1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,560 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,720 Speaker 1: at Bloomberg dot com Slash podcast. Again, a lot of 7 00:00:21,760 --> 00:00:25,639 Speaker 1: weight to this tape all throughout the day. One of 8 00:00:25,680 --> 00:00:28,479 Speaker 1: the reasons is some concern about the banking sector, and 9 00:00:28,520 --> 00:00:32,080 Speaker 1: the news today was our good friends over in Zurich, 10 00:00:32,200 --> 00:00:35,559 Speaker 1: Credit Swiss, the story that just keeps giving and not 11 00:00:35,680 --> 00:00:36,880 Speaker 1: in a good way. So we want to get the 12 00:00:36,920 --> 00:00:39,680 Speaker 1: latest on what's happening at Credit Swiss. How concerned should 13 00:00:39,680 --> 00:00:42,199 Speaker 1: we be about the European banking sector in general, and 14 00:00:42,240 --> 00:00:44,559 Speaker 1: what is the spill of our effect, if any, for 15 00:00:44,640 --> 00:00:47,320 Speaker 1: some of the larger US global banks. To do that, 16 00:00:47,360 --> 00:00:50,280 Speaker 1: we welcome Alison Williams. She's a senior banks analyst for 17 00:00:50,320 --> 00:00:55,520 Speaker 1: Bloomberg Intelligence. She is also a leader of the Bloomberg 18 00:00:55,520 --> 00:00:58,160 Speaker 1: Intelligence business in the US, So we appreciate getting some 19 00:00:58,240 --> 00:01:02,400 Speaker 1: time here, Alison. You know, give us the latest on 20 00:01:02,520 --> 00:01:05,320 Speaker 1: Credit Swiss. I guess the latest news is their big 21 00:01:06,319 --> 00:01:09,119 Speaker 1: Arab Investor Inc. Coming back for more? Is that kind 22 00:01:09,160 --> 00:01:13,319 Speaker 1: of the story? So I think, you know, the issue 23 00:01:13,319 --> 00:01:16,640 Speaker 1: with credit tweets that I think has in common with 24 00:01:16,680 --> 00:01:21,000 Speaker 1: the SF The situation is just it's it's sort of 25 00:01:21,040 --> 00:01:25,960 Speaker 1: a market sentiment and it's hard to make fundamental arguments 26 00:01:26,000 --> 00:01:29,840 Speaker 1: against market sentiment, especially when we saw in four q 27 00:01:30,280 --> 00:01:32,840 Speaker 1: that investors got so concerned they pulled over one hundred 28 00:01:32,880 --> 00:01:37,440 Speaker 1: billion from the bank and you know, they said on 29 00:01:37,480 --> 00:01:41,520 Speaker 1: Monday they've seen inflows. Um. You know that provided sort 30 00:01:41,560 --> 00:01:44,360 Speaker 1: of a moment of confidence. But I think what's difficult 31 00:01:44,440 --> 00:01:48,240 Speaker 1: now is investors are trying to get a sense of, um, 32 00:01:48,880 --> 00:01:52,440 Speaker 1: you know what can turn this around. Because we had 33 00:01:52,760 --> 00:01:56,920 Speaker 1: their their newest biggest shareholder saying that that that they're 34 00:01:56,960 --> 00:01:59,880 Speaker 1: not going to increase their positions, partly because of regulatory 35 00:02:00,040 --> 00:02:05,080 Speaker 1: statutory reasons, but then they cited also other reasons, which um, 36 00:02:05,120 --> 00:02:08,120 Speaker 1: they were vague about. And you know that they have 37 00:02:08,160 --> 00:02:12,760 Speaker 1: another long time shareholder, um having sold off their position 38 00:02:13,160 --> 00:02:17,000 Speaker 1: in the past couple of quarters. So it does seem 39 00:02:17,080 --> 00:02:21,600 Speaker 1: like we need to hear from thisis regulators. Um, there's 40 00:02:21,600 --> 00:02:24,520 Speaker 1: a story that just uh that came out a little 41 00:02:24,560 --> 00:02:28,120 Speaker 1: bit ago. UM. Again, I have no idea the validia 42 00:02:28,160 --> 00:02:31,560 Speaker 1: of the story. But saying that, UM, they are asking 43 00:02:31,600 --> 00:02:34,800 Speaker 1: for a public show of report from the regulators, Alison, 44 00:02:34,800 --> 00:02:38,359 Speaker 1: what does their balance sheet look like? So that the 45 00:02:38,639 --> 00:02:43,320 Speaker 1: the their balance sheet is very different from uh, you 46 00:02:43,360 --> 00:02:46,720 Speaker 1: know the two banks that we saw UM fail in 47 00:02:46,760 --> 00:02:51,079 Speaker 1: the US in the sense that they do not have 48 00:02:51,120 --> 00:02:55,000 Speaker 1: the issue of you know, this this huge bond portfolio 49 00:02:55,080 --> 00:02:58,960 Speaker 1: with unrealized losses. UM. You know that that was sort 50 00:02:58,960 --> 00:03:01,200 Speaker 1: of a thing that was out there that when deposits 51 00:03:01,200 --> 00:03:06,799 Speaker 1: outflow from those banks, UM, you know, they couldn't UM. 52 00:03:06,840 --> 00:03:11,600 Speaker 1: You know, that really caused illiquidity and those issues. So UM, 53 00:03:11,639 --> 00:03:14,600 Speaker 1: you know, for credit suites, they do have a fair 54 00:03:14,600 --> 00:03:17,000 Speaker 1: amount of deposits, they do have some wholesale funding, they 55 00:03:17,080 --> 00:03:20,360 Speaker 1: just raised capital, They have a fourteen point one percent 56 00:03:20,480 --> 00:03:24,960 Speaker 1: CET one ratio, They had tons of excess liquidity at 57 00:03:25,040 --> 00:03:27,400 Speaker 1: least at the end of the fourth quarter. You know 58 00:03:27,440 --> 00:03:30,480 Speaker 1: that The concern is just that you know, that can 59 00:03:30,560 --> 00:03:33,600 Speaker 1: shift very quickly UM. And so I think that's why 60 00:03:33,680 --> 00:03:37,760 Speaker 1: investors are looking for, UM, you know, some sign of 61 00:03:37,760 --> 00:03:42,480 Speaker 1: stability or some disclosure to provide some comfort. Unfortunately, when 62 00:03:42,520 --> 00:03:45,240 Speaker 1: when when people reference their CET one ratio as I 63 00:03:45,360 --> 00:03:47,520 Speaker 1: just did, or banks come out and say they don't 64 00:03:47,560 --> 00:03:49,600 Speaker 1: need to raise capital. There's obviously a little bit of 65 00:03:50,320 --> 00:03:53,040 Speaker 1: skepticism because of things that we saw in the past. 66 00:03:53,240 --> 00:03:55,920 Speaker 1: But but I will I will chime into you know, 67 00:03:55,960 --> 00:03:59,080 Speaker 1: Paul saying earlier that this feels very different than two 68 00:03:59,080 --> 00:04:01,400 Speaker 1: thousand and eight. And I think, you know, one key 69 00:04:01,480 --> 00:04:04,839 Speaker 1: difference is in two thousand and eight, we did have 70 00:04:05,000 --> 00:04:08,360 Speaker 1: a lot of you know, we had broad issues in 71 00:04:08,440 --> 00:04:12,880 Speaker 1: the system, broad issues, and in this case, we have 72 00:04:13,040 --> 00:04:16,880 Speaker 1: some mismanagement at a few banks that some names that 73 00:04:16,920 --> 00:04:22,240 Speaker 1: people are worried about. The deposit the deposit mismatch and 74 00:04:22,279 --> 00:04:25,760 Speaker 1: the and the bond investments are brought across the US banks, 75 00:04:25,800 --> 00:04:29,039 Speaker 1: but but certainly not to the you know, the couple 76 00:04:29,080 --> 00:04:34,920 Speaker 1: of banks had had very unique um their their deposit 77 00:04:35,000 --> 00:04:37,159 Speaker 1: bases were very weak, if you will, and so that 78 00:04:37,160 --> 00:04:39,240 Speaker 1: that was what was sort of unique about them. And 79 00:04:39,800 --> 00:04:41,599 Speaker 1: some are with credit sweets, and I think that's what 80 00:04:41,680 --> 00:04:44,760 Speaker 1: we saw with credit speees over the last couple of years, 81 00:04:44,839 --> 00:04:47,360 Speaker 1: is that a lot of their business has gone away 82 00:04:47,360 --> 00:04:49,680 Speaker 1: to some of the stronger repetitors. That's that's what's led 83 00:04:49,680 --> 00:04:51,599 Speaker 1: to the pressure. And and I'll just say, I'll just 84 00:04:51,600 --> 00:04:54,360 Speaker 1: say one thing that I know Paul remembers. But you know, 85 00:04:54,839 --> 00:04:58,719 Speaker 1: when Lehman failed, there was a significant period of time 86 00:04:58,720 --> 00:05:01,960 Speaker 1: between bear Stearns and Lehman, and I think where banks 87 00:05:02,000 --> 00:05:05,800 Speaker 1: were reducing risk, managing their counterparty risk, and so you know, 88 00:05:05,839 --> 00:05:08,760 Speaker 1: when we had that moment with Lehman, it was a 89 00:05:08,760 --> 00:05:12,080 Speaker 1: big money market fund. It was something that people didn't anticipate. 90 00:05:13,560 --> 00:05:16,359 Speaker 1: But again with Credit Suis, this is not an overnight 91 00:05:16,400 --> 00:05:20,920 Speaker 1: situation like it was with Silicon Valley bank shares. This 92 00:05:21,000 --> 00:05:23,800 Speaker 1: is something that's been happening over a couple of years. 93 00:05:24,120 --> 00:05:26,800 Speaker 1: They don't have the prime broberge business anymore, and so 94 00:05:26,839 --> 00:05:29,960 Speaker 1: I think there's a lot of the systemic risk that 95 00:05:30,000 --> 00:05:32,679 Speaker 1: we would normally worry about have been reduced. So, Alice, 96 00:05:32,680 --> 00:05:34,000 Speaker 1: that's kind of where I wanted to go. I think 97 00:05:34,000 --> 00:05:36,680 Speaker 1: one of the things I learned as a newbie to 98 00:05:36,760 --> 00:05:38,440 Speaker 1: the kind of the bank, you know, the bank and 99 00:05:38,480 --> 00:05:42,400 Speaker 1: bank accounting and how it all works is void confidence 100 00:05:42,480 --> 00:05:44,600 Speaker 1: is so key, and when you lose the confidence of 101 00:05:44,640 --> 00:05:48,920 Speaker 1: your counterparties, basically it's game over. And that's kind of 102 00:05:48,960 --> 00:05:50,880 Speaker 1: what we saw for during two thousand and eight for 103 00:05:50,920 --> 00:05:54,440 Speaker 1: a number of players. Does Credit Swiss have that risks 104 00:05:54,600 --> 00:05:59,679 Speaker 1: today credit suis. It is a crisis of confidence happening 105 00:05:59,800 --> 00:06:02,039 Speaker 1: right out and they do need and I think that 106 00:06:02,160 --> 00:06:04,360 Speaker 1: is why they're asking regulators to come out and show 107 00:06:04,440 --> 00:06:07,159 Speaker 1: some kind of support. There needs to be there needs 108 00:06:07,200 --> 00:06:10,760 Speaker 1: to be something that provides a floor under the market 109 00:06:10,800 --> 00:06:14,359 Speaker 1: and gives some kind of confidence. Um. And again, you know, 110 00:06:14,839 --> 00:06:16,800 Speaker 1: over the last year or so, they did have a 111 00:06:16,839 --> 00:06:20,120 Speaker 1: one big shareholder that was sticking by them, Um, they 112 00:06:20,200 --> 00:06:22,480 Speaker 1: raised a capital Those were both kind of signs that 113 00:06:22,560 --> 00:06:26,160 Speaker 1: things were studying. They said that flows had sort of studied. 114 00:06:26,360 --> 00:06:29,479 Speaker 1: And then you know there's now some questions around those 115 00:06:29,520 --> 00:06:33,000 Speaker 1: disclosures and how accurate they were, and so that that 116 00:06:33,080 --> 00:06:35,159 Speaker 1: makes it tough for the bank to come out and 117 00:06:35,160 --> 00:06:36,800 Speaker 1: make comments. And I think that's why they do need 118 00:06:36,839 --> 00:06:40,640 Speaker 1: a third party to um, you know, come in and 119 00:06:40,839 --> 00:06:44,039 Speaker 1: stab wise things and give some confidence. That's that's what 120 00:06:44,080 --> 00:06:46,480 Speaker 1: the FED did when with the banks, right, so they 121 00:06:46,920 --> 00:06:49,680 Speaker 1: not only did they take over the banks, they said 122 00:06:49,720 --> 00:06:52,800 Speaker 1: that the deposits are going to be insured, and they 123 00:06:52,839 --> 00:06:56,560 Speaker 1: provided a facility to you know, cut the worries across 124 00:06:56,560 --> 00:07:00,159 Speaker 1: a broader banking system and so UM, I think that's 125 00:07:00,360 --> 00:07:02,200 Speaker 1: that's sort of what we need at this moment from 126 00:07:02,279 --> 00:07:04,760 Speaker 1: from the good place. Could somebody buy them take over 127 00:07:04,839 --> 00:07:09,080 Speaker 1: what's happening on that front of anything, So that you know, 128 00:07:09,320 --> 00:07:12,400 Speaker 1: and I think we've talked about before. You know, people 129 00:07:12,440 --> 00:07:14,600 Speaker 1: have long speculated about m and A with kret suite. 