160 --> 00:07:37,840 Speaker 1: and you know McKinsey like eighty page documents and development 136 00:07:37,840 --> 00:07:39,920 Speaker 1: and it just hasn't He don't remember when Wolfgang Schober 137 00:07:40,120 --> 00:07:43,040 Speaker 1: left the German finance ministry and they all stood outside 138 00:07:43,040 --> 00:07:45,080 Speaker 1: and did that black zero as if it was something 139 00:07:45,080 --> 00:07:48,040 Speaker 1: to celebrate. It was a total failure. Of policy over 140 00:07:48,080 --> 00:07:50,040 Speaker 1: the last ten years. Well, this is this word austerity 141 00:07:51,400 --> 00:07:53,440 Speaker 1: and economic policy as well. Are we going to see 142 00:07:53,440 --> 00:07:55,720 Speaker 1: austerity in Britain again? I mean within the sharks that 143 00:07:55,760 --> 00:07:59,560 Speaker 1: we see now there's Britain is so comfortable with austerity, 144 00:07:59,560 --> 00:08:03,200 Speaker 1: aren't there? No, Unfortunately, Britain has become comfortable with low growth. 145 00:08:03,840 --> 00:08:06,840 Speaker 1: That's a problem. You know. We have three issues and 146 00:08:07,720 --> 00:08:10,040 Speaker 1: with my friends people you know very well, Michael Spence 147 00:08:10,080 --> 00:08:11,960 Speaker 1: and Gordon Brown, we've been working on this for a while. 148 00:08:12,000 --> 00:08:15,160 Speaker 1: We have three issues. One is we have inadequate growth models. 149 00:08:15,720 --> 00:08:18,200 Speaker 1: Growth models we have to we think how we grow. 150 00:08:18,640 --> 00:08:23,040 Speaker 1: Two we have inadequate domestic policy implementation, and three we 151 00:08:23,120 --> 00:08:27,200 Speaker 1: have inadequate global policy coordination. Those are the three big areas. 152 00:08:27,240 --> 00:08:30,000 Speaker 1: Now there are solutions to all three. That's a good news, 153 00:08:30,400 --> 00:08:32,439 Speaker 1: but we've got to focus the discussion. How it to 154 00:08:32,520 --> 00:08:34,760 Speaker 1: have said and thanks for being so generous with your time. 155 00:08:34,920 --> 00:08:38,040 Speaker 1: Thank you, fantastic has always Thank you, Sir Mohammad our Arian. 156 00:08:42,400 --> 00:08:44,400 Speaker 1: Joining us now is ken Ley On, the director of 157 00:08:44,440 --> 00:08:47,880 Speaker 1: Equity Research at cf R. Ken You've had about ten 158 00:08:47,960 --> 00:08:49,680 Speaker 1: twenty minutes to go through some of these numbers. What 159 00:08:49,760 --> 00:08:53,880 Speaker 1: stands out for you? These banks are not only resilient, 160 00:08:53,920 --> 00:08:57,240 Speaker 1: but they're making money. So we did see in particularly 161 00:08:57,240 --> 00:09:01,400 Speaker 1: in the consumer areas strengthen, the private in the wealth 162 00:09:01,520 --> 00:09:06,280 Speaker 1: management credit card with flat capital markets are strong. And 163 00:09:06,320 --> 00:09:09,840 Speaker 1: I think maybe the conversation has been missing this is 164 00:09:09,880 --> 00:09:13,439 Speaker 1: that we're going to see these banks do better ahead 165 00:09:13,559 --> 00:09:17,280 Speaker 1: we hit the trough. So I would say the worries 166 00:09:17,320 --> 00:09:20,960 Speaker 1: about the large banks is over. They're resilient. And even 167 00:09:21,000 --> 00:09:24,320 Speaker 1: if this is the first time too deposits are down 168 00:09:24,360 --> 00:09:28,000 Speaker 1: but loans are up, that's really the first time that 169 00:09:28,120 --> 00:09:32,080 Speaker 1: metric changed, and maybe six quarters, perhaps that's a good thing. 170 00:09:32,640 --> 00:09:37,400 Speaker 1: And quietly JP Morgan is offering you John a five 171 00:09:37,480 --> 00:09:41,000 Speaker 1: percent one year CD rate, So either if the deposits 172 00:09:41,000 --> 00:09:46,280 Speaker 1: go out, they're quietly taking money from smaller banksy Ken, 173 00:09:46,280 --> 00:09:49,480 Speaker 1: you've been following this for decades in the chone changes. 174 00:09:49,520 --> 00:09:52,079 Speaker 1: You can go back and look from annual report letters 175 00:09:52,160 --> 00:09:55,240 Speaker 1: from fifteen years ago that are embarrassing in their vogue. 176 00:09:55,679 --> 00:09:58,319 Speaker 1: Is the vogue now for these banks to talk down 177 00:09:58,360 --> 00:10:01,520 Speaker 1: their scope and scale. I look at the revenue pop 178 00:10:01,520 --> 00:10:05,679 Speaker 1: and JP Morgan and I would suggest as government affairs 179 00:10:05,760 --> 00:10:09,680 Speaker 1: people are telling mister Diamond, don't let anyone know. Are 180 00:10:09,679 --> 00:10:14,800 Speaker 1: they almost too successful. You're spot on, and the issue 181 00:10:14,840 --> 00:10:18,280 Speaker 1: here is really the messaging and that it's not that 182 00:10:18,360 --> 00:10:21,959 Speaker 1: we have too much capital and we're restricted because there's 183 00:10:21,960 --> 00:10:26,680 Speaker 1: going to be regulatory costs and more regulation as relates 184 00:10:26,720 --> 00:10:32,000 Speaker 1: to holding capitalised, especially exiting Basle three end game. So 185 00:10:32,600 --> 00:10:37,520 Speaker 1: the story here really is making sure investors are comfortable 186 00:10:37,559 --> 00:10:41,319 Speaker 1: that they can get dividend growth and buybacks at levels 187 00:10:41,360 --> 00:10:44,400 Speaker 1: commensurate with the last two or three years. And that's 188 00:10:44,400 --> 00:10:47,160 Speaker 1: going to be really the debate they have behind closed 189 00:10:47,160 --> 00:10:50,920 Speaker 1: doors with Michael Barr and the bank super advisors on 190 00:10:50,960 --> 00:10:54,600 Speaker 1: the stress test, not this year but next year. So 191 00:10:54,840 --> 00:10:58,360 Speaker 1: that's the important thing for investors is knowing that these 192 00:10:58,360 --> 00:11:01,800 Speaker 1: banks are not only resilient and profitable, but they can 193 00:11:01,840 --> 00:11:06,600 Speaker 1: get a total return on their investment. Ken I want 194 00:11:06,600 --> 00:11:08,960 Speaker 1: to build him what Thomas saying, because he's absolutely right. 