130 00:07:14,640 --> 00:07:17,280 Speaker 1: See in the past, didn't think that was a possibility 131 00:07:17,360 --> 00:07:21,360 Speaker 1: because they are are globally systemic important bank with a 132 00:07:21,480 --> 00:07:25,320 Speaker 1: very complex balance sheet um and you know, there's all 133 00:07:25,360 --> 00:07:29,440 Speaker 1: the regulatory aspects, especially if you're considering cross border. However, 134 00:07:29,720 --> 00:07:32,560 Speaker 1: if you look at their operations today, having sold off 135 00:07:32,600 --> 00:07:34,760 Speaker 1: a lot of their trading, they're not in prime brokerage, 136 00:07:35,160 --> 00:07:37,400 Speaker 1: they're cutting a lot of risk assets. They're really going 137 00:07:37,440 --> 00:07:40,680 Speaker 1: to a more focused wealth manager. It does seem like 138 00:07:40,800 --> 00:07:43,520 Speaker 1: that that could be more of a possibility. There's you know, 139 00:07:43,560 --> 00:07:48,000 Speaker 1: there's still a systemically important bank based on you know, 140 00:07:48,360 --> 00:07:50,880 Speaker 1: some of the historical metrics, but you know, the way 141 00:07:50,920 --> 00:07:54,520 Speaker 1: that the business looks going forward, is there an opportunity? 142 00:07:54,760 --> 00:07:56,800 Speaker 1: You know that. But then the other side of that 143 00:07:57,000 --> 00:08:02,720 Speaker 1: is UBS has been gaining massive flows while kred Swiss 144 00:08:02,760 --> 00:08:05,240 Speaker 1: has been having outflows, and neither one is going to 145 00:08:05,320 --> 00:08:09,080 Speaker 1: point to or confirm or deny what's happening on the 146 00:08:09,080 --> 00:08:12,080 Speaker 1: competitive front, but it seems pretty clear. But the flows 147 00:08:12,120 --> 00:08:15,080 Speaker 1: are going to UBS anyway, So that the question is, 148 00:08:15,800 --> 00:08:17,760 Speaker 1: you know, is someone going to step in and buy 149 00:08:18,680 --> 00:08:21,320 Speaker 1: buy this bank or will they just try to continue 150 00:08:21,360 --> 00:08:26,800 Speaker 1: to win share in other ways Swiss National Bank, Allison, 151 00:08:27,280 --> 00:08:30,240 Speaker 1: are you surprised that the Swiss National Swiss National Bank 152 00:08:30,280 --> 00:08:35,080 Speaker 1: hasn't either made a forceful statement of support or maybe 153 00:08:35,120 --> 00:08:37,760 Speaker 1: even done something more like take some actions amount But 154 00:08:37,800 --> 00:08:39,440 Speaker 1: you know, I don't know what that action would be. 155 00:08:39,480 --> 00:08:42,320 Speaker 1: But are you surprised we haven't seen that yet from them? 156 00:08:42,360 --> 00:08:44,840 Speaker 1: I think that, you know, we in the US find 157 00:08:44,880 --> 00:08:48,280 Speaker 1: it surprising. I think because it is a very different 158 00:08:49,200 --> 00:08:52,240 Speaker 1: regulator right than the FED. And I think that, um, 159 00:08:52,960 --> 00:08:55,520 Speaker 1: you know, from everything that we know and hear about it, 160 00:08:55,840 --> 00:09:00,280 Speaker 1: they just tend to operate a little bit differently, um 161 00:09:00,720 --> 00:09:04,480 Speaker 1: Whereas I think the FED is much more known for 162 00:09:04,520 --> 00:09:06,680 Speaker 1: coming out and having a voice in the market and 163 00:09:06,840 --> 00:09:10,600 Speaker 1: addressing things on so um. And there is a difference between, 164 00:09:11,040 --> 00:09:13,360 Speaker 1: you know, if you look at sort of the universe, 165 00:09:14,120 --> 00:09:18,000 Speaker 1: UM that that they're overseeing the issue with the credit 166 00:09:18,000 --> 00:09:20,040 Speaker 1: suite and UBS. I think versus some of the US 167 00:09:20,120 --> 00:09:24,319 Speaker 1: banks is that if you look at historically their assets 168 00:09:24,320 --> 00:09:27,600 Speaker 1: and their businesses as a multiple of the SPIS economy, 169 00:09:27,600 --> 00:09:31,200 Speaker 1: they're much more important to the Spis economy just these 170 00:09:31,240 --> 00:09:36,040 Speaker 1: two banks. Um, so one would one would think that 171 00:09:36,920 --> 00:09:39,960 Speaker 1: something would be coming again, since no one really knows 172 00:09:40,000 --> 00:09:43,040 Speaker 1: what that might be, and you know, we we don't 173 00:09:43,080 --> 00:09:45,280 Speaker 1: know what's going on between behind the scenes and the 174 00:09:45,320 --> 00:09:50,480 Speaker 1: conversations and um, you know, if there's if if they're 175 00:09:50,480 --> 00:09:53,160 Speaker 1: you know, what the conversations are between them and the 176 00:09:53,200 --> 00:09:57,359 Speaker 1: credit suite and anything else. Yeah, because when I think Switzerland, 177 00:09:57,400 --> 00:10:01,680 Speaker 1: I think cheese. I think I mean, yeah, yeah, chocolate 178 00:10:01,720 --> 00:10:03,640 Speaker 1: and banking. So I don't know where the Swiss National 179 00:10:03,640 --> 00:10:05,800 Speaker 1: Bank is, all right, Alison, thanks so much for joining us. 180 00:10:05,800 --> 00:10:09,280 Speaker 1: Alison Williams, Senior Global Banks analyst at Bloomberg Intelligence. Just 181 00:10:09,320 --> 00:10:11,040 Speaker 1: trying to get the latest on this credit Swiss thing. 182 00:10:11,120 --> 00:10:13,080 Speaker 1: I mean, I used to work there. Man. When I 183 00:10:13,120 --> 00:10:16,840 Speaker 1: was there, we were killing it, you know. But the 184 00:10:16,880 --> 00:10:21,480 Speaker 1: institution before my time and since has always always had 185 00:10:21,720 --> 00:10:26,520 Speaker 1: just a real blind spot for controls, you know, and 186 00:10:27,280 --> 00:10:30,200 Speaker 1: bad things happen more so more frequently there than in 187 00:10:30,240 --> 00:10:34,559 Speaker 1: other places. It seems. We want to break down how 188 00:10:34,720 --> 00:10:37,760 Speaker 1: can those retail sales numbers looked? And how the consumers 189 00:10:37,800 --> 00:10:40,240 Speaker 1: looking and how just retailers in general are looking. And 190 00:10:40,320 --> 00:10:43,360 Speaker 1: when you want to do that, there's only one place 191 00:10:43,400 --> 00:10:45,719 Speaker 1: to go, and that's Dana Telsea, chief Research Officer and 192 00:10:45,880 --> 00:10:49,719 Speaker 1: CEO of Telsey Advisory Group. Dana, let's start with those 193 00:10:49,720 --> 00:10:54,720 Speaker 1: retail sales numbers this morning. What were your takeaways I 194 00:10:54,800 --> 00:10:57,040 Speaker 1: think overall? And first of all, thank you for having me. 195 00:10:57,280 --> 00:11:00,480 Speaker 1: I think the takeaways overall for retail sales been mind 196 00:11:00,520 --> 00:11:03,839 Speaker 1: you had January revised upward, and most of the retailers 197 00:11:03,880 --> 00:11:07,240 Speaker 1: I'm talking about talking to talked about the surprise and 198 00:11:07,280 --> 00:11:11,640 Speaker 1: the strength in January as frankly, goods and markdown cleared 199 00:11:11,679 --> 00:11:14,680 Speaker 1: out the beginning of February. I mean, definitely a little 200 00:11:14,720 --> 00:11:18,600 Speaker 1: bit wishywashy, so not totally surprised. February is not a 201 00:11:18,679 --> 00:11:21,400 Speaker 1: very significant month. You had a lot of strengths in 202 00:11:21,520 --> 00:11:24,720 Speaker 1: department stores in the month of January, part of that 203 00:11:24,840 --> 00:11:28,520 Speaker 1: coming from the increase in social Security payments that the 204 00:11:28,600 --> 00:11:31,320 Speaker 1: baby boomers were seeing to like the shop at some 205 00:11:31,440 --> 00:11:34,720 Speaker 1: of the department stores. And my takeaway is that we 206 00:11:34,760 --> 00:11:38,120 Speaker 1: are seeing consumers slowed down in goods. We had been 207 00:11:38,160 --> 00:11:40,880 Speaker 1: seeing it. We're going to continue to see it inventory 208 00:11:41,080 --> 00:11:44,720 Speaker 1: levels have gotten clean, and the uncertainty in the environment 209 00:11:45,160 --> 00:11:49,080 Speaker 1: feeds through to overall consumer spending. Dana, when we talk 210 00:11:49,120 --> 00:11:51,560 Speaker 1: about what twenty twenty three was supposed to kind of hail. 211 00:11:51,840 --> 00:11:54,440 Speaker 1: I think it was still a couple of months of 212 00:11:54,480 --> 00:11:57,760 Speaker 1: markdowns and clearances, and we weren't quite done with that era. 213 00:11:58,520 --> 00:12:01,360 Speaker 1: Now that we perhaps are looking at the macroeconomic environment 214 00:12:01,520 --> 00:12:04,480 Speaker 1: where easing is on the table, is that still the case. 215 00:12:07,440 --> 00:12:09,760 Speaker 1: I think overall we're still going to see a challenge 216 00:12:09,800 --> 00:12:13,480 Speaker 1: first u first quarter, and second quarter maybe like that too. 217 00:12:13,920 --> 00:12:17,200 Speaker 1: I think overall, whether it's the level of traffic, whether 218 00:12:17,200 --> 00:12:21,880 Speaker 1: it's product returns, even the normalization of increases that luxury 219 00:12:21,920 --> 00:12:25,760 Speaker 1: goods is occurring right now. So overall, the guidance for 220 00:12:26,080 --> 00:12:30,200 Speaker 1: particularly the first quarter is coming in below consensus. But 221 00:12:30,280 --> 00:12:34,080 Speaker 1: you know what, I think whatever that consensus was, I 222 00:12:34,160 --> 00:12:37,520 Speaker 1: think the whisper expectations out there was for it to 223 00:12:37,520 --> 00:12:41,520 Speaker 1: be lower. If you can manage your expenses, keep your 224 00:12:41,559 --> 00:12:46,079 Speaker 1: inventories levels lean in order to take advantage of whenever 225 00:12:46,160 --> 00:12:48,960 Speaker 1: the consumer feels a little bit more certain that some 226 00:12:49,200 --> 00:12:51,880 Speaker 1: leverage to the bottom line is the focus, and we're 227 00:12:51,920 --> 00:12:55,200 Speaker 1: definitely seeing it. Cosmetics is one of the areas that 228 00:12:55,200 --> 00:12:58,680 Speaker 1: that's working. It seems like there's a pickup and experiential 229 00:12:58,720 --> 00:13:03,480 Speaker 1: with restaurants. The apparel part is a bit more challenge. Now, Dana, 230 00:13:03,760 --> 00:13:08,360 Speaker 1: what are you the companies telling you about China reopening 231 00:13:08,480 --> 00:13:10,719 Speaker 1: reopening faster than people thought. I believe the US is 232 00:13:10,760 --> 00:13:14,560 Speaker 1: going to loosen pretty significantly the visa restrictions, the vaccine 233 00:13:14,559 --> 00:13:18,920 Speaker 1: restrictions for Chinese travelers. On the luxury side, that's going 234 00:13:19,000 --> 00:13:23,839 Speaker 1: to be a big, big plus. It is. And how 235 00:13:23,880 --> 00:13:25,520 Speaker 1: did you know that? We just came out with a 236 00:13:25,640 --> 00:13:29,360 Speaker 1: report on Monday all about the China reopening and who 237 00:13:29,440 --> 00:13:35,880 Speaker 1: particularly benefits. So your timing, frankly, couldn't be more perfect, 238 00:13:36,160 --> 00:13:39,240 Speaker 1: because you're exactly right. It does benefit luxury And if 239 00:13:39,280 --> 00:13:41,719 Speaker 1: you think of what we've been seeing now, we've been 240 00:13:41,760 --> 00:13:45,360 Speaker 1: seeing certainly some improvement levels, whether it was companies like 241 00:13:45,559 --> 00:13:49,600 Speaker 1: Tapestry or LVMH. Who's talking about the rebound and the 242 00:13:49,600 --> 00:13:52,960 Speaker 1: reopening of China? That who we're hearing about it. Who 243 00:13:53,040 --> 00:13:58,240 Speaker 1: benefits It's LVMH given the diversification their portfolio, It's Urmez, 244 00:13:58,400 --> 00:14:01,959 Speaker 1: It's Richmond given the penetration and luxury goods that they 245 00:14:02,000 --> 00:14:05,720 Speaker 1: have right now. So I'm excited about how China reopens 246 00:14:05,760 --> 00:14:08,640 Speaker 1: to the world, But there's two other elements just to 247 00:14:08,720 --> 00:14:11,880 Speaker 1: note about this China reopening. Let's talk about what the 248 00:14:11,920 --> 00:14:15,720 Speaker 1: travels look like. In twenty nineteen, China had over one 249 00:14:15,800 --> 00:14:19,640 Speaker 1: hundred and fifty million outbound travelers who spent two hundred 250 00:14:19,680 --> 00:14:23,480 Speaker 1: and fifty five billion dollars to two nineteen. The savings 251 00:14:23,480 --> 00:14:27,440 Speaker 1: of Chinese consumers rose two point six trillion dollars in 252 00:14:27,520 --> 00:14:31,480 Speaker 1: twenty twenty two. So exactly like you said, if they 253 00:14:31,600 --> 00:14:34,040 Speaker 1: begin to travel, even in the second half of the year, 254 00:14:34,400 --> 00:14:38,320 Speaker 1: they will be a big benefit to retail sales. Tina. 255 00:14:38,480 --> 00:14:40,240 Speaker 1: When we're talking about the China story, I feel like 256 00:14:40,280 --> 00:14:42,200 Speaker 1: we also have talked about other regions of the world 257 00:14:42,400 --> 00:14:45,480 Speaker 1: to what extent. Is the Middle East becoming a more 258 00:14:45,560 --> 00:14:48,680 Speaker 1: and more important region for some of those luxury names. 259 00:14:51,160 --> 00:14:53,800 Speaker 1: So when you think about the Middle East overall, it 260 00:14:53,920 --> 00:14:57,000 Speaker 1: is becoming more important. But when you think about where 261 00:14:57,120 --> 00:15:01,760 Speaker 1: sales are coming from, where there's companies like LVMH just 262 00:15:01,920 --> 00:15:04,440 Speaker 1: that smallest part of the world, the Middle East and 263 00:15:04,520 --> 00:15:07,760 Speaker 1: some other areas, it's still only seven percent of sales, 264 00:15:08,080 --> 00:15:11,080 Speaker 1: so it's certainly not as significant when you look at 265 00:15:11,080 --> 00:15:14,160 Speaker 1: the carryings of the world to who owned Gucci, it's 266 00:15:14,240 --> 00:15:18,320 Speaker 1: still a relatively small piece of the pious seven percent. Also, 267 00:15:18,760 --> 00:15:24,000 Speaker 1: there's a ways to go. Europe, Asia, North America are 268 00:15:24,040 --> 00:15:28,080 Speaker 1: the areas where is the most beneficial impact. So we 269 00:15:28,400 --> 00:15:30,560 Speaker 1: touched on luxury. How about on the other end of 270 00:15:30,720 --> 00:15:32,720 Speaker 1: the retail spectrum. I'm thinking like the you know, the 271 00:15:32,840 --> 00:15:36,440 Speaker 1: dollar stores and Dollar General and maybe maybe even you 272 00:15:36,440 --> 00:15:39,720 Speaker 1: know Walmart and Targe. If I'm an investor, do I 273 00:15:39,840 --> 00:15:43,120 Speaker 1: feel like, if times get tough, if there's a recession, 274 00:15:43,360 --> 00:15:47,040 Speaker 1: if inflation persists, are we seeing people trading down to 275 00:15:47,120 --> 00:15:53,440 Speaker 1: those types of stores. It's interesting many of the companies 276 00:15:53,520 --> 00:15:56,600 Speaker 1: overall have not said that they've fully seen the trade 277 00:15:56,640 --> 00:15:59,680 Speaker 1: down yet. But yet when you talk to the off pricers, 278 00:16:00,080 --> 00:16:03,040 Speaker 1: the tjxes of the world, whose recent camps were up 279 00:16:03,120 --> 00:16:06,760 Speaker 1: seven percent and we talked about an uptick in apparel 280 00:16:06,800 --> 00:16:10,080 Speaker 1: and the pickup in traffic, Well they're getting they're getting 281 00:16:10,120 --> 00:16:13,760 Speaker 1: that share. I think, like Walmart, Target is definitely planning 282 00:16:13,760 --> 00:16:17,080 Speaker 1: cautiously for twenty twenty three. You'll look at their camp 283 00:16:17,200 --> 00:16:22,240 Speaker 1: guidance of download single digits to upload single digits. Yet 284 00:16:22,320 --> 00:16:27,360 Speaker 1: the margin recovery given Target expects operating income to grow 285 00:16:27,480 --> 00:16:31,600 Speaker 1: double digits in twenty twenty three. That's encouraging. So yes, 286 00:16:31,640 --> 00:16:33,720 Speaker 1: I do think you see the benefits of the trade 287 00:16:33,760 --> 00:16:36,480 Speaker 1: down that way, and you see it in merchandise with 288 00:16:36,560 --> 00:16:40,080 Speaker 1: the newness. You'll look at beauty ALTA, you have ALTA 289 00:16:40,160 --> 00:16:43,120 Speaker 1: and target that should be a benefit. You look at loyalty, 290 00:16:43,400 --> 00:16:45,880 Speaker 1: You look at that target circle. Loyalty member base of 291 00:16:45,880 --> 00:16:50,200 Speaker 1: one hundred million plus today. There's opportunities for improvement and 292 00:16:50,280 --> 00:16:55,760 Speaker 1: continued improvement in conversion at discounters. Dana thirty seconds here 293 00:16:56,280 --> 00:16:58,240 Speaker 1: talks us a little bit about card spend. Are people 294 00:16:58,320 --> 00:17:01,320 Speaker 1: still willing to spend on their credit cards or are 295 00:17:01,400 --> 00:17:04,520 Speaker 1: we kind of looking at people buying from their savings 296 00:17:07,160 --> 00:17:09,200 Speaker 1: a little bit buying from their savings at the lowered 297 00:17:09,200 --> 00:17:12,840 Speaker 1: to middle income level. Credit card data has become a 298 00:17:12,920 --> 00:17:15,960 Speaker 1: little bit more cautious lightly, and we're seeing a little 299 00:17:15,960 --> 00:17:18,440 Speaker 1: bit of an uptick in some of those dead dats. 300 00:17:19,080 --> 00:17:20,679 Speaker 1: All right, Danny, thank you so much for joining us. 301 00:17:20,680 --> 00:17:24,960 Speaker 1: We really appreciate getting your perspective on all things retail. 302 00:17:25,240 --> 00:17:29,400 Speaker 1: Danta Telsey, chief Research Officer and CEO of Telsey Advisory Group. 303 00:17:29,400 --> 00:17:31,560 Speaker 1: Before that, she was a senior managing director at bear 304 00:17:31,640 --> 00:17:34,920 Speaker 1: Stearns and chief was a former analyst at a firm 305 00:17:34,960 --> 00:17:37,520 Speaker 1: called c J. Lawrence. And if you're of a certain generation, 306 00:17:38,240 --> 00:17:43,080 Speaker 1: you know c J. Lawrence. You want to get right 307 00:17:43,119 --> 00:17:45,120 Speaker 1: over to those regional banks and get back to see 308 00:17:45,480 --> 00:17:47,520 Speaker 1: what has really been a big, big issue for this 309 00:17:47,560 --> 00:17:50,240 Speaker 1: market over the last week or so with some of 310 00:17:50,280 --> 00:17:53,520 Speaker 1: these failures of some of these small regional banks. Herman Chan, 311 00:17:53,680 --> 00:17:57,800 Speaker 1: senior analyst US Regional Banks with Bloomberg Intelligence, joins a program. Also, 312 00:17:57,800 --> 00:18:00,280 Speaker 1: we have Arnold Kakuta. He is credit analysts and we're 313 00:18:00,320 --> 00:18:04,159 Speaker 1: intelligence focusing on the banks. Arnold, want to start with 314 00:18:04,200 --> 00:18:06,240 Speaker 1: you because we were just talking to Katie Greifeld and 315 00:18:06,280 --> 00:18:09,239 Speaker 1: she was talking with the source Anastasia Amarosso over at 316 00:18:09,240 --> 00:18:12,760 Speaker 1: I Capital, and Anastasia was saying, hey, you gotta take 317 00:18:12,760 --> 00:18:14,560 Speaker 1: a look at some of these bank bonds. There's some 318 00:18:14,600 --> 00:18:17,480 Speaker 1: real quality out there and they're trading it very effective 319 00:18:17,600 --> 00:18:20,919 Speaker 1: or very attractive yields it there. What are you seeing 320 00:18:21,040 --> 00:18:23,480 Speaker 1: on the credit side of some of the regional banks 321 00:18:23,480 --> 00:18:27,520 Speaker 1: out there, Arnold, Yeah, I mean definitely yeah. If if 322 00:18:27,800 --> 00:18:29,960 Speaker 1: the storm passes and then you know, we got another 323 00:18:30,000 --> 00:18:33,359 Speaker 1: curveball today with creditsis you know, having some issues and 324 00:18:33,520 --> 00:18:36,840 Speaker 1: kind of bringing some you know, counterparty risk issues, you know, 325 00:18:36,880 --> 00:18:39,399 Speaker 1: to to the bigger banks here. But uh, yeah, I 326 00:18:39,400 --> 00:18:41,800 Speaker 1: think it's still not over though, right, Um you had, 327 00:18:41,920 --> 00:18:44,760 Speaker 1: um what is it? I think Moody's h SMP coming 328 00:18:44,800 --> 00:18:48,479 Speaker 1: in with a downgrade to um FRC you know, uh 329 00:18:48,680 --> 00:18:52,440 Speaker 1: doubt from AAA minus to junk rating. Right, So, um, 330 00:18:52,480 --> 00:18:55,440 Speaker 1: you know there's still definitely concerns on the deposit flow 331 00:18:55,520 --> 00:18:59,800 Speaker 1: out risks, UM, the deposit out outflow risk and uh yeah, 332 00:19:00,080 --> 00:19:02,119 Speaker 1: you know we might get an update, you know, one 333 00:19:02,119 --> 00:19:04,600 Speaker 1: of these guys report quarterly earnings and saying, you know, 334 00:19:04,800 --> 00:19:07,360 Speaker 1: do they have to tap this new you know, bank 335 00:19:07,400 --> 00:19:09,920 Speaker 1: funding facility and whatnot. So I think, you know, there's 336 00:19:09,920 --> 00:19:12,200 Speaker 1: still some risk out there, but you know, if you 337 00:19:12,280 --> 00:19:14,879 Speaker 1: believe that things may stabilize and some of the bigger 338 00:19:14,880 --> 00:19:18,040 Speaker 1: players may benefit. I you know, we got the news 339 00:19:18,040 --> 00:19:20,680 Speaker 1: that b of A got fifteen billion of depolsits. You 340 00:19:20,680 --> 00:19:23,320 Speaker 1: know probably you know, if that's the case, then JP 341 00:19:23,440 --> 00:19:26,160 Speaker 1: Morgan probably got a lot more right, But there's still 342 00:19:26,160 --> 00:19:27,880 Speaker 1: things out there that might be kind of a little 343 00:19:27,880 --> 00:19:31,399 Speaker 1: bit dicey. Herman hop on into this conversation because in 344 00:19:31,440 --> 00:19:34,199 Speaker 1: addition to all of this kind of craziness happening in 345 00:19:34,200 --> 00:19:35,680 Speaker 1: the bond market, and of course some of these bank 346 00:19:35,720 --> 00:19:39,159 Speaker 1: bonds spread. First Republic, one of the regional banks we 347 00:19:39,160 --> 00:19:44,159 Speaker 1: were following getting downgraded today. Why there's a lot of 348 00:19:44,200 --> 00:19:48,000 Speaker 1: asserts a new with their positive base. Management had an 349 00:19:48,040 --> 00:19:54,119 Speaker 1: opportunity to discuss that when they've been on media reports 350 00:19:54,280 --> 00:19:59,639 Speaker 1: and have been a bit avoiding the matter. So until 351 00:19:59,680 --> 00:20:03,240 Speaker 1: we some more clarity on where deposits stand, there's going 352 00:20:03,320 --> 00:20:07,040 Speaker 1: to be some uncertainty with the name. I do think 353 00:20:07,119 --> 00:20:12,520 Speaker 1: that the liquidity facility that arnoldists articulated does shield them 354 00:20:12,560 --> 00:20:16,159 Speaker 1: from some issues in terms of managing the balance sheets. 