195 00:11:09,000 --> 00:11:11,600 Speaker 1: We're talking about credit crises and the potential for some 196 00:11:11,640 --> 00:11:14,840 Speaker 1: sort of fragility, and we're talking about JP Morgan expecting 197 00:11:14,840 --> 00:11:17,160 Speaker 1: to bring an eighty one billion dollars of net interest 198 00:11:17,240 --> 00:11:20,359 Speaker 1: income this year, which is far above what people were expecting. 199 00:11:20,559 --> 00:11:23,960 Speaker 1: They are minting money. At what point are we expecting 200 00:11:24,080 --> 00:11:26,640 Speaker 1: Some of the discussion from the C suite to be 201 00:11:26,720 --> 00:11:30,440 Speaker 1: gloomier than perhaps it really is, to perhaps divert a 202 00:11:30,440 --> 00:11:32,400 Speaker 1: little bit of attention from what's going on in the 203 00:11:32,400 --> 00:11:35,760 Speaker 1: bottom line. The bottom line speaks for itself, and that's 204 00:11:35,760 --> 00:11:39,680 Speaker 1: what moves markets. Gerard was correct that we may have 205 00:11:39,760 --> 00:11:44,440 Speaker 1: hit peak net interest margins, but looking back over the 206 00:11:44,520 --> 00:11:48,000 Speaker 1: last five years of the large banks, only JP Morgan 207 00:11:48,160 --> 00:11:51,920 Speaker 1: was able to grow net interest income from twenty seventeen, 208 00:11:52,440 --> 00:11:56,199 Speaker 1: mostly because they expanded their loan activity and their book 209 00:11:57,160 --> 00:12:00,400 Speaker 1: But overall the picture is good, and that was our 210 00:12:00,480 --> 00:12:04,240 Speaker 1: point in the middle of March, is that obviously there 211 00:12:04,360 --> 00:12:08,920 Speaker 1: was tremendous concerns about financial stability, but it was a 212 00:12:08,960 --> 00:12:11,920 Speaker 1: great time as some of the large banks have sold 213 00:12:11,960 --> 00:12:15,400 Speaker 1: off and we took advantage. And I think the capital 214 00:12:15,480 --> 00:12:18,560 Speaker 1: markets still can give you a strong punch in the 215 00:12:18,600 --> 00:12:21,920 Speaker 1: second half of the year because right now we're at 216 00:12:21,960 --> 00:12:26,880 Speaker 1: the trough in terms of underwriting and also mergers and acquisitions. 217 00:12:28,080 --> 00:12:30,120 Speaker 1: You know, Ken Leon's dead on and Lisa, I think 218 00:12:30,120 --> 00:12:32,920 Speaker 1: this is so important. Max Abelson tearing this apart for 219 00:12:33,040 --> 00:12:36,160 Speaker 1: Top Live right now, this is a surreal conversation. And 220 00:12:36,280 --> 00:12:39,440 Speaker 1: mister Leon and Cassidy touch upon this. Their return on 221 00:12:39,520 --> 00:12:45,880 Speaker 1: equity is eighteen percent they are minting money don't look okay. 222 00:12:46,240 --> 00:12:48,280 Speaker 1: So how much is this a JP Morgan story and 223 00:12:48,360 --> 00:12:50,600 Speaker 1: how much is this a BROADERCT banking story and can 224 00:12:50,640 --> 00:12:53,080 Speaker 1: that really will ultimately be the question through the rest 225 00:12:53,120 --> 00:12:56,720 Speaker 1: of this year as perhaps people parse the differential between 226 00:12:56,720 --> 00:12:58,960 Speaker 1: the JP Morgans of the world and all of the 227 00:12:59,080 --> 00:13:01,439 Speaker 1: I don't want to say Silicon Valleys of the world, 228 00:13:01,480 --> 00:13:05,480 Speaker 1: but perhaps the first republic banks of the world. There's 229 00:13:05,480 --> 00:13:08,800 Speaker 1: two iterations here. The first one is if you're diversified 230 00:13:08,840 --> 00:13:13,360 Speaker 1: and you have large capital markets businesses, you're going to outperform. 231 00:13:13,480 --> 00:13:16,880 Speaker 1: The second part of this is really related as you 232 00:13:16,960 --> 00:13:20,920 Speaker 1: look at not only the superregionals, but smaller banks, they 233 00:13:21,000 --> 00:13:25,520 Speaker 1: have a narrower tell asset mix, a higher percentage of 234 00:13:25,600 --> 00:13:30,400 Speaker 1: commercial real estate loans and commercial loans, and the consumer 235 00:13:30,520 --> 00:13:32,800 Speaker 1: will probably slow down a bit in the second half 236 00:13:32,840 --> 00:13:35,320 Speaker 1: of the year. We saw that in the JP Morgan 237 00:13:35,400 --> 00:13:40,240 Speaker 1: results on credit card revenue Ken this was wonderful, wonderful 238 00:13:40,280 --> 00:13:52,960 Speaker 1: to half of mc kenny on that FCFI. Right what 239 00:13:53,040 --> 00:13:54,920 Speaker 1: we're gonna do here is moved to the bank and earnings. 240 00:13:54,960 --> 00:13:58,640 Speaker 1: But right now stay in a very delicate discussion. This 241 00:13:58,760 --> 00:14:00,760 Speaker 1: is a byelat that's what we call it down there. 242 00:14:00,800 --> 00:14:03,040 Speaker 1: We're going to have a bilatto right now, that sort 243 00:14:03,080 --> 00:14:05,520 Speaker 1: of two parties that really don't want to talk to 244 00:14:05,559 --> 00:14:07,800 Speaker 1: each other talk to each other. We're going to do 245 00:14:07,840 --> 00:14:12,680 Speaker 1: that with Waldst Nembrowski, European Commission Executive Vice President, the 246 00:14:12,760 --> 00:14:17,040 Speaker 1: former Prime Minister of his Latvia, the bilot you go 247 00:14:17,080 --> 00:14:22,800 Speaker 1: into now across the Atlantic Ocean with select American officials. 248 00:14:23,520 --> 00:14:27,080 Speaker 1: Is the tension normal back to your prime ministership with 249 00:14:27,200 --> 00:14:30,440 Speaker 1: Latvia in the heart of the GFC, or is there 250 00:14:30,520 --> 00:14:37,200 Speaker 1: something new this time about trans atlantic bilat tension? Good morning. Well, 251 00:14:37,240 --> 00:14:40,080 Speaker 1: first of all, I would highlights that there is a 252 00:14:40,200 --> 00:14:45,600 Speaker 1: very strong transatlantic cooperation. We are strategic allies, and especially 253 00:14:45,720 --> 00:14:49,600 Speaker 1: in times like Zis where we aren't confronted by Russia's 254 00:14:49,600 --> 00:14:55,200 Speaker 1: aggression against Ukraine by war on European soil, we need 255 00:14:55,280 --> 00:14:59,600 Speaker 1: to work together with US and with the entire democratic world. 256 00:15:00,280 --> 00:15:03,880 Speaker 1: And I would say that this corporation, both in terms 257 00:15:03,920 --> 00:15:09,000 Speaker 1: of supporting Ukraine and putting sanctions against Russia is is 258 00:15:09,480 --> 00:15:15,000 Speaker 1: very strong and very good. On a trade side, obviously, 259 00:15:15,560 --> 00:15:18,680 Speaker 1: we are also having very extensive agendas. This was a 260 00:15:18,880 --> 00:15:23,360 Speaker 1: subject of some of my meetings also yesterday and there 261 00:15:23,400 --> 00:15:26,280 Speaker 1: we're still working, for example, on some of the discrimintary 262 00:15:26,320 --> 00:15:30,320 Speaker 1: aspects of the US Inflation Reduction Act. But once again 263 00:15:30,360 --> 00:15:34,720 Speaker 1: we are constructedly engaged with authorities and hope to the 264 00:15:34,720 --> 00:15:39,640 Speaker 1: extent possible solciose issues from Latvia up to Estonia over 265 00:15:39,720 --> 00:15:42,880 Speaker 1: to Finland in your world, in all of our worlds 266 00:15:42,880 --> 00:15:45,920 Speaker 1: have changed here with Finland joining NATO. To me, it 267 00:15:46,000 --> 00:15:49,720 Speaker 1: was just a lifetime shock to see that. How did 268 00:15:49,720 --> 00:15:54,360 Speaker 1: the political dialogues you're in everyday change given a shock 269 00:15:54,480 --> 00:15:59,120 Speaker 1: of this war in Finland simply joining moving from its 270 00:15:59,120 --> 00:16:04,160 Speaker 1: independence in Europe? Well, I think as regards Finland, it 271 00:16:04,200 --> 00:16:07,440 Speaker 1: obviously was a logical choice. If you live next to 272 00:16:07,480 --> 00:16:12,520 Speaker 1: the aggressive empire, you need to seek a stronger protection, 273 00:16:12,560 --> 00:16:16,600 Speaker 1: and that's what Finland did always joining NATO, and hopefully 274 00:16:16,880 --> 00:16:19,880 Speaker 1: Sweden will be able to join soon as well, and 275 00:16:20,040 --> 00:16:24,720 Speaker 1: it definitely strengthens the security in entire Baltic Sea Region. Commissioner, 276 00:16:24,760 --> 00:16:27,000 Speaker 1: you're always diplomatic. I always suggest that you've had to 277 00:16:27,000 --> 00:16:30,400 Speaker 1: spend a week putting up fires, fires started from by 278 00:16:30,480 --> 00:16:33,320 Speaker 1: someone else. I would like to understand how the Europeans 279 00:16:33,360 --> 00:16:36,520 Speaker 1: would respond if the US administration turned around and said 280 00:16:36,520 --> 00:16:38,240 Speaker 1: that they don't want to get caught up in crises 281 00:16:38,480 --> 00:16:42,960 Speaker 1: that aren't ours. What would you say back to that? Well, 282 00:16:43,000 --> 00:16:46,520 Speaker 1: as I was saying at the beginning of interview, when 283 00:16:46,560 --> 00:16:49,920 Speaker 1: we are confronted with major challenges, we are better off 284 00:16:50,000 --> 00:16:53,480 Speaker 1: if we work together as EU US, that we strengthen 285 00:16:53,560 --> 00:16:58,160 Speaker 1: our transatlantic alliance. If it's of the French president there, well, 286 00:16:59,600 --> 00:17:03,280 Speaker 1: clearly is a position of the EU is very clear 287 00:17:03,400 --> 00:17:07,399 Speaker 1: on this. As I said, EU and US are strategic 288 00:17:07,480 --> 00:17:11,760 Speaker 1: allies and we especially in current confrontation or geopolitical situation, 289 00:17:12,440 --> 00:17:15,320 Speaker 1: we need to work together. I get the feeling, and 290 00:17:15,359 --> 00:17:17,239 Speaker 1: this is my assessment, and you can correct me. By 291 00:17:17,240 --> 00:17:21,880 Speaker 1: all means that you're all underplaying the tension between the 292 00:17:21,920 --> 00:17:25,359 Speaker 1: European Union and the US right now publicly. Whenever I 293 00:17:25,359 --> 00:17:28,639 Speaker 1: speak to someone from the US administration or the European Union, 294 00:17:28,960 --> 00:17:31,400 Speaker 1: I get the same story. We all need to work together. 295 00:17:31,920 --> 00:17:35,320 Speaker 1: What I actually see as an observer is a race 296 00:17:35,800 --> 00:17:40,359 Speaker 1: for subsidies in the United States, the European Union racing 297 00:17:40,359 --> 00:17:42,480 Speaker 1: to get its act together to do the same thing. 298 00:17:42,520 --> 00:17:44,919 Speaker 1: It's a real tension starting to emerge. How are you 299 00:17:44,920 --> 00:17:47,520 Speaker 1: going to resolve that? How do you actually truly work together? 300 00:17:47,760 --> 00:17:49,720 Speaker 1: When the US is spending a lot of time saying, 301 00:17:49,920 --> 00:17:53,560 Speaker 1: let's build an America, make America, and then buy America. 302 00:17:53,880 --> 00:17:56,680 Speaker 1: How are you going to resolve that? Well? On ZIS 303 00:17:56,800 --> 00:17:59,760 Speaker 1: and if we are to discuss specifically US Inflation Induction Act, 304 00:18:00,000 --> 00:18:03,040 Speaker 1: who has been very clear since the very beginning. So 305 00:18:03,280 --> 00:18:07,920 Speaker 1: we definitely welcome the climate ambition of the Inflation Induction 306 00:18:07,960 --> 00:18:13,680 Speaker 1: Act and is also working on these goals. But at 307 00:18:13,680 --> 00:18:17,280 Speaker 1: the same time, we have serious concerns about discriminatory aspects 308 00:18:17,280 --> 00:18:21,280 Speaker 1: in Inflation Induction Act. We have set up the dedicated 309 00:18:21,359 --> 00:18:24,600 Speaker 1: EU US Task Force to work on those issues, and 310 00:18:24,640 --> 00:18:30,520 Speaker 1: indeed we are raising these issues also bilaterally with US 311 00:18:30,680 --> 00:18:34,399 Speaker 1: administration and trying to solve them. The previous administration is 312 00:18:34,400 --> 00:18:37,600 Speaker 1: heavily criticized for its approach to trade. Everybody would come 313 00:18:37,600 --> 00:18:40,440 Speaker 1: on TV publicly they had no problem saying getting criticized 314 00:18:40,440 --> 00:18:44,120 Speaker 1: in the Trump administration. Is there any difference any daylight 315 00:18:44,200 --> 00:18:48,600 Speaker 1: whatsoever between this administration and the last one on trade? 