355 00:20:16,200 --> 00:20:20,880 Speaker 1: But longer term is what happens with deposits and when 356 00:20:20,960 --> 00:20:25,480 Speaker 1: can they stabilize and move on? So that's the underlying 357 00:20:25,520 --> 00:20:29,640 Speaker 1: big question that the industry is trying to figure out 358 00:20:29,720 --> 00:20:33,280 Speaker 1: right now. So Herman, I'm looking at the SP five 359 00:20:33,359 --> 00:20:37,600 Speaker 1: hundred regional index here, stock index down thirty two percent 360 00:20:37,800 --> 00:20:40,919 Speaker 1: year to date, down forty eight percent on a trailing 361 00:20:40,960 --> 00:20:44,080 Speaker 1: twelve month basis. That's telling me that the market thinks 362 00:20:44,600 --> 00:20:47,520 Speaker 1: this is more than just a blip. There's something fundamental 363 00:20:47,560 --> 00:20:51,280 Speaker 1: out there. I know yesterday you did not think it 364 00:20:51,440 --> 00:20:54,480 Speaker 1: was systemic per se. Right, has anything changed in twenty 365 00:20:54,480 --> 00:20:57,480 Speaker 1: four hours. There's just a lot of them start to 366 00:20:57,520 --> 00:21:03,600 Speaker 1: need in the marketplace, things tend to appear without notice. 367 00:21:04,160 --> 00:21:08,480 Speaker 1: You've Arnold mentioned the court squee situation. That doesn't help confidence, 368 00:21:09,720 --> 00:21:15,240 Speaker 1: and the there's a lot of uncertainty with where deposits 369 00:21:15,240 --> 00:21:20,320 Speaker 1: are going, what happens with bank balance sheets, and where 370 00:21:20,359 --> 00:21:25,520 Speaker 1: interest rates are going, and the economic repercussions of the 371 00:21:25,560 --> 00:21:29,720 Speaker 1: bank fallouts, because if banks aren't going to lend because 372 00:21:29,760 --> 00:21:31,560 Speaker 1: the posits are flowing out of the system, that has 373 00:21:31,760 --> 00:21:35,080 Speaker 1: very strong implications for the future growth of the economy 374 00:21:35,160 --> 00:21:38,760 Speaker 1: because banks are are scared at this point, so there 375 00:21:39,080 --> 00:21:43,000 Speaker 1: will be some you know, domino effect of what's going on. 376 00:21:43,080 --> 00:21:46,080 Speaker 1: So that's that's something that that is adding to the uncertainty. 377 00:21:46,200 --> 00:21:49,360 Speaker 1: Well Herman, in addition to just some of the uncertaty 378 00:21:49,400 --> 00:21:51,320 Speaker 1: that you're seeing. I thought it was interesting that Ken 379 00:21:51,400 --> 00:21:55,480 Speaker 1: Griffin of Citadel bought a steak Western Alliance Bank coort 380 00:21:55,600 --> 00:21:58,720 Speaker 1: w AL. The stock is down then, even though it 381 00:21:58,760 --> 00:22:00,480 Speaker 1: was higher, I want to say, by like eight or 382 00:22:00,560 --> 00:22:04,200 Speaker 1: nine percent in the pre market. Why that specific bank, 383 00:22:04,400 --> 00:22:08,000 Speaker 1: Why are they not facing the same scrutiny or same 384 00:22:08,080 --> 00:22:12,760 Speaker 1: downgrades as First Republic Yeah, I think Western Alliance is 385 00:22:12,760 --> 00:22:16,080 Speaker 1: a bank that has historically been pretty well managed, low 386 00:22:16,119 --> 00:22:21,680 Speaker 1: credit risk. It operates in the California, Arizona, Nevada market, 387 00:22:21,800 --> 00:22:25,360 Speaker 1: so it's sort of tangential to what SPB does. They 388 00:22:25,400 --> 00:22:29,240 Speaker 1: did buy a bank that does very much the same 389 00:22:29,280 --> 00:22:31,919 Speaker 1: focus ass would be with startups in venture capital. So 390 00:22:32,280 --> 00:22:35,480 Speaker 1: that's why they were initially lumped in. But the manager 391 00:22:35,560 --> 00:22:38,240 Speaker 1: team has been very strong and they've they've come out 392 00:22:38,280 --> 00:22:42,919 Speaker 1: with pretty good updates in terms of where they stand 393 00:22:43,840 --> 00:22:47,119 Speaker 1: from a liquidity standpoint. So i'd point to that, Hey, Arnold, 394 00:22:47,560 --> 00:22:50,880 Speaker 1: as a credit analyst, Um, what are you really looking 395 00:22:50,920 --> 00:22:55,920 Speaker 1: at when you analyze a bank security? There? I mean, 396 00:22:56,000 --> 00:22:58,000 Speaker 1: is it give us a sense of what you're looking 397 00:22:58,000 --> 00:23:02,320 Speaker 1: at and how is it kind of look today? Yeah, 398 00:23:02,359 --> 00:23:05,399 Speaker 1: So you know, traditionally we look at, you know, the 399 00:23:05,480 --> 00:23:09,439 Speaker 1: loan book, how safe are the loans and you know, um, 400 00:23:09,640 --> 00:23:12,320 Speaker 1: in terms of from that standpoint, right, the traditional bank 401 00:23:12,440 --> 00:23:17,280 Speaker 1: credit analysis, UM, credit quality is still pretty resilient, you know, 402 00:23:17,359 --> 00:23:20,200 Speaker 1: given what has been so far resilient consumer and so 403 00:23:20,560 --> 00:23:23,920 Speaker 1: you know, people are paying their bills on time, um, 404 00:23:24,119 --> 00:23:27,160 Speaker 1: and so but you know, slowly and steadily we've seen 405 00:23:27,240 --> 00:23:31,000 Speaker 1: kind of a normalization the normalization of credit to you 406 00:23:31,040 --> 00:23:33,920 Speaker 1: know where net net chargeoffs are rising, but but normalizing 407 00:23:34,000 --> 00:23:38,080 Speaker 1: not you know, um, going you know anywhere haywire. But again, 408 00:23:38,160 --> 00:23:41,760 Speaker 1: we're still at the start of a potential recession, right, 409 00:23:41,800 --> 00:23:45,000 Speaker 1: and so I think things will get worse, But it's 410 00:23:45,040 --> 00:23:47,040 Speaker 1: just a matter of you know, how much worse. And 411 00:23:47,080 --> 00:23:49,760 Speaker 1: it's just a lot of this stuff that has happened. Now. 412 00:23:50,040 --> 00:23:55,800 Speaker 1: This is it's almost like basic liquidity analysis, right where um, 413 00:23:55,960 --> 00:23:58,199 Speaker 1: all right, you take in deposits and and and you 414 00:23:58,280 --> 00:23:59,720 Speaker 1: make loans. But for a lot of these banks that 415 00:23:59,760 --> 00:24:03,600 Speaker 1: kind of trouble, it's okay. They became bond managers, right, 416 00:24:03,600 --> 00:24:06,399 Speaker 1: they had big bond portfolios that you know that they 417 00:24:06,480 --> 00:24:09,000 Speaker 1: and then and then the regulation was more relaxed for 418 00:24:09,040 --> 00:24:12,080 Speaker 1: them so that um, they didn't have to you know, 419 00:24:12,160 --> 00:24:16,119 Speaker 1: really the unrealized losses on these available for sales securities. 420 00:24:16,160 --> 00:24:19,000 Speaker 1: It did not hit their capital levels, so um, you know, 421 00:24:19,320 --> 00:24:21,560 Speaker 1: it delayed the pain, right Like when the deposits fled 422 00:24:21,560 --> 00:24:25,120 Speaker 1: and they had to sell these ass securities, that's when 423 00:24:25,160 --> 00:24:28,080 Speaker 1: it really hurt. You know, that's when their capital levels 424 00:24:28,080 --> 00:24:30,040 Speaker 1: will be hit. And so I think that's where the 425 00:24:30,119 --> 00:24:33,919 Speaker 1: regulation might start changing, right, Uh, where where some of 426 00:24:33,960 --> 00:24:37,359 Speaker 1: these mids of smaller size banks, UH might need to 427 00:24:37,440 --> 00:24:40,800 Speaker 1: start accounting for, you know, how their bond portfolios are 428 00:24:40,840 --> 00:24:43,720 Speaker 1: doing instead of you know, really realizing at the last 429 00:24:43,720 --> 00:24:47,080 Speaker 1: moment when deposits are flinging out the door. Arnold. When 430 00:24:47,160 --> 00:24:50,320 Speaker 1: we talk about spreads specifically, I think we're looking a 431 00:24:50,320 --> 00:24:53,840 Speaker 1: lot at of course US and their bonds. I think 432 00:24:53,880 --> 00:24:56,200 Speaker 1: it was like a one thousand basis point move or 433 00:24:56,240 --> 00:24:58,360 Speaker 1: something something in like distress territory. Correct me if I'm 434 00:24:58,359 --> 00:25:00,880 Speaker 1: wrong there, But I want to ask how long will 435 00:25:00,920 --> 00:25:03,399 Speaker 1: it take for that to spread to some of the 436 00:25:03,480 --> 00:25:05,200 Speaker 1: other banks. We're already seeing in a little bit in 437 00:25:05,200 --> 00:25:07,879 Speaker 1: the equity price action, but in terms of the bond market, 438 00:25:08,040 --> 00:25:10,879 Speaker 1: are they a little bit more insulated? Yeah, I mean 439 00:25:10,880 --> 00:25:14,480 Speaker 1: we're starting to see you know, spreads. I think um bottom, 440 00:25:14,600 --> 00:25:17,120 Speaker 1: like you know, from from a wideen in October and November, 441 00:25:17,200 --> 00:25:20,000 Speaker 1: you know, kind of bottomed, uh tightened a lot until 442 00:25:20,080 --> 00:25:21,920 Speaker 1: you know, early suburbins. We've been kind of on this 443 00:25:22,040 --> 00:25:25,200 Speaker 1: widening path and you know, more wider today. But yeah, 444 00:25:25,240 --> 00:25:29,160 Speaker 1: it's it's because of kind of the interconnectedness of these 445 00:25:29,160 --> 00:25:31,760 Speaker 1: big banks, right, So that's you know, anytime one of 446 00:25:31,800 --> 00:25:35,439 Speaker 1: these bigger institutions is having an issue. Yeah, you know 447 00:25:35,680 --> 00:25:37,880 Speaker 1: credit Swist is a is a major trading accounting party 448 00:25:37,920 --> 00:25:40,440 Speaker 1: to you know, the the JP Morgans and the Baas 449 00:25:40,440 --> 00:25:43,600 Speaker 1: and stuff. So, um, I think there's definitely worry. And 450 00:25:43,920 --> 00:25:46,919 Speaker 1: you know the banking model, right, it's it's it's you know, 451 00:25:46,920 --> 00:25:49,680 Speaker 1: it's it's a big surprise because usually you can kind 452 00:25:49,680 --> 00:25:52,280 Speaker 1: of see these things when companies are having issues. But 453 00:25:52,480 --> 00:25:56,120 Speaker 1: with SBB, which um had about four billion of bonds 454 00:25:56,240 --> 00:25:59,440 Speaker 1: and three three four billion of preferreds, this all happen 455 00:25:59,520 --> 00:26:02,200 Speaker 1: and like in forty eight hours, right, and this is 456 00:26:02,320 --> 00:26:05,520 Speaker 1: the definitely great names. So that's the fear. It's like, wow, 457 00:26:05,640 --> 00:26:08,960 Speaker 1: this stuff can happen really quickly. Um. You know this 458 00:26:09,080 --> 00:26:12,160 Speaker 1: competence game where if if you know, people start seeing 459 00:26:12,160 --> 00:26:14,000 Speaker 1: the stocks move, oh my god, are they going to 460 00:26:14,040 --> 00:26:16,200 Speaker 1: start moving their money whether it be you know, wealth 461 00:26:16,200 --> 00:26:19,560 Speaker 1: management assets or deposits and and that that you know, 462 00:26:19,640 --> 00:26:22,280 Speaker 1: when when when the funding goes away, you know, do 463 00:26:22,320 --> 00:26:25,159 Speaker 1: you have enough liquid assets to you know, handle that outflow? 464 00:26:25,240 --> 00:26:27,720 Speaker 1: And you know if if the deposit runner just so great, 465 00:26:28,080 --> 00:26:31,320 Speaker 1: you know, any institution yea is almost at risk. All right, Arnold, 466 00:26:31,640 --> 00:26:35,120 Speaker 1: I really appreciate getting your perspective. Arnold Ccuta, senior financials 467 00:26:35,119 --> 00:26:37,480 Speaker 1: credit analysts with Bloomberg Intelligence, joining us on the phone 468 00:26:37,480 --> 00:26:40,359 Speaker 1: in Herman Chan senior analysts for the regional banks, covering 469 00:26:40,359 --> 00:26:44,200 Speaker 1: it from the equity side, both of them from Bloomberg Intelligence. 