316 00:18:49,040 --> 00:18:52,439 Speaker 1: Can you identify one specific piece of daylight difference between 317 00:18:52,440 --> 00:18:55,840 Speaker 1: what this administration is doing and what the last one did. Well, 318 00:18:56,080 --> 00:18:58,840 Speaker 1: First of all, with this administration, we were able to 319 00:18:59,560 --> 00:19:03,600 Speaker 1: park several long standing disputes like RBS Boing dispute, like 320 00:19:04,640 --> 00:19:08,080 Speaker 1: dispute related to steel and aluminium tariffs. Right now we 321 00:19:08,119 --> 00:19:12,920 Speaker 1: are working on the global steel and aluminiumsranges of that Commissioner. Well, 322 00:19:13,280 --> 00:19:16,760 Speaker 1: just yesterday I was discussing this with US trade representative 323 00:19:17,200 --> 00:19:23,240 Speaker 1: Ambassador Thai and there is a very intensive, very constructive 324 00:19:23,320 --> 00:19:26,280 Speaker 1: engagement and we are working with a deadline of October 325 00:19:26,440 --> 00:19:29,560 Speaker 1: this year. In mind, we talk a lot about the 326 00:19:29,720 --> 00:19:32,200 Speaker 1: relationship between the US and Europe, both when it comes 327 00:19:32,200 --> 00:19:36,120 Speaker 1: to trade, but also when it comes to military. We've 328 00:19:36,119 --> 00:19:38,520 Speaker 1: been talking about these leagues that are very sensitive from 329 00:19:38,520 --> 00:19:42,600 Speaker 1: the national security of the United States. Does that change 330 00:19:42,800 --> 00:19:46,840 Speaker 1: your relationship at all with sharing information or doing business 331 00:19:46,880 --> 00:19:50,800 Speaker 1: with the US? Well, once again I must emphasize that 332 00:19:52,000 --> 00:19:59,920 Speaker 1: in a situation where we see aggressive policy of rush, 333 00:20:00,080 --> 00:20:04,440 Speaker 1: I would say increased ambitions of alter attended regimes, it's 334 00:20:04,440 --> 00:20:08,840 Speaker 1: important that democratic world works together. So yes, our problems 335 00:20:08,880 --> 00:20:12,240 Speaker 1: are difficulties, but we need to be able to to 336 00:20:13,040 --> 00:20:17,320 Speaker 1: discuss overcomes them and find a joint solutions as a 337 00:20:17,359 --> 00:20:20,760 Speaker 1: response to current job political situation. But as you're very 338 00:20:20,840 --> 00:20:22,280 Speaker 1: kind to give us so much your time, thank you 339 00:20:22,280 --> 00:20:25,040 Speaker 1: for paying with this commission, we appreciate it. Bariston Browskiste 340 00:20:25,280 --> 00:20:32,840 Speaker 1: of the European Commission, this is always a joy joining 341 00:20:32,880 --> 00:20:35,439 Speaker 1: us now Loop and ram and with PIMCO, head of 342 00:20:35,480 --> 00:20:38,160 Speaker 1: the EM of course, your service to the International Monetary 343 00:20:38,200 --> 00:20:42,080 Speaker 1: Fund for years, and far more importantly a student of 344 00:20:42,119 --> 00:20:45,280 Speaker 1: the ramifications of the central banker to the world, Jerome 345 00:20:45,320 --> 00:20:49,440 Speaker 1: Powell in EM sovereign debt. How big of an influence 346 00:20:49,760 --> 00:20:54,159 Speaker 1: is mister Powell? Right now, I'm Bolivia, I'm Ghana in 347 00:20:54,200 --> 00:20:58,000 Speaker 1: the news today and frankly on other larger, more successful 348 00:20:58,080 --> 00:21:03,760 Speaker 1: EM economies. Well, the FED cycle is extremely important for 349 00:21:04,000 --> 00:21:06,960 Speaker 1: major emerging markets, particularly those in the investment grade portion 350 00:21:06,960 --> 00:21:09,399 Speaker 1: of the asset class. But you correctly point out that 351 00:21:09,440 --> 00:21:13,960 Speaker 1: for the frontier markets that are really facing credit stresses, relatively, 352 00:21:14,560 --> 00:21:17,040 Speaker 1: you know, the impact of the FED is relatively a 353 00:21:17,040 --> 00:21:21,800 Speaker 1: lot smaller than you would expect. It's smaller than you'd expect. 354 00:21:21,840 --> 00:21:26,720 Speaker 1: But the fact is there's a multidimensional crisis in EM. 355 00:21:26,720 --> 00:21:30,760 Speaker 1: Now in your study of history at LLC of how 356 00:21:30,920 --> 00:21:35,400 Speaker 1: is this distress, this tension different than what we've seen 357 00:21:35,880 --> 00:21:39,440 Speaker 1: back to nineteen ninety two and frankly back before that, Well, 358 00:21:39,480 --> 00:21:41,679 Speaker 1: I take a slightly different view. I actually think the 359 00:21:41,720 --> 00:21:44,920 Speaker 1: crisis is more in developed markets than emerging markets. For 360 00:21:45,320 --> 00:21:48,040 Speaker 1: the first time in a long time in EM, you 361 00:21:48,080 --> 00:21:52,919 Speaker 1: have inflation coming down, you have growth essentially, Companion Emerging 362 00:21:53,000 --> 00:21:57,560 Speaker 1: career got out front with radio increases, absolutely Career, Brazil, Chile, 363 00:21:57,880 --> 00:22:00,760 Speaker 1: the list is endless, and not only that they've avoided 364 00:22:00,800 --> 00:22:04,240 Speaker 1: deep recessions, whereas we have the kind of soft landing 365 00:22:04,320 --> 00:22:07,720 Speaker 1: versus hard landing debate in in developed markets. I think 366 00:22:07,760 --> 00:22:10,679 Speaker 1: that you know, when we're thinking about crises in EM, 367 00:22:10,760 --> 00:22:14,640 Speaker 1: it really is a select number of frontier markets that 368 00:22:14,680 --> 00:22:18,439 Speaker 1: don't form the aggregate part of emerging markets that we 369 00:22:18,520 --> 00:22:21,800 Speaker 1: actually invest in. And it's important to bear that in mind. 370 00:22:22,640 --> 00:22:27,360 Speaker 1: For countries like Mexico, like Brazil, like South Africa, like Indonesia, 371 00:22:27,680 --> 00:22:33,680 Speaker 1: we're extremely constructive this UH, this new phase within their economies, 372 00:22:34,040 --> 00:22:38,000 Speaker 1: particularly as they're trying to come out of this tightening cycle, 373 00:22:38,160 --> 00:22:41,080 Speaker 1: is going to be very constructive for EM investors. Lupin, 374 00:22:41,119 --> 00:22:43,400 