470 00:26:44,200 --> 00:26:47,000 Speaker 1: He joins us here in our studio getting the latest 471 00:26:47,080 --> 00:26:55,040 Speaker 1: on this regional bank challenge slash crisis. We get a 472 00:26:55,040 --> 00:26:58,679 Speaker 1: sense of what all this turmoil in the world means 473 00:26:58,720 --> 00:27:02,440 Speaker 1: for emerging markets and other parts of the world. Let's 474 00:27:02,520 --> 00:27:04,359 Speaker 1: check in with Nick stot Miller. He is head of 475 00:27:04,400 --> 00:27:06,960 Speaker 1: Global product for Medley Advisors. He joins us live in 476 00:27:06,960 --> 00:27:09,680 Speaker 1: our Bloomberg and an active broker studio. So Nick, we've 477 00:27:09,680 --> 00:27:12,760 Speaker 1: got Credit Swiss news today. We've had a couple of 478 00:27:12,800 --> 00:27:18,760 Speaker 1: bank failures, granted, smaller banks in the US, a lot 479 00:27:18,800 --> 00:27:20,639 Speaker 1: of uncertainty. We just had some bank anilys in here 480 00:27:20,680 --> 00:27:23,520 Speaker 1: talking about all the uncertainty in the financial sector. How 481 00:27:23,560 --> 00:27:25,960 Speaker 1: does it spill over to your world, to emerging markets 482 00:27:25,960 --> 00:27:30,080 Speaker 1: and things like that. Well, Credit Swiss is obviously quite 483 00:27:30,119 --> 00:27:32,520 Speaker 1: a large bank and quite active globally. But the banks 484 00:27:32,560 --> 00:27:35,280 Speaker 1: that failed in the US, there's not really any direct connection, 485 00:27:35,359 --> 00:27:38,480 Speaker 1: but I think the indirect connection, which is as you 486 00:27:38,520 --> 00:27:41,040 Speaker 1: have increased in certainty in the financial sector in the US, 487 00:27:41,720 --> 00:27:44,880 Speaker 1: banks becomes less willing to lend, and so that tightens 488 00:27:44,880 --> 00:27:47,080 Speaker 1: global credit conditions and it makes a lot harder for 489 00:27:47,119 --> 00:27:52,200 Speaker 1: these emerging markets to raise funding. So the tighter credit 490 00:27:52,200 --> 00:27:55,600 Speaker 1: conditions will spill over into em and crimp growth. And 491 00:27:55,640 --> 00:27:58,240 Speaker 1: then also you have the broader risk off move and 492 00:27:58,280 --> 00:28:00,320 Speaker 1: you were talking about the strengthen the dollar, and you 493 00:28:00,359 --> 00:28:02,640 Speaker 1: have a lot of the higher beats at EM currencies 494 00:28:02,920 --> 00:28:05,880 Speaker 1: just getting whacked today on the move. Well, I love 495 00:28:05,880 --> 00:28:08,040 Speaker 1: that you mentioned kind of the dollar going into this 496 00:28:08,119 --> 00:28:10,919 Speaker 1: because your background is actually in the Middle East a 497 00:28:10,920 --> 00:28:12,760 Speaker 1: little bit, and it's fascinating to me because a lot 498 00:28:12,800 --> 00:28:15,800 Speaker 1: of these European banks that are getting hit have extra 499 00:28:15,840 --> 00:28:18,679 Speaker 1: exposure to the Middle East that I would argue a 500 00:28:18,720 --> 00:28:20,760 Speaker 1: lot of day the Silicon Valley banks or the regional 501 00:28:20,800 --> 00:28:23,159 Speaker 1: banks that created the chaos earlier in the week, don't 502 00:28:23,400 --> 00:28:26,960 Speaker 1: so walk us through kind of the connection there. Well, 503 00:28:27,240 --> 00:28:29,560 Speaker 1: particularly in the Gulf, which is where I spent quite 504 00:28:29,600 --> 00:28:32,280 Speaker 1: a bit of time, there's plenty of liquidity in terms 505 00:28:32,320 --> 00:28:34,560 Speaker 1: of the sovereign wealth funds. In fact, you know the 506 00:28:34,560 --> 00:28:38,400 Speaker 1: thing that really got kretty sweet moving today was the 507 00:28:38,880 --> 00:28:41,560 Speaker 1: Saudi banking executive saying that they're not willing to put 508 00:28:41,600 --> 00:28:44,400 Speaker 1: more money into it. So I don't think that this 509 00:28:44,480 --> 00:28:46,880 Speaker 1: is blowing back on the Gulf. But if you remember 510 00:28:46,920 --> 00:28:49,320 Speaker 1: back to the two thousand and eight crisis, it was 511 00:28:49,640 --> 00:28:52,480 Speaker 1: Katar and some of the other Gulf sovereign wealth funds 512 00:28:52,480 --> 00:28:55,360 Speaker 1: that provided backstops to some of the global banks. So, 513 00:28:55,400 --> 00:28:57,520 Speaker 1: if anything, I would look for the Gulf to be 514 00:28:57,560 --> 00:29:01,240 Speaker 1: a stabilizing force rather than experiencing instability as a result 515 00:29:01,280 --> 00:29:04,560 Speaker 1: of this. It's amazing, I mean, and they're from your experience, 516 00:29:04,680 --> 00:29:09,400 Speaker 1: they're still willing to invest in Western financial institutions. It's 517 00:29:09,400 --> 00:29:12,920 Speaker 1: just this is a credit Swiss maybe specific issue. Yeah, 518 00:29:12,960 --> 00:29:15,480 Speaker 1: and also the sovereign wealth funds don't want to be 519 00:29:15,520 --> 00:29:18,360 Speaker 1: the first ones to pile in. You know. It's you know, 520 00:29:18,400 --> 00:29:19,960 Speaker 1: as they say, it's sort of like catching a falling 521 00:29:20,040 --> 00:29:22,560 Speaker 1: knife and you're trying to invest in these markets. So 522 00:29:22,760 --> 00:29:24,680 Speaker 1: I would expect them to wait for the dust to 523 00:29:24,680 --> 00:29:26,640 Speaker 1: settle a bit and then try to pick the strongest 524 00:29:26,680 --> 00:29:29,600 Speaker 1: institutions that they think have, you know, the best prospects. 525 00:29:30,440 --> 00:29:32,600 Speaker 1: Where where are you seeing opportunities these days? Because I'll 526 00:29:32,600 --> 00:29:35,080 Speaker 1: tell you a lot of people are just very nervous 527 00:29:36,120 --> 00:29:37,880 Speaker 1: across the board. We see that in the moves in 528 00:29:37,920 --> 00:29:40,840 Speaker 1: the treasury market every day, just whipsawing all around. Where 529 00:29:40,840 --> 00:29:43,960 Speaker 1: are you guys spending some time these days? Well, I 530 00:29:44,000 --> 00:29:46,520 Speaker 1: think you know, there are a lot of decent fundamentals 531 00:29:46,520 --> 00:29:49,920 Speaker 1: out there, particularly in Asia. And it's interesting that you know, 532 00:29:49,960 --> 00:29:52,480 Speaker 1: the Korean one has actually benefited from a lot of 533 00:29:52,520 --> 00:29:56,239 Speaker 1: this turmoil, even though you know their economy. A lot 534 00:29:56,280 --> 00:29:58,640 Speaker 1: of these export dependent economies are probably going to have 535 00:29:58,680 --> 00:30:00,280 Speaker 1: a bit of a slump and the second off of 536 00:30:00,280 --> 00:30:02,840 Speaker 1: the year, assuming that there is a hard landing in 537 00:30:02,880 --> 00:30:05,680 Speaker 1: the US. But you know, there seems to be some 538 00:30:05,720 --> 00:30:09,880 Speaker 1: more fundamental strength there and much less financial instability. I 539 00:30:09,920 --> 00:30:11,800 Speaker 1: think the key here is really just to wait until 540 00:30:11,800 --> 00:30:13,840 Speaker 1: the dust settles on this, and if you do start 541 00:30:13,880 --> 00:30:16,160 Speaker 1: to get some serious easing from the global central banks, 542 00:30:16,160 --> 00:30:18,760 Speaker 1: there probably would be a rally down the road, but 543 00:30:18,840 --> 00:30:21,680 Speaker 1: probably stay on the sidelines for now. I'd say, what 544 00:30:21,760 --> 00:30:25,360 Speaker 1: does it then mean for say a country like in 545 00:30:25,440 --> 00:30:28,160 Speaker 1: Latin America, for example, It has a lot of commodity exposure. 546 00:30:28,160 --> 00:30:29,840 Speaker 1: And the reason I ask this is because if you're 547 00:30:29,840 --> 00:30:32,200 Speaker 1: looking at the moves in oil for right now, or 548 00:30:32,280 --> 00:30:34,920 Speaker 1: looking at a sixty seven handle on NIMEX crude, and 549 00:30:35,000 --> 00:30:38,680 Speaker 1: it feels like ordinarily you wouldn't necessarily see oil react 550 00:30:38,840 --> 00:30:41,880 Speaker 1: to something like the credit suite move, but it almost 551 00:30:41,880 --> 00:30:45,280 Speaker 1: feels like it's a ripple effect of FED pricing. How 552 00:30:45,360 --> 00:30:48,800 Speaker 1: does a em investor focus on Latin America or commodity 553 00:30:48,840 --> 00:30:53,320 Speaker 1: exposed economies navigate that. Yeah, it's really tough, and I 554 00:30:53,320 --> 00:30:55,520 Speaker 1: think you're one hundred percent right that a lot of 555 00:30:55,560 --> 00:30:58,320 Speaker 1: the moves we're seeing commodities right now are more about 556 00:30:58,560 --> 00:31:03,080 Speaker 1: financial ripples more so than necessarily the macro ripples. Because, 557 00:31:03,440 --> 00:31:05,959 Speaker 1: of course, if the US goes into a deep recession 558 00:31:06,000 --> 00:31:08,080 Speaker 1: as a result of all of this, of course that's 559 00:31:08,120 --> 00:31:10,400 Speaker 1: going to pair demand for all of these commodities. But 560 00:31:10,440 --> 00:31:12,880 Speaker 1: in the first instance, you know, a lot of these 561 00:31:12,920 --> 00:31:15,960 Speaker 1: investment banks and trading desks are just really derisking, which 562 00:31:16,000 --> 00:31:19,200 Speaker 1: means they need to dump a lot of the You know, 563 00:31:19,200 --> 00:31:22,440 Speaker 1: I was just that because you know, having used to 564 00:31:22,480 --> 00:31:24,040 Speaker 1: be on a trading desk, you know, I used to 565 00:31:24,160 --> 00:31:26,320 Speaker 1: it's solemn brothers. I'd walk onto the government you know, 566 00:31:26,360 --> 00:31:29,120 Speaker 1: to the fixed income bond trading floor. It maybe row 567 00:31:29,400 --> 00:31:33,280 Speaker 1: after row after row of people trading government bonds. That's 568 00:31:33,360 --> 00:31:36,520 Speaker 1: liquidity to me, that's not there is what I'm hearing, 569 00:31:36,640 --> 00:31:39,000 Speaker 1: you know, really since Great Financial Crisis, that's really been 570 00:31:39,280 --> 00:31:42,440 Speaker 1: winnowed down, and that can be a problem in certain times. 571 00:31:42,520 --> 00:31:44,040 Speaker 1: And I'm hearing from a lot of people like you 572 00:31:44,120 --> 00:31:46,840 Speaker 1: that that liquidity is an issue or lack of liquidity 573 00:31:46,920 --> 00:31:50,360 Speaker 1: is an issue, absolutely, And when the markets are more volatile, 574 00:31:50,400 --> 00:31:54,000 Speaker 1: market makers just aren't as aggressive and providing type pricing 575 00:31:54,560 --> 00:31:57,040 Speaker 1: or that the size that people want, so that exacerbates 576 00:31:57,040 --> 00:32:00,640 Speaker 1: the move. So volatility almost begets volatility In that case, 577 00:32:01,240 --> 00:32:04,080 Speaker 1: what do you expect the FED to do next Thursday? Here, 578 00:32:04,080 --> 00:32:08,040 Speaker 1: I'm looking at our world interest rate probability function warp warp, 579 00:32:08,440 --> 00:32:11,480 Speaker 1: and it's showing that we've we're at or near peak 580 00:32:11,600 --> 00:32:14,480 Speaker 1: rate and the rate check can start going down. I mean, 581 00:32:15,200 --> 00:32:18,120 Speaker 1: is that way you think our our view is for 582 00:32:18,360 --> 00:32:21,640 Speaker 1: another twenty five basis point hike coming up in March, 583 00:32:21,800 --> 00:32:25,360 Speaker 1: and then another twenty five in May and then they're done. Okay, 584 00:32:25,640 --> 00:32:27,520 Speaker 1: But that of course is caveat said on this not 585 00:32:27,640 --> 00:32:31,200 Speaker 1: getting worse. If the banking system issues get worse, then 586 00:32:31,720 --> 00:32:34,160 Speaker 1: the Fed's probably going to have to do something. And 587 00:32:34,280 --> 00:32:36,320 Speaker 1: to the point about FED cuts being priced in the 588 00:32:36,360 --> 00:32:39,480 Speaker 1: second half of the year. If that's what in fact happens, 589 00:32:39,560 --> 00:32:41,800 Speaker 1: that things get so bad that the FED has to 590 00:32:41,840 --> 00:32:45,640 Speaker 1: cut from June onwards, I think risk assets are going 591 00:32:45,680 --> 00:32:48,000 Speaker 1: to be in a very different place. It's very hard 592 00:32:48,040 --> 00:32:51,080 Speaker 1: for me to reconcile credit and equity markets, which have 593 00:32:51,160 --> 00:32:54,640 Speaker 1: sold off but are still relatively resilient to these massive 594 00:32:54,680 --> 00:32:56,440 Speaker 1: moves we've seen on the front end and just a 595 00:32:56,480 --> 00:32:59,240 Speaker 1: complete repricing of the FED, and one of them has 596 00:32:59,280 --> 00:33:01,400 Speaker 1: to be wrong. I don't think they can both be right. 597 00:33:01,520 --> 00:33:03,680 Speaker 1: Are you going to start to see more than as 598 00:33:03,760 --> 00:33:05,880 Speaker 1: we kind of see all this chaos shakeout, see more 599 00:33:05,920 --> 00:33:09,720 Speaker 1: divergences in the sovereign bond world too. Paul's point, I 600 00:33:09,720 --> 00:33:11,960 Speaker 1: mean it feels like German boons and treasuries on the 601 00:33:11,960 --> 00:33:14,160 Speaker 1: same page at the moment, arguably guilt as well. But 602 00:33:14,160 --> 00:33:17,120 Speaker 1: then you have something like Argentine debt or something. I 603 00:33:17,120 --> 00:33:19,600 Speaker 1: think I read a story yesterday one hundred percent inflation 604 00:33:19,680 --> 00:33:22,120 Speaker 1: there a lot of the em bond world. Are they 605 00:33:22,120 --> 00:33:25,280 Speaker 1: going to be on the same page? No? And I 606 00:33:25,320 --> 00:33:27,760 Speaker 1: think you saw this particularly in local currency debt and 607 00:33:27,840 --> 00:33:30,160 Speaker 1: sort of the first day or two of this big 608 00:33:30,200 --> 00:33:33,600 Speaker 1: sell off in risk assets that a lot of these 609 00:33:33,640 --> 00:33:37,240 Speaker 1: local currency bonds were actually rallying because they said, oh, okay, well, 610 00:33:37,240 --> 00:33:39,560 Speaker 1: if the FED is going to be less aggressive, that's 611 00:33:39,600 --> 00:33:41,960 Speaker 1: lower global rates, which is good for all these bonds. 612 00:33:42,520 --> 00:33:45,520 Speaker 1: But then the secondary effect is, you know, how much 613 00:33:45,640 --> 00:33:47,840 Speaker 1: risk appetite are you going to have from global investors 614 00:33:47,840 --> 00:33:49,520 Speaker 1: to be in this stuff? And you know, if the 615 00:33:49,560 --> 00:33:53,680 Speaker 1: currencies are selling off and the economies are are weakening, 616 00:33:54,320 --> 00:33:57,320 Speaker 1: it's not a good environment for emerging market bonds. So 617 00:33:57,480 --> 00:34:01,000 Speaker 1: I think you will see this divergence. Traditional safe haven 618 00:34:01,040 --> 00:34:05,400 Speaker 1: the biggest global developed markets will actually rally, but I 619 00:34:05,400 --> 00:34:07,200 Speaker 1: think em is going to be in for some weakness 620 00:34:07,280 --> 00:34:09,680 Speaker 1: over the next several months. We can't let an emerging 621 00:34:09,719 --> 00:34:13,560 Speaker 1: markets manager walk out of our studient without talking about China. 622 00:34:13,640 --> 00:34:17,600 Speaker 1: We were talking to Dana Telsley earlier. She's the top 623 00:34:17,640 --> 00:34:20,359 Speaker 1: retail analyst on Wall Street, and she just came out 624 00:34:20,400 --> 00:34:24,160 Speaker 1: with a big report Monday, really extolling the opportunities for retail, 625 00:34:24,200 --> 00:34:27,600 Speaker 1: but particularly for luxury from the reopening of China, you know, 626 00:34:27,640 --> 00:34:30,120 Speaker 1: in terms of the spending opportunities and so on and 627 00:34:30,160 --> 00:34:33,479 Speaker 1: so forth. From an investment standpoint, where are we today 628 00:34:33,640 --> 00:34:36,759 Speaker 1: with investing in China is that it people feel like 629 00:34:36,800 --> 00:34:41,960 Speaker 1: it's a toxic a little bit, or can you still invest? Well, 630 00:34:41,800 --> 00:34:45,000 Speaker 1: we've definitely seen over the last six months or so 631 00:34:45,280 --> 00:34:49,279 Speaker 1: a lot of increased worry about US China trade relations 632 00:34:49,320 --> 00:34:55,800 Speaker 1: and how that might spill into the wisdom of investing 633 00:34:55,800 --> 00:34:59,120 Speaker 1: in Chinese assets. But from a fundamental standpoint, our China 634 00:34:59,160 --> 00:35:01,680 Speaker 1: analyst is it is quite bullish on China. He thinks 635 00:35:01,719 --> 00:35:04,319 Speaker 1: that growth will come in close to six percent, well 636 00:35:04,320 --> 00:35:09,000 Speaker 1: above China's official around five percent forecast, and very much 637 00:35:09,080 --> 00:35:12,360 Speaker 1: led by pent up demand from consumers, particularly on the 638 00:35:12,400 --> 00:35:16,520 Speaker 1: services side. So we're actually quite bullish on China at 639 00:35:16,520 --> 00:35:19,399 Speaker 1: this point. But with the caveat that the geopolitical risk 640 00:35:19,640 --> 00:35:21,440 Speaker 1: is quite a bit higher than it has been in 641 00:35:21,480 --> 00:35:23,839 Speaker 1: previous years. Yeah, because there you think about their pent 642 00:35:23,920 --> 00:35:26,239 Speaker 1: up demand and they've been lockdown so much longer and 643 00:35:26,280 --> 00:35:29,440 Speaker 1: harder than everybody else in the world. For travel, for spending, 644 00:35:29,560 --> 00:35:31,279 Speaker 1: it's just going to be huge. And I walk to 645 00:35:31,360 --> 00:35:33,719 Speaker 1: Penn Station occasionally and I walked through Time Squared and 646 00:35:33,760 --> 00:35:37,799 Speaker 1: the European tourists are back in droves. They're back, but 647 00:35:38,120 --> 00:35:40,200 Speaker 1: not so much Asia. That's kind of my just you 648 00:35:40,440 --> 00:35:44,600 Speaker 1: primary research walking through Times Square, But man, that changes, 649 00:35:45,280 --> 00:35:47,080 Speaker 1: that's just going to be so important to see how 650 00:35:47,120 --> 00:35:50,120 Speaker 1: that place out across the economy. Nick stop Miller, thank 651 00:35:50,120 --> 00:35:52,160 Speaker 1: you so much for joining us. Nick is the head 652 00:35:52,200 --> 00:35:56,000 Speaker 1: of Global product for Medley Advisers. We appreciate him coming 653 00:35:56,000 --> 00:35:58,560 Speaker 1: into our Bloomberg Interactive Broker Studio. It's always better to 654 00:35:58,800 --> 00:36:00,959 Speaker 1: get these folks in persons him a gold star, don't 655 00:36:00,960 --> 00:36:02,879 Speaker 1: we We give him a gold star, gold star from 656 00:36:02,880 --> 00:36:07,520 Speaker 1: that whatever, all that kind of good stuff. We've been 657 00:36:07,520 --> 00:36:10,719 Speaker 1: talking about this SVB Silicon Valley Bank, trying to cover 658 00:36:10,760 --> 00:36:13,560 Speaker 1: it from every angles. One of the angles is there's 659 00:36:13,600 --> 00:36:16,399 Speaker 1: a lot of companies that did business with sv being 660 00:36:16,440 --> 00:36:19,239 Speaker 1: really dependent upon it, and what does that mean from them? 661 00:36:19,320 --> 00:36:21,960 Speaker 1: And you know, you know, it's just it's really going 662 00:36:22,040 --> 00:36:23,600 Speaker 1: to be an issue that I'll have a rippling effect 663 00:36:23,600 --> 00:36:25,799 Speaker 1: through the valley for quite some time. And we want 664 00:36:25,840 --> 00:36:28,719 Speaker 1: to get a unique angle here from the perspective of 665 00:36:28,840 --> 00:36:31,600 Speaker 1: mergers and acquisition. Thomas Smail joins us. He's the CEO 666 00:36:31,640 --> 00:36:35,920 Speaker 1: of FE International. Thomas nws much for joining us here 667 00:36:35,960 --> 00:36:39,400 Speaker 1: in our Bloomberg Interactive Broker Studio. Give us just fifteen 668 00:36:39,440 --> 00:36:43,040 Speaker 1: seconds elevator pitch. What do you guys do at FI International? Yeah, 669 00:36:43,040 --> 00:36:46,080 Speaker 1: we're a m and a firm. We work with sellers 670 00:36:46,080 --> 00:36:48,680 Speaker 1: of businesses in the tech space and we're up to 671 00:36:48,760 --> 00:36:51,240 Speaker 1: two hundred and fifty million, and we help them ultimately 672 00:36:51,280 --> 00:36:55,000 Speaker 1: exit that business to a range of acquires public companies, 673 00:36:55,080 --> 00:36:58,200 Speaker 1: private equity firms, individuals, and strategic All right, so you're 674 00:36:58,239 --> 00:37:01,600 Speaker 1: tied into the valley big time your clients or I 675 00:37:01,640 --> 00:37:06,719 Speaker 1: mean the lifeblood. Here we are several days after the 676 00:37:06,800 --> 00:37:09,239 Speaker 1: Silicon Valley kind of blow up here, What does it 677 00:37:09,280 --> 00:37:12,000 Speaker 1: mean day to day for your clients that are out 678 00:37:12,000 --> 00:37:14,000 Speaker 1: there in the valley in terms of I don't know, 679 00:37:14,080 --> 00:37:17,640 Speaker 1: making payroll, you know, making investments in their business, paying 680 00:37:17,680 --> 00:37:20,239 Speaker 1: you know, maybe thinking about strategic acquisitions that maybe they're 681 00:37:20,280 --> 00:37:23,799 Speaker 1: talking to you about what's going on out there. Yeah. 682 00:37:23,840 --> 00:37:27,440 Speaker 1: So interestingly, no real change. We had our team in 683 00:37:27,440 --> 00:37:30,960 Speaker 1: the office all weekend cooling buyers, cooling sellers getting a 684 00:37:31,000 --> 00:37:34,239 Speaker 1: field for their current appetite. No one we spoke to 685 00:37:34,280 --> 00:37:37,719 Speaker 1: it change their strategy. Buyers are still buying, Sellers are 686 00:37:37,760 --> 00:37:41,600 Speaker 1: still selling. Of the buyers we spoke to, less than 687 00:37:41,640 --> 00:37:45,000 Speaker 1: one percent of them had exposure to SVB as as clients. 688 00:37:45,000 --> 00:37:47,240 Speaker 1: So from what we've seen, it's going to be business 689 00:37:47,280 --> 00:37:50,000 Speaker 1: as usual, particularly since the News on Monday, it seems 690 00:37:50,000 --> 00:37:52,399 Speaker 1: like most things are beginning to pick up again. So 691 00:37:52,440 --> 00:37:54,799 Speaker 1: I mean, is that simply in the context of the 692 00:37:54,840 --> 00:37:58,000 Speaker 1: government is going to backstop SVB because it's I guess 693 00:37:58,040 --> 00:38:00,279 Speaker 1: my understanding was the big tech players. Once you get 694 00:38:00,320 --> 00:38:02,920 Speaker 1: to a certain size, yeah, alcrow SVB and you take 695 00:38:02,920 --> 00:38:05,919 Speaker 1: your banking to the JPMorgan Chase or whatever. So it's 696 00:38:05,960 --> 00:38:10,280 Speaker 1: really for smaller and mid sized tech companies that really 697 00:38:10,320 --> 00:38:14,640 Speaker 1: rely upon SVB. So even those companies you're saying, they're 698 00:38:14,680 --> 00:38:16,880 Speaker 1: not too concerned. Yeah, I mean, I think obviously there 699 00:38:16,920 --> 00:38:19,240 Speaker 1: was a lot of noise about SVB, but the reality 700 00:38:19,400 --> 00:38:22,600 Speaker 1: is it wasn't a large percentage of even tech companies 701 00:38:22,600 --> 00:38:25,239 Speaker 1: banking with them. So there's definitely an effect, But the 702 00:38:25,360 --> 00:38:27,840 Speaker 1: vast majority of people, once you get to a certain stage, 703 00:38:27,880 --> 00:38:31,040 Speaker 1: you have multiple bank accounts, if you have a big 704 00:38:31,120 --> 00:38:34,000 Speaker 1: enough business, you can easily move that relationship, which I 705 00:38:34,040 --> 00:38:36,840 Speaker 1: know many people did. Like most companies like ass we 706 00:38:36,880 --> 00:38:41,919 Speaker 1: have three banking relationships. So that doesn't really change. So, yes, 707 00:38:41,960 --> 00:38:45,360 Speaker 1: you're right, FVB definitely tech focused. Definitely a lot of noise, 708 00:38:45,440 --> 00:38:48,279 Speaker 1: but it doesn't really change things for the majority in 709 00:38:48,320 --> 00:38:51,080 Speaker 1: the venture community out there. What's the feeling there, like 710 00:38:51,080 --> 00:38:53,919 Speaker 1: if I have a really cool idea and I found 711 00:38:53,960 --> 00:38:59,000 Speaker 1: myself on Sandhill Road, will I get my funding today? Yeah? 712 00:38:59,040 --> 00:39:01,040 Speaker 1: I mean I think there's no real changed from that perspective. 