Speaker 1: you said, this is one of the most exciting IMF 375 00:22:43,480 --> 00:22:46,560 Speaker 1: meetings you've ever been at. Why, Well, this is the 376 00:22:46,600 --> 00:22:49,440 Speaker 1: first time we really have a lot of discussions on 377 00:22:49,560 --> 00:22:53,960 Speaker 1: debt restructurings and importantly the role of the multi development 378 00:22:54,440 --> 00:22:58,320 Speaker 1: banks and the and China in debt restructurings, and so 379 00:22:58,920 --> 00:23:01,320 Speaker 1: this time around, you know, we're seeing a lot of 380 00:23:01,359 --> 00:23:05,040 Speaker 1: debate and discussion some pushback from China. It's the first 381 00:23:05,040 --> 00:23:09,920 Speaker 1: time we're really seeing negotiations related to the MDB's senior 382 00:23:10,040 --> 00:23:14,760 Speaker 1: status in debt restructurings, and the recent global workshop that 383 00:23:14,800 --> 00:23:19,600 Speaker 1: the IMF held last week essentially highlighted that the MDBs 384 00:23:19,640 --> 00:23:23,480 Speaker 1: will be committing more grant financing for some of these 385 00:23:23,720 --> 00:23:26,400 Speaker 1: debt restructuring countries. How much is what you were first 386 00:23:26,400 --> 00:23:29,240 Speaker 1: talking about connected to this very deeply that right now 387 00:23:29,280 --> 00:23:31,600 Speaker 1: the crisis is not in the developing world as much 388 00:23:31,760 --> 00:23:33,840 Speaker 1: when it comes to the rates picture, it's much more 389 00:23:34,119 --> 00:23:37,199 Speaker 1: in the developed world and frankly, US, which is the 390 00:23:37,240 --> 00:23:40,240 Speaker 1: biggest market for a lot of these debt instruments. How 391 00:23:40,320 --> 00:23:43,240 Speaker 1: much is that coloring the conversation and the willingness to 392 00:23:43,320 --> 00:23:46,560 Speaker 1: sort of allow things to sort of just go on 393 00:23:46,720 --> 00:23:50,159 Speaker 1: and losses to gather at a time that's somewhat fraught 394 00:23:50,200 --> 00:23:52,800 Speaker 1: for the developed world. So I think that, you know, 395 00:23:53,600 --> 00:23:59,320 Speaker 1: the impact that high inflation in the developed economies has 396 00:23:59,359 --> 00:24:02,920 Speaker 1: on these discuss is important, but it really isn't the 397 00:24:02,920 --> 00:24:05,639 Speaker 1: front and center when it comes to the debt negotiations. 398 00:24:05,720 --> 00:24:11,000 Speaker 1: The debt restructuring issues are long term. It really strikes 399 00:24:11,000 --> 00:24:14,760 Speaker 1: at the heart of how the Paris Club, China, India, 400 00:24:15,160 --> 00:24:19,239 Speaker 1: the GCC Saudi Arabia are going to work together in 401 00:24:19,440 --> 00:24:23,840 Speaker 1: future debt restructuring. So these are longer term issues that 402 00:24:23,960 --> 00:24:27,960 Speaker 1: I think all parties recognize the importance of really putting 403 00:24:28,040 --> 00:24:30,400 Speaker 1: front and center. Are you impressed with how the IMF 404 00:24:30,440 --> 00:24:33,320 Speaker 1: has handled some of these discussions. Yes, I think the 405 00:24:33,680 --> 00:24:36,920 Speaker 1: IMF has played its part in terms of being the 406 00:24:36,960 --> 00:24:42,280 Speaker 1: negotiator between all of these actors. There are elements that 407 00:24:42,800 --> 00:24:45,400 Speaker 1: the IMF needs to focus on in terms of it's 408 00:24:45,520 --> 00:24:50,200 Speaker 1: lending into arrears and lending assurances criteria. It's really important 409 00:24:50,200 --> 00:24:53,760 Speaker 1: for countries like Sri Lanka, like Ghana who went through 410 00:24:54,080 --> 00:24:57,480 Speaker 1: balance of payments crises but need financing from the IMF 411 00:24:57,960 --> 00:25:00,439 Speaker 1: immediately and in a very short period of time for 412 00:25:00,880 --> 00:25:03,640 Speaker 1: the IMF to really iron out some of these creases 413 00:25:03,640 --> 00:25:07,359 Speaker 1: when it comes to their lending into arrears and assurances practices. 414 00:25:07,480 --> 00:25:10,879 Speaker 1: On a market desk with your three Bloomberg terminals in 415 00:25:10,960 --> 00:25:13,960 Speaker 1: front of you, loop and what do you want from 416 00:25:14,080 --> 00:25:19,360 Speaker 1: China to signal from China that they will do Western restructuring. 417 00:25:19,960 --> 00:25:23,480 Speaker 1: What's the next step the FD Robin Wigglesworth has done 418 00:25:23,520 --> 00:25:25,760 Speaker 1: a great job on there's our end of current I 419 00:25:25,800 --> 00:25:28,680 Speaker 1: think has been strong on this as well. There has 420 00:25:28,720 --> 00:25:33,280 Speaker 1: to be a China process of restructuring. What's it look like? 421 00:25:34,000 --> 00:25:37,919 Speaker 1: So we're getting a lot more clarity on what China's 422 00:25:37,960 --> 00:25:41,960 Speaker 1: and key issues are in these debt restructurings. And essentially 423 00:25:41,960 --> 00:25:46,080 Speaker 1: the first is the seniority of the multilateral development banks, 424 00:25:46,320 --> 00:25:49,320 Speaker 1: and to some extent the recent announcement on grants has 425 00:25:49,320 --> 00:25:52,760 Speaker 1: overcome that. The second is domestic debt restructuring. And this 426 00:25:52,800 --> 00:25:56,480 Speaker 1: is a very valid concern from the Chinese. Many countries 427 00:25:56,480 --> 00:25:59,840 Speaker 1: that are coming for debt restructurings have very high levels 428 00:26:00,280 --> 00:26:04,360 Speaker 1: of domestic debt which need to be addressed. But essentially 429 00:26:04,400 --> 00:26:08,159 Speaker 1: governments find it extremely difficult to impose haircuts on their 430 00:26:08,200 --> 00:26:11,920 Speaker 1: population and as well look after the stability of their 431 00:26:11,920 --> 00:26:15,200 Speaker 1: banking sector. This is an issue that needs to have 432 00:26:15,240 --> 00:26:17,760 Speaker 1: a lot more work behind it to really get a 433 00:26:17,800 --> 00:26:19,720 Speaker 1: handle on it. We don't have the time for this. 434 00:26:19,760 --> 00:26:21,199 Speaker 1: Where you go a hand for three hour? Can you 435 00:26:21,200 --> 00:26:22,840 Speaker 1: do a panel with me today? What are you doing 436 00:26:22,880 --> 00:26:25,560 Speaker 1: at eleven thirty this morning? The heart of it to me, 437 00:26:25,640 --> 00:26:29,040 Speaker 1: is Russia Sherman mentioned the other day, is the rescue culture? 438 00:26:29,080 --> 00:26:32,080 Speaker 1: Is the rescue culture where everybody has to be pain free? 439 00:26:32,440 --> 00:26:35,880 Speaker 1: Is it's seeked over to your world of sovereign debt workout? 440 00:26:36,240 --> 00:26:39,600 Speaker 1: Do we want everybody to be painless in working towards 441 00:26:39,640 --> 00:26:44,679 Speaker 1: haircuts or extended duration? I think that the em world 442 00:26:44,880 --> 00:26:50,720 Speaker 1: is no stranger to haircuts and actually very painful restructurings. 443 00:26:51,200 --> 00:26:54,360 Speaker 1: We've got a long history of very low recoveries in 444 00:26:54,440 --> 00:26:57,960 Speaker 1: some countries and very high recoveries in others. I think 445 00:26:57,960 --> 00:27:02,199 Speaker 1: that you know, where we're going to is a shift 446 00:27:02,280 --> 00:27:07,000 Speaker 1: from the focus on private bondholders to the official sector 447 00:27:07,040 --> 00:27:10,199 Speaker 1: in terms of how the official sector should behave and 448 00:27:10,240 --> 00:27:14,240 Speaker 1: coordinate themselves in resolving debt restructuring. So really, with the 449 00:27:14,280 --> 00:27:18,440 Speaker 1: collective action clauses reforms that we saw over the last 450 00:27:18,480 --> 00:27:21,600 Speaker 1: decade and a half, the private sector really is doing 451 00:27:21,640 --> 00:27:24,720 Speaker 1: its part and the issues are much more in the 452 00:27:24,800 --> 00:27:28,760 Speaker 1: official and the official bilateral sector. Always been the case. 453 00:27:29,080 --> 00:27:31,200 Speaker 1: The official sector doesn't like take in lost this time. 454 00:27:31,560 --> 00:27:34,359 Speaker 1: You know that, look at what happened in Europe. I 455 00:27:34,440 --> 00:27:37,720 Speaker 1: just think I wantedly same thing. Is the tension with 456 00:27:37,960 --> 00:27:43,040 Speaker 1: China going to impinge best practices on a new twenty 457 00:27:43,040 --> 00:27:46,480 Speaker 1: first century IMF, and this has been a big concern. Also, 458 00:27:46,480 --> 00:27:47,679 Speaker 1: what are the rules of the road. I mean, can 459 00:27:47,760 --> 00:27:49,240 Speaker 1: China say all right, we didn't get paid back, so 460 00:27:49,240 --> 00:27:50,960 Speaker 1: we're going to take your port you know what I mean, 461 00:27:51,400 --> 00:27:54,400 Speaker 1: We're going to take your shipping line. This is we're 462 00:27:54,480 --> 00:27:56,600 Speaker 1: not the big issue. The jargon for this is they go, well, 463 00:27:56,640 --> 00:28:00,320 Speaker 1: we're into meetings and technicalities. I don't know what I am. 464 00:28:00,359 --> 00:28:03,800 Speaker 1: F technicalities are Lupin's expert at that tannicality. So you're 465 00:28:03,800 --> 00:28:07,959 Speaker 1: just hearing about that careers fascinating stuff. It is fascinating. 466 00:28:08,119 --> 00:28:11,200 Speaker 1: I actually like some of these meetings are really fraught 467 00:28:11,240 --> 00:28:13,320 Speaker 1: and everyone talks about it's like, oh, yeah, we're coming 468 00:28:13,280 --> 00:28:14,879 Speaker 1: to an agreement. Then you talk to them behind the 469 00:28:14,880 --> 00:28:17,960 Speaker 1: scenes and they're like, oh yeah, they make it toublically, 470 00:28:18,000 --> 00:28:19,960 Speaker 1: they make it a bit of a snooze. Yeah, exactly. 471 00:28:20,160 --> 00:28:23,640 Speaker 1: For me, it's been pretty sleepy. But you're not behind 472 00:28:23,640 --> 00:28:25,680 Speaker 1: the scenes. Big time significant loop and this is great. 473 00:28:25,680 --> 00:28:29,040 Speaker 1: Thank you, Thank you, PIMCO. On the latest from the 474 00:28:29,280 --> 00:28:42,040 Speaker 1: International Monetary Fund of the World Banks Spring meetings, we 475 00:28:42,280 --> 00:28:44,560 Speaker 1: have the h is John and I try to do 476 00:28:44,600 --> 00:28:48,040 Speaker 1: it Davos or at Jackson Hole to finish strong with 477 00:28:48,120 --> 00:28:53,000 Speaker 1: a qualified individual. Eric Nielsen carried the optimism of europe 478 00:28:53,320 --> 00:28:56,040 Speaker 1: UNI credit in the darkest days of a number of 479 00:28:56,080 --> 00:28:59,200 Speaker 1: years ago. He joins us today with the perspective of 480 00:28:59,280 --> 00:29:02,400 Speaker 1: his public service at the IMF on the Turkey and 481 00:29:02,520 --> 00:29:05,920 Speaker 1: Russia watch as well. You were in the trenches year ago, 482 00:29:06,280 --> 00:29:10,680 Speaker 1: years ago of IMF duties. Is the I AMF focused 483 00:29:10,800 --> 00:29:14,080 Speaker 1: right now on fixing these debt crises or are they 484 00:29:14,120 --> 00:29:18,080 Speaker 1: completely distracted by the therapy that Lisa was talking about 485 00:29:18,160 --> 00:29:22,080 Speaker 1: moments ago they feel distracted. I share the sentiment you said. 486 00:29:22,120 --> 00:29:24,600 Speaker 1: It's that I have been to probably fifty of these 487 00:29:24,640 --> 00:29:28,200 Speaker 1: meetings over the years, and I have I cannot recall 488 00:29:28,320 --> 00:29:31,120 Speaker 1: such a division between what you the IMF writes about, 489 00:29:31,160 --> 00:29:33,800 Speaker 1: but they talk about what the official sector talk about. 