713 00:39:01,320 --> 00:39:03,800 Speaker 1: I'm not aware of anyone pulling term sheets at the 714 00:39:03,840 --> 00:39:06,799 Speaker 1: moment or changing their deals. Like, ultimately, if you bank 715 00:39:06,840 --> 00:39:09,799 Speaker 1: of SVB at the moment, you have access to your cash. 716 00:39:09,920 --> 00:39:12,800 Speaker 1: A lot of the venture capital firms would be working 717 00:39:12,800 --> 00:39:15,080 Speaker 1: with them. But I'm not aware of any changes from 718 00:39:15,080 --> 00:39:17,279 Speaker 1: that perspective. The thing with the value as well, or 719 00:39:17,320 --> 00:39:20,440 Speaker 1: just tech in general, word spreads fast. You don't want 720 00:39:20,440 --> 00:39:23,000 Speaker 1: to get a reputation as a privateacity firm or a 721 00:39:23,040 --> 00:39:26,600 Speaker 1: VC that's pulling term sheets from founders who are trying 722 00:39:26,600 --> 00:39:29,040 Speaker 1: to make payroll. That's not good look. And people will 723 00:39:29,080 --> 00:39:31,680 Speaker 1: talk how about rising interest rates? What does that mean 724 00:39:31,800 --> 00:39:35,279 Speaker 1: for I mean, obviously for the publicly traded stocks, it 725 00:39:35,360 --> 00:39:37,720 Speaker 1: was bad for them. In twenty twenty two, tech stocks 726 00:39:37,800 --> 00:39:41,759 Speaker 1: underperformed dramatically. A lot of folks think texts may not 727 00:39:41,840 --> 00:39:43,400 Speaker 1: even be a leader once we do get to the 728 00:39:43,440 --> 00:39:45,880 Speaker 1: other side of this, as it's led the market for 729 00:39:45,960 --> 00:39:48,680 Speaker 1: the last decade. You know, in terms of pop trading 730 00:39:49,040 --> 00:39:51,600 Speaker 1: public stocks, what does it mean rising interest rates for 731 00:39:51,960 --> 00:39:54,359 Speaker 1: your world out there for kind of mid sized tech 732 00:39:54,520 --> 00:39:57,160 Speaker 1: m and A yeah. I think firstly, it's a great 733 00:39:57,200 --> 00:39:59,320 Speaker 1: time to be a business owner in the tech space 734 00:39:59,480 --> 00:40:01,600 Speaker 1: if you have a business below two hundred and fifty 735 00:40:01,600 --> 00:40:05,000 Speaker 1: million invaluation. The majority of the business owners we work 736 00:40:05,000 --> 00:40:09,839 Speaker 1: with the international have profitable businesses. They focus on generating 737 00:40:09,880 --> 00:40:14,000 Speaker 1: positive cash flows. They don't necessarily rely on external investors. 738 00:40:14,200 --> 00:40:16,840 Speaker 1: So interest rates definitely saying you keep an eye on 739 00:40:16,840 --> 00:40:20,000 Speaker 1: as a small business owner, but if you're profitable ultimately, 740 00:40:20,040 --> 00:40:23,319 Speaker 1: it doesn't really affect you. If anything, you're benefited from 741 00:40:23,480 --> 00:40:27,520 Speaker 1: your bigger, bigger competitors being hindered maybe they have to 742 00:40:27,520 --> 00:40:30,480 Speaker 1: make layoffs. If you're small and profitable, you're more nimble, 743 00:40:31,040 --> 00:40:33,359 Speaker 1: you don't have a problem like that. So I think 744 00:40:33,440 --> 00:40:35,759 Speaker 1: the world we operate in it's a good thing for 745 00:40:35,800 --> 00:40:38,839 Speaker 1: most people. If you look at my ten fifty year 746 00:40:38,920 --> 00:40:43,440 Speaker 1: view of tech, very bullish. How about the We have 747 00:40:43,640 --> 00:40:49,120 Speaker 1: seen a lot of announcements from big tech companies, you know, 748 00:40:49,239 --> 00:40:51,719 Speaker 1: publicly traded Microsofts of the world that Metas of the 749 00:40:51,719 --> 00:40:55,680 Speaker 1: world laying off people. Meta just came out yesterday just 750 00:40:55,800 --> 00:40:57,880 Speaker 1: above ten percent of their workforce. They're going to be 751 00:40:57,920 --> 00:41:00,880 Speaker 1: like that, this is getting serious out there? What's the mood? 752 00:41:01,160 --> 00:41:03,239 Speaker 1: And usually, like even six months ago, when we saw 753 00:41:03,280 --> 00:41:05,279 Speaker 1: some of those tech laoffs, the assumption was that they 754 00:41:05,280 --> 00:41:07,959 Speaker 1: were going to be hired tomorrow by somebody else. What's 755 00:41:08,000 --> 00:41:10,760 Speaker 1: the mood out in the valley about this is getting 756 00:41:10,760 --> 00:41:14,439 Speaker 1: serious in terms of layoffs. Yeah, So I think again 757 00:41:14,480 --> 00:41:17,680 Speaker 1: there's a big difference between the big public companies and 758 00:41:17,719 --> 00:41:21,360 Speaker 1: the small, nimble, profitable companies. If you're small and profitable. 759 00:41:22,160 --> 00:41:24,440 Speaker 1: Of all the clients we've worked with, almost none of 760 00:41:24,440 --> 00:41:26,600 Speaker 1: them are making layoffs at the moment because they don't 761 00:41:26,600 --> 00:41:29,399 Speaker 1: need to. I think the larger firms, which are more 762 00:41:29,440 --> 00:41:32,480 Speaker 1: affected by swings in their own stock price or just 763 00:41:32,520 --> 00:41:38,080 Speaker 1: the public markets macro and like, they're definitely companies that 764 00:41:38,160 --> 00:41:40,799 Speaker 1: have to be seen to be making layoffs to get 765 00:41:40,840 --> 00:41:44,160 Speaker 1: closer to cash flow profitability. If you're a smaller business, 766 00:41:45,239 --> 00:41:47,640 Speaker 1: less of a problem, you don't need to make layoffs, 767 00:41:47,640 --> 00:41:49,640 Speaker 1: and that ultimately helps a lot of these small businesses 768 00:41:50,040 --> 00:41:52,480 Speaker 1: compete and ultimately means that from an M and A perspective, 769 00:41:52,480 --> 00:41:56,239 Speaker 1: there's consistent demand for those businesses because they're still making money. 770 00:41:56,360 --> 00:42:00,000 Speaker 1: So what's a typical client or typical deal for Effie International? 771 00:42:00,400 --> 00:42:02,720 Speaker 1: Is it like my company had a really cool idea, 772 00:42:02,760 --> 00:42:04,120 Speaker 1: I built it, I had a couple of rounds of 773 00:42:04,160 --> 00:42:07,279 Speaker 1: VC funding, I've grown it and now I'm looking for 774 00:42:07,320 --> 00:42:12,200 Speaker 1: an exit. And is it to a I mean to do? 775 00:42:12,239 --> 00:42:14,160 Speaker 1: I want to sell out to a private equity funder. 776 00:42:14,200 --> 00:42:16,319 Speaker 1: I want to sell out to a strategic what's it 777 00:42:16,320 --> 00:42:18,480 Speaker 1: a typical deal? Look for you? Yeah? So first thing, 778 00:42:18,560 --> 00:42:21,359 Speaker 1: we've closed over twelve hundred transactions. But maybe I'll give 779 00:42:21,400 --> 00:42:24,879 Speaker 1: you an example. We worked with recently a company called 780 00:42:24,960 --> 00:42:28,440 Speaker 1: Thrive Car. It was in that education technology space. The 781 00:42:28,520 --> 00:42:31,520 Speaker 1: founders started the business with nothing. He did not come 782 00:42:31,520 --> 00:42:34,280 Speaker 1: from a rich background. He did not have a family 783 00:42:34,320 --> 00:42:37,600 Speaker 1: with money, he had no investors. Started that business from 784 00:42:37,719 --> 00:42:41,160 Speaker 1: zero about five years ago. Has been in contact with 785 00:42:41,239 --> 00:42:44,520 Speaker 1: us for many years. We spoke to him two years ago. 786 00:42:44,560 --> 00:42:48,719 Speaker 1: His business was a low seven figure valuation. A couple 787 00:42:48,800 --> 00:42:52,080 Speaker 1: of months ago we helped him successfully exit for thirty 788 00:42:52,080 --> 00:42:55,920 Speaker 1: five million. So there's a And what type of buyer 789 00:42:56,040 --> 00:42:58,080 Speaker 1: was it? Was it a strategic buyer? Yeah? The buyer 790 00:42:58,160 --> 00:43:02,000 Speaker 1: was a private equity firm called LTV Fund. They invest 791 00:43:02,080 --> 00:43:06,400 Speaker 1: in tech companies generally below two hundred and fifty million 792 00:43:06,440 --> 00:43:09,440 Speaker 1: invaluation if you mean, if you look at privacity as 793 00:43:09,440 --> 00:43:12,800 Speaker 1: a whole. Currently there's three trillion dollars in dry powder. 794 00:43:13,040 --> 00:43:15,040 Speaker 1: So you can look at the public markets and say 795 00:43:15,400 --> 00:43:17,000 Speaker 1: maybe M and A isn't going to happen, But the 796 00:43:17,040 --> 00:43:20,560 Speaker 1: reality is privacuity firms need to be deploying their capital. 797 00:43:20,880 --> 00:43:24,160 Speaker 1: Deals like Thrive Car profitable growing are always going to 798 00:43:24,200 --> 00:43:27,120 Speaker 1: be popular. There's a lot of privacty firms out there. 799 00:43:27,320 --> 00:43:29,839 Speaker 1: They want to deploy their capital and that strategy isn't 800 00:43:29,880 --> 00:43:32,160 Speaker 1: really going to change interesting all right, So things so 801 00:43:32,320 --> 00:43:35,359 Speaker 1: maybe not quite as bad out in the Valley as 802 00:43:35,400 --> 00:43:38,480 Speaker 1: we're some afearing of given on the backs of the 803 00:43:38,680 --> 00:43:42,120 Speaker 1: SVB failure. Thomas Smail, thanks so much for joining us year. 804 00:43:42,160 --> 00:43:46,000 Speaker 1: Thomas Smail. He's the CEO of FI International, providing M 805 00:43:46,040 --> 00:43:51,080 Speaker 1: and A advice in the sas e commerce and content businesses. 806 00:43:53,360 --> 00:43:55,960 Speaker 1: You know, we're talking about Silicon Valley Bank for you know, 807 00:43:56,200 --> 00:43:58,280 Speaker 1: a better part of a week hearing which is starting 808 00:43:58,320 --> 00:44:02,759 Speaker 1: to really understand the ripple effects across the tech and 809 00:44:02,880 --> 00:44:06,640 Speaker 1: VC space. You know it's going to be profound for 810 00:44:06,719 --> 00:44:09,040 Speaker 1: a lot of these companies, a lot of these VC firms. 811 00:44:09,360 --> 00:44:10,920 Speaker 1: We want to check in with Josh Chapman. He's a 812 00:44:10,920 --> 00:44:14,720 Speaker 1: managing partner at Convoy Ventures. Convoy Ventures is an early 813 00:44:14,800 --> 00:44:19,120 Speaker 1: stage venture fund dedicated to video gaming right John Tucker's alley, 814 00:44:19,400 --> 00:44:23,319 Speaker 1: the partners with founders at the earliest stages. Josh, give 815 00:44:23,360 --> 00:44:27,080 Speaker 1: us your perspective on you know, Silicon Valley Bank. What 816 00:44:27,120 --> 00:44:31,200 Speaker 1: does it mean for the Valley for tech for the 817 00:44:31,320 --> 00:44:34,879 Speaker 1: VC community. Do we know yet or is it still 818 00:44:34,920 --> 00:44:38,200 Speaker 1: too early? Absolutely? And thanks for having me back on 819 00:44:38,239 --> 00:44:40,839 Speaker 1: the show. It's good to be here, Paul and John. 820 00:44:40,880 --> 00:44:43,440 Speaker 1: These are great questions about the future for the venture 821 00:44:43,440 --> 00:44:49,360 Speaker 1: capital market. First and foremost is the fear around where 822 00:44:49,360 --> 00:44:53,440 Speaker 1: the operating cash for portfolio companies seems to be subsiding 823 00:44:53,480 --> 00:44:56,640 Speaker 1: at least right now, you know, barring future contagion and 824 00:44:56,680 --> 00:44:59,879 Speaker 1: new information for us all. So that's the first prior 825 00:45:00,400 --> 00:45:03,520 Speaker 1: for every VC to work on to curing the cash 826 00:45:03,520 --> 00:45:07,080 Speaker 1: for their portfolio companies, helping them navigate through this. And 827 00:45:07,120 --> 00:45:10,240 Speaker 1: that's first and foremost. The second ripple effect it's happening 828 00:45:10,320 --> 00:45:13,479 Speaker 1: right now is that with Silicon Valley Bank down, over 829 00:45:13,560 --> 00:45:16,560 Speaker 1: fifty percent of venture capital firms have their back office 830 00:45:16,600 --> 00:45:22,080 Speaker 1: banking operations effectively interrupted or at least frozen, and so 831 00:45:22,120 --> 00:45:25,480 Speaker 1: that is a really interesting operational thing in the venture 832 00:45:25,520 --> 00:45:28,439 Speaker 1: market right now, which is going to probably create an 833 00:45:28,520 --> 00:45:32,840 Speaker 1: artificial operational slowdown for the next at least week, two weeks, 834 00:45:32,880 --> 00:45:35,920 Speaker 1: four weeks. I mean, however long it would take to 835 00:45:35,960 --> 00:45:40,600 Speaker 1: move those operations for a banking solution to a different bank, 836 00:45:40,640 --> 00:45:42,400 Speaker 1: whether it's a Tier one or a group like the 837 00:45:42,480 --> 00:45:46,200 Speaker 1: First Republic. You know, this is a very live situation. 