490 00:29:33,880 --> 00:29:36,080 Speaker 1: And then you go out of this building and meet 491 00:29:36,120 --> 00:29:39,200 Speaker 1: in the private rooms with private investors and other private 492 00:29:39,200 --> 00:29:42,760 Speaker 1: sector people, and they all talk about Russia, China, and 493 00:29:42,760 --> 00:29:47,000 Speaker 1: then to Europe right sorry, US, China and the war 494 00:29:47,200 --> 00:29:50,040 Speaker 1: and then Europe here and here we talk about we 495 00:29:50,080 --> 00:29:51,760 Speaker 1: need to do some fiscal to transman, we need some 496 00:29:51,880 --> 00:29:54,240 Speaker 1: monitor tightening in facial a little bit too high and 497 00:29:54,280 --> 00:29:57,240 Speaker 1: then we go lucky lucky, we had a financial mini crisis, 498 00:29:57,280 --> 00:29:59,240 Speaker 1: so we can talk about financi stability, but it's not 499 00:29:59,320 --> 00:30:01,880 Speaker 1: really a problem, as we can have heard, and I agree, 500 00:30:02,280 --> 00:30:04,640 Speaker 1: but that's what they talk about. They don't talk about 501 00:30:04,640 --> 00:30:08,960 Speaker 1: the elephant in the room that fundamentally economic policy of 502 00:30:09,040 --> 00:30:11,840 Speaker 1: thirty years is out the window. We are not no 503 00:30:11,960 --> 00:30:14,680 Speaker 1: longer having free trade, We no longer have believes in 504 00:30:15,040 --> 00:30:17,920 Speaker 1: free capital movements. We don't We now have to talk 505 00:30:17,960 --> 00:30:22,360 Speaker 1: about industrial policies, sanctions. But they're not leading the discussion here. 506 00:30:22,760 --> 00:30:25,120 Speaker 1: And this institution was meant to be the very embodiment 507 00:30:25,120 --> 00:30:28,960 Speaker 1: of that push. That's right, So what's gone wrong? That's 508 00:30:28,960 --> 00:30:33,760 Speaker 1: a good question to Let's first recognize that they're in 509 00:30:33,760 --> 00:30:36,120 Speaker 1: a difficult spot. They have shareholders on both sides of 510 00:30:36,200 --> 00:30:39,600 Speaker 1: the debate, right, but and they don't have a history 511 00:30:40,040 --> 00:30:43,840 Speaker 1: of having criticized the US and China. You can't find 512 00:30:43,880 --> 00:30:46,160 Speaker 1: it in the back back, right, that doesn't happen. And 513 00:30:46,200 --> 00:30:48,800 Speaker 1: these are the two big issues, right, and they don't 514 00:30:48,840 --> 00:30:52,520 Speaker 1: really talk about it. Right, This is a so they 515 00:30:52,560 --> 00:30:54,320 Speaker 1: need to be brave. They should have been brave. They 516 00:30:54,320 --> 00:30:58,360 Speaker 1: were not here. I think they missed their opportunity to repainting. 517 00:30:58,400 --> 00:31:00,200 Speaker 1: For the way Tommy brought it up so many time 518 00:31:00,920 --> 00:31:03,760 Speaker 1: since in China, just how the absence of Chinese here 519 00:31:03,960 --> 00:31:06,400 Speaker 1: and the you know, long ago and far away. The 520 00:31:06,400 --> 00:31:08,880 Speaker 1: Managing director told me on our trip they at least 521 00:31:09,000 --> 00:31:12,480 Speaker 1: began to engage discussion. And the word they use, which 522 00:31:12,520 --> 00:31:16,000 Speaker 1: you have lived, Nielsen, is technicalities. Is this going to 523 00:31:16,040 --> 00:31:18,479 Speaker 1: be a process for it of technicalities or is it 524 00:31:18,480 --> 00:31:23,040 Speaker 1: going to be real leadership by Secretary Yellen, the Managing Director, 525 00:31:23,280 --> 00:31:26,040 Speaker 1: by the Chance of the Exchequer, and indeed by the 526 00:31:26,160 --> 00:31:30,840 Speaker 1: leadership in Beijing. This is I don't know the answer 527 00:31:30,920 --> 00:31:32,960 Speaker 1: what how they would do, but they're not there now right. 528 00:31:33,000 --> 00:31:36,080 Speaker 1: It is it's they have two good chapters from the 529 00:31:36,160 --> 00:31:39,600 Speaker 1: IMF on sort of geo politics, right, there's one in 530 00:31:39,640 --> 00:31:41,800 Speaker 1: the Wheel and one in the Finances de bed A report. 531 00:31:42,280 --> 00:31:45,200 Speaker 1: They op out the effect on foreign direct investment this 532 00:31:45,320 --> 00:31:48,400 Speaker 1: could have and estimate what it is. There's no policy conclusions, 533 00:31:48,480 --> 00:31:52,840 Speaker 1: there's no sort of economic effects conclusions of it, So 534 00:31:53,120 --> 00:31:58,840 Speaker 1: it's technicalities economic sort of analysis. Interesting, great Stock totally 535 00:31:59,040 --> 00:32:01,880 Speaker 1: agree with this. So is this basically is this basically 536 00:32:01,920 --> 00:32:06,480 Speaker 1: a crisis of leadership? Yeah? I mean ultimately yeah, I 537 00:32:06,520 --> 00:32:09,680 Speaker 1: mean maybe, but but it's possible that the deck of 538 00:32:09,760 --> 00:32:13,800 Speaker 1: carts handed here is unplayable because it's America and China. Right, 539 00:32:13,840 --> 00:32:16,920 Speaker 1: But I mean, yeah, but what's the consequence then, I mean, honestly, 540 00:32:17,040 --> 00:32:20,400 Speaker 1: what is the relevance then of the IMAT if you 541 00:32:20,480 --> 00:32:22,720 Speaker 1: have a situation where they're not taking a policy stance, 542 00:32:22,720 --> 00:32:25,760 Speaker 1: they're not calling people out, they're not creating at, they're 543 00:32:25,800 --> 00:32:29,440 Speaker 1: calling out the UK. Yeah, all right, Okay, that's what 544 00:32:29,760 --> 00:32:31,320 Speaker 1: you know. And a lot of people in the UK, 545 00:32:31,880 --> 00:32:35,880 Speaker 1: for obvious reasons, are very upset by it. Now, I think, Eric, 546 00:32:35,920 --> 00:32:37,200 Speaker 1: we can sit here and agree that some of the 547 00:32:37,200 --> 00:32:39,440 Speaker 1: policy issues of the UK quite rarely needed to be 548 00:32:39,440 --> 00:32:41,440 Speaker 1: criticized over the last ten years, and we can find 549 00:32:41,480 --> 00:32:44,320 Speaker 1: some common ground there. But why are they so comfortable 550 00:32:44,800 --> 00:32:48,120 Speaker 1: going after the United Kingdom? And then when she power 551 00:32:48,160 --> 00:32:50,840 Speaker 1: walks around here, it's like, think, you know, it's fine, 552 00:32:51,000 --> 00:32:52,840 Speaker 1: there was no favor that you know, we can't talk 553 00:32:52,840 --> 00:32:56,000 Speaker 1: about that. What is that about? It's a bit power, right, 554 00:32:56,040 --> 00:32:58,080 Speaker 1: and and who you want to please? Right? It's a 555 00:32:58,280 --> 00:33:01,400 Speaker 1: and and And they haven't the East at this stage 556 00:33:01,680 --> 00:33:04,239 Speaker 1: been willing to stay a bob back in the end, 557 00:33:04,440 --> 00:33:07,000 Speaker 1: in the death in the Latin American debt crisis. Delor 558 00:33:07,120 --> 00:33:10,280 Speaker 1: Shia today, still in his high nineties, will tell you 559 00:33:10,360 --> 00:33:12,280 Speaker 1: stories about how he walked down the street to the 560 00:33:12,320 --> 00:33:15,360 Speaker 1: Treasury and going to him at least worked with him 561 00:33:15,360 --> 00:33:18,160 Speaker 1: and make things happen. You don't see this now, I think, 562 00:33:18,640 --> 00:33:23,520 Speaker 1: So what's the consequence, Well, the the easier consequence is 563 00:33:23,520 --> 00:33:26,520 Speaker 1: that this institution and the World Bank will be on 564 00:33:26,560 --> 00:33:28,920 Speaker 1: the back seat and not in the driver's seat, if 565 00:33:28,920 --> 00:33:30,800 Speaker 1: they even would be in the car. Right, this is 566 00:33:30,800 --> 00:33:33,840 Speaker 1: the issue, right, this is the world has moved on 567 00:33:34,080 --> 00:33:37,000 Speaker 1: in a very traumatic way. I think the thirty years 568 00:33:37,040 --> 00:33:40,840 Speaker 1: of globalization believe where monitor or sybe economic policy were 569 00:33:40,880 --> 00:33:43,200 Speaker 1: set by sort of the ideas the we economy is 570 00:33:43,240 --> 00:33:45,240 Speaker 1: believe in a free trade and these sort of things. 571 00:33:45,720 --> 00:33:49,480 Speaker 1: That's not there anymore. It's the security apparato or agencies 572 00:33:49,520 --> 00:33:52,720 Speaker 1: who have taken over. And maybe that's real life and 573 00:33:52,800 --> 00:33:54,800 Speaker 1: that's just what it is. But the result of that 574 00:33:54,960 --> 00:33:58,400 Speaker 1: is that economic policy is not in the driver's seat anymore. 575 00:33:58,640 --> 00:34:00,560 Speaker 1: This is there not talking about it. Let me dove 576 00:34:00,640 --> 00:34:03,640 Speaker 1: tell gave a week ago with a stunning five year 577 00:34:03,760 --> 00:34:06,920 Speaker 1: view with some of the zeitgeist this morning, and that 578 00:34:06,920 --> 00:34:11,720 Speaker 1: would be a study of nominal GDP. You are the optimists, 579 00:34:11,760 --> 00:34:15,720 Speaker 1: But can you frame out a reduced real GDP along 580 00:34:15,719 --> 00:34:20,040 Speaker 1: with a reduced inflation? Yeah, you can. I mean this 581 00:34:20,239 --> 00:34:24,600 Speaker 1: is sort of an economy's argument that is based on 582 00:34:25,280 --> 00:34:27,880 Speaker 1: the base case. And when I talk to a staffer 583 00:34:27,960 --> 00:34:30,480 Speaker 1: here and he defended what they've done is that in 584 00:34:30,560 --> 00:34:33,200 Speaker 1: the in the publication is that you have fundamentally to 585 00:34:33,920 --> 00:34:37,040 Speaker 1: articulately a base case. The problem is that there are 586 00:34:37,040 --> 00:34:40,360 Speaker 1: so many risks around it that one of them is 587 00:34:40,400 --> 00:34:43,240 Speaker 1: bound to happen. But I think the probably is bigger 588 00:34:43,239 --> 00:34:47,680 Speaker 1: still because I think the whole narrative of economic policy 589 00:34:47,760 --> 00:34:52,800 Speaker 1: making and who runs the show today has changed, is changing, 590 00:34:52,960 --> 00:34:56,839 Speaker 1: It's always changed now and this is not so then 591 00:34:56,880 --> 00:34:59,160 Speaker 1: we can yeah, we can talk about that growth. Maybe 592 00:34:59,160 --> 00:35:01,319 Speaker 1: global growth going to be two point eight or two 593 00:35:01,320 --> 00:35:04,399 Speaker 1: point seven percent, and maybe either the neutral rate. Yeah, 594 00:35:04,400 --> 00:35:05,799 Speaker 1: it's going to come down a little bit. And the 595 00:35:05,880 --> 00:35:07,640 Speaker 1: central bankers don't like it right now. They can't think 596 00:35:08,160 --> 00:35:11,560 Speaker 1: going to take the monster policy. That's a sideshow. It's 597 00:35:11,600 --> 00:35:14,480 Speaker 1: a sideshow. It's not the real story in the real world. 598 00:35:14,520 --> 00:35:17,719 Speaker 1: The clients we talked to European corporates, other corporates are 599 00:35:17,719 --> 00:35:20,600 Speaker 1: like this, is not what they talk about. This is 600 00:35:20,640 --> 00:35:23,200 Speaker 1: inflation is coming down, and yes we can discuss, well, 601 00:35:23,239 --> 00:35:25,919 Speaker 1: there's twenty five basis points one or twice or whatever. Yeah, 602 00:35:25,960 --> 00:35:29,440 Speaker 1: that's not the real story. As the most important question 603 00:35:29,480 --> 00:35:31,720 Speaker 1: of the morning, what was better the eight dollars strata 604 00:35:31,760 --> 00:35:34,000 Speaker 1: teller in Washington, DC or the three euro strat to 605 00:35:34,000 --> 00:35:37,560 Speaker 1: tell her back in back in Milan? Which one it was? 606 00:35:37,680 --> 00:35:39,440 Speaker 1: It was very good at the one I had yesterday, 607 00:35:39,480 --> 00:35:40,960 Speaker 1: I have to say, but most of it landed on 608 00:35:40,960 --> 00:35:47,400 Speaker 1: the sidewalk. He said. There's great things from the RNF 609 00:35:47,440 --> 00:35:49,880 Speaker 1: spring meetings in DC. Eight dollars for a strata tell 610 00:35:49,920 --> 00:35:51,440 Speaker 1: her ice scream, which is almost as good as the 611 00:35:51,440 --> 00:35:53,440 Speaker 1: one you get in Milan. What went wrong? Did the 612 00:35:53,480 --> 00:35:57,000 Speaker 1: FED allow us inflation to run away? I'm raising questions 613 00:35:57,000 --> 00:36:02,000 Speaker 1: about you, Eric. This is great. Subscribe to the Bloomberg 614 00:36:02,080 --> 00:36:06,080 Speaker 1: Surveillance podcast on Apple, Spotify and anywhere else you get 615 00:36:06,120 --> 00:36:10,840 Speaker 1: your podcasts. Listen live every weekday starting at seven am Eastern. 616 00:36:11,320 --> 00:36:15,360 Speaker 1: I'm Bloomberg dot Com, the iHeartRadio app, tune In, and 617 00:36:15,440 --> 00:36:19,040 Speaker 1: the Bloomberg Business app. You can watch us live. I'm 618 00:36:19,080 --> 00:36:23,800 Speaker 1: Bloomberg Television and always I'm the Bloomberg terminal. Thanks for listening. 619 00:36:24,280 --> 00:36:27,120 Speaker 1: I'm Tom Keane and this is Bloomberg