838 00:45:46,360 --> 00:45:49,440 Speaker 1: I think that'll be the second ripple effect. I think 839 00:45:49,440 --> 00:45:52,800 Speaker 1: the third ripple effect here is that venture capitalism market 840 00:45:52,840 --> 00:45:54,520 Speaker 1: has already been going through a little bit of a 841 00:45:54,560 --> 00:45:57,080 Speaker 1: cool down, a little bit more of a correction. The 842 00:45:57,160 --> 00:46:00,279 Speaker 1: words you know, profitability in ibada becoming a little bit 843 00:46:00,320 --> 00:46:03,320 Speaker 1: more common, and that's healthy for the market as business 844 00:46:03,360 --> 00:46:08,040 Speaker 1: models get correctly challenged by investors, and I think that's 845 00:46:08,080 --> 00:46:11,239 Speaker 1: just accelerated by this current environment. I need a short 846 00:46:11,320 --> 00:46:14,200 Speaker 1: primer on how the whole process works. Tell a dummy 847 00:46:14,280 --> 00:46:18,360 Speaker 1: how it works. The venture capital firm finds a company 848 00:46:18,560 --> 00:46:22,399 Speaker 1: it has an interest in and raises the capital, and 849 00:46:22,440 --> 00:46:25,200 Speaker 1: then that capital you stick it in the bank and 850 00:46:25,320 --> 00:46:28,400 Speaker 1: withdraw the money as you needed or explained to me 851 00:46:29,360 --> 00:46:33,560 Speaker 1: absolutely so what we do is venture capital venture capitalist 852 00:46:33,680 --> 00:46:37,200 Speaker 1: is we raise capital from limited partners or LPs. Those 853 00:46:37,320 --> 00:46:39,919 Speaker 1: LPs then signed documents. Let's say for one hundred million 854 00:46:39,960 --> 00:46:43,000 Speaker 1: dollar funds, our third fund is one hundred and fifty 855 00:46:43,000 --> 00:46:46,439 Speaker 1: and so one hundred million dollar fund. They then sign 856 00:46:46,480 --> 00:46:48,920 Speaker 1: a document saying that they are committing that capital, but 857 00:46:48,960 --> 00:46:52,320 Speaker 1: they don't wire that capital immediately. As you find companies 858 00:46:52,320 --> 00:46:54,719 Speaker 1: that we're excited to invest in, we then called down 859 00:46:54,760 --> 00:46:58,799 Speaker 1: that capital through a capital call. Very very witty title there, 860 00:46:58,840 --> 00:47:01,919 Speaker 1: but a capital call where we called down let's say 861 00:47:01,960 --> 00:47:04,720 Speaker 1: five million of that That money is then used to, say, 862 00:47:05,080 --> 00:47:09,000 Speaker 1: then a little bit on salaries, operations, rent, travel, and 863 00:47:09,040 --> 00:47:11,200 Speaker 1: then the rest is going to be used primarily to 864 00:47:11,200 --> 00:47:14,800 Speaker 1: make those investments and buy equity in what is hopefully 865 00:47:14,800 --> 00:47:18,520 Speaker 1: the next Uber or Twitter or LinkedIn. Right, and so 866 00:47:18,920 --> 00:47:21,680 Speaker 1: we call this capital down over time. What that means 867 00:47:21,680 --> 00:47:24,800 Speaker 1: from a banking operations standpoint is that everyone at sub 868 00:47:25,040 --> 00:47:28,640 Speaker 1: as well as us over at First Republic is we 869 00:47:28,640 --> 00:47:33,439 Speaker 1: were calling capital into First Republic, and vcs were calling 870 00:47:33,440 --> 00:47:36,960 Speaker 1: it into Silicon Valley Bank. With Silicon Valley, with Silicon 871 00:47:37,000 --> 00:47:39,920 Speaker 1: Valley Bank down, where are you calling that capital too? 872 00:47:40,120 --> 00:47:43,560 Speaker 1: You have to reposition your operations over to a new 873 00:47:43,600 --> 00:47:47,000 Speaker 1: bank and set up with KYC and documents and everything 874 00:47:47,120 --> 00:47:49,799 Speaker 1: to set up a new bank account. The difference is 875 00:47:50,040 --> 00:47:53,359 Speaker 1: operating companies usually have one bank account they run all 876 00:47:53,440 --> 00:47:57,000 Speaker 1: cash and all payroll, all expenses. But for us, we 877 00:47:57,040 --> 00:48:00,040 Speaker 1: have two bank accounts per fund and so we have 878 00:48:00,160 --> 00:48:03,440 Speaker 1: three funds and so we have over ten bank accounts 879 00:48:03,440 --> 00:48:06,480 Speaker 1: with First Republic and we're a medium sized firm. Right 880 00:48:06,520 --> 00:48:10,000 Speaker 1: when you look at Sequoia NA and recent they probably 881 00:48:10,040 --> 00:48:14,200 Speaker 1: have hundreds of individual bank accounts that they're running. And 882 00:48:14,239 --> 00:48:17,239 Speaker 1: so that's the complexity of the operational hiccup that's going 883 00:48:17,239 --> 00:48:20,880 Speaker 1: on right now. Is that complexity that limits you from 884 00:48:21,080 --> 00:48:25,279 Speaker 1: spreading it out over any number of different banks. We 885 00:48:25,320 --> 00:48:27,600 Speaker 1: could spread it out, you couldn't head that risk over 886 00:48:27,680 --> 00:48:31,160 Speaker 1: different banks. Vcs usually centralize it. I haven't met one 887 00:48:31,239 --> 00:48:35,279 Speaker 1: that has different banks, but they usually centralize most of 888 00:48:35,280 --> 00:48:38,279 Speaker 1: their banking operations at one location. I think that is 889 00:48:38,320 --> 00:48:41,239 Speaker 1: sort of maybe a question mark here as we walk 890 00:48:41,280 --> 00:48:44,400 Speaker 1: into what's next. Yeah, hey, Josh. One of the reasons 891 00:48:44,400 --> 00:48:47,480 Speaker 1: Silicon Valley Bank came into existence decades ago in the 892 00:48:47,480 --> 00:48:51,400 Speaker 1: first places because banks don't want to bank some of 893 00:48:51,440 --> 00:48:57,799 Speaker 1: these small startup companies, you know, no profitability, and where 894 00:48:57,800 --> 00:49:02,120 Speaker 1: do those companies go now. I think they'll probably stay 895 00:49:02,200 --> 00:49:05,799 Speaker 1: mostly within the tech banking world. But that said, over 896 00:49:05,800 --> 00:49:10,240 Speaker 1: the last twenty years, tech has contributed such a meaningful 897 00:49:10,320 --> 00:49:13,279 Speaker 1: part of GDP growth in not only the world, but 898 00:49:13,320 --> 00:49:15,919 Speaker 1: of course our country here in the United States, and 899 00:49:16,440 --> 00:49:20,200 Speaker 1: tech has driven immense investment banking and IPO and M 900 00:49:20,200 --> 00:49:23,279 Speaker 1: and A revenues for the largest groups like Boldman and 901 00:49:23,320 --> 00:49:27,080 Speaker 1: JP Morgan, Morgan Stanley. It has been a huge revenue driver. 902 00:49:27,920 --> 00:49:31,160 Speaker 1: And so because of that, some of these larger banks 903 00:49:31,160 --> 00:49:35,319 Speaker 1: has started to come downstream to service startups, usually in 904 00:49:35,320 --> 00:49:37,840 Speaker 1: the series B C or D range right ones that 905 00:49:37,960 --> 00:49:40,720 Speaker 1: have you know, twenty to one hundred million in cash 906 00:49:40,760 --> 00:49:44,840 Speaker 1: balances that raised large rounds, but increasingly soone. You're seeing 907 00:49:44,840 --> 00:49:47,560 Speaker 1: this from groups like Bank of America, JP Morgan and 908 00:49:47,600 --> 00:49:50,920 Speaker 1: even Boldman now where they're starting to move even earlier. 909 00:49:51,160 --> 00:49:56,040 Speaker 1: This crisis has accelerated that trend and compressed that that 910 00:49:56,200 --> 00:50:00,960 Speaker 1: trend into what feels like a week not entirely obviously, 911 00:50:01,000 --> 00:50:03,480 Speaker 1: there's a lot of work to do, but I think 912 00:50:03,520 --> 00:50:04,879 Speaker 1: you're going to see a lot of the tier one 913 00:50:04,960 --> 00:50:09,080 Speaker 1: banks continue to open up venture capital, treasury and banking 914 00:50:09,120 --> 00:50:13,960 Speaker 1: solutions for this market. What's your typical ratio of hits 915 00:50:14,040 --> 00:50:17,680 Speaker 1: to missus in terms of the companies in which venture 916 00:50:17,719 --> 00:50:22,680 Speaker 1: capital firm invests, and how has this banking crisis changed 917 00:50:22,719 --> 00:50:28,120 Speaker 1: that ratio, if at all. The ratio is usually a 918 00:50:28,200 --> 00:50:30,880 Speaker 1: high miss to hit ratio. That's kind of sort of 919 00:50:30,920 --> 00:50:33,200 Speaker 1: the law of large winners. I think it's, you know, 920 00:50:34,120 --> 00:50:37,360 Speaker 1: less than ten to twenty percent of the portfolio is 921 00:50:37,400 --> 00:50:39,880 Speaker 1: going to contribute eighty percent plus of your return of 922 00:50:39,920 --> 00:50:43,640 Speaker 1: capital to investors. And so unlike private equity that you 923 00:50:43,680 --> 00:50:46,480 Speaker 1: know looks for three to five to ten x return 924 00:50:46,560 --> 00:50:50,400 Speaker 1: on their investment, venture capital is looking, especially at early stage, 925 00:50:50,400 --> 00:50:53,520 Speaker 1: at you know, thirty to one hundred x under investment 926 00:50:53,560 --> 00:50:56,200 Speaker 1: to account for the high risk that you're taking across 927 00:50:56,239 --> 00:50:59,799 Speaker 1: the board. So, you know, anywhere from fifty to eighty 928 00:50:59,760 --> 00:51:02,400 Speaker 1: per cent up a portfolio might not work out, depending 929 00:51:02,440 --> 00:51:05,400 Speaker 1: on the success as a VC firm. Obviously, my job, 930 00:51:05,560 --> 00:51:08,480 Speaker 1: you know it, John's fall, is to get that ratios 931 00:51:08,640 --> 00:51:11,319 Speaker 1: as high as I can aid. But it's a it's 932 00:51:11,360 --> 00:51:13,719 Speaker 1: a high risk game for sure, all right, Josh, it's 933 00:51:13,760 --> 00:51:15,799 Speaker 1: a high risk game. It's a young man's game. John 934 00:51:16,520 --> 00:51:19,680 Speaker 1: Josh Chapman, managing partner at Convoy Ventures. Joining us really 935 00:51:19,680 --> 00:51:24,239 Speaker 1: appreciate getting his perspective on the VC market and any 936 00:51:24,280 --> 00:51:28,560 Speaker 1: impacts that may come from the failure of Silicon Valley Bank. 937 00:51:28,960 --> 00:51:32,040 Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can 938 00:51:32,080 --> 00:51:35,840 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 939 00:51:35,960 --> 00:51:39,600 Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 940 00:51:39,840 --> 00:51:43,160 Speaker 1: at Matt Miller nineteen seventy three and on ball Sweeney, 941 00:51:43,160 --> 00:51:45,799 Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you 942 00:51:45,800 --> 00:51:48,200 Speaker 1: can always catch us worldwide at Bloomberg Radio.