WEBVTT - Credit Suisse Takeover Upends Global Bond Markets 0:00:00.600 --> 0:00:03.480 Live from the Bloomberg Interact Day Brokers Studios. This is 0:00:03.480 --> 0:00:06.840 Bloomberg day Break for Monday, March twentieth. Coming up today, 0:00:07.080 --> 0:00:10.239 UBS takes on Credit Suis buying the troubled bank for 0:00:10.280 --> 0:00:12.799 more than three billion dollars to move up ends the 0:00:12.880 --> 0:00:16.280 bond market, wiping out seventeen billion dollars of the riskiest 0:00:16.360 --> 0:00:19.960 bawns at Credit Suite. Shares of UBS plunge as analysts 0:00:19.960 --> 0:00:23.479 point to potential earnings risk and global banking stocks slump 0:00:23.520 --> 0:00:25.480 in the wake of the deal. A lawyer ally with 0:00:25.680 --> 0:00:29.120 Donald Trump testifies today before New York grand jury plus 0:00:29.440 --> 0:00:32.880 Chinese president. She meets today with the Russia's Vladimir Putin. 0:00:33.159 --> 0:00:36.080 I'm Michael Barr. More ahead, I'm down stash Aaron's boards. 0:00:36.120 --> 0:00:38.720 Another easy win for the Rangers, that Devils won, the 0:00:38.840 --> 0:00:41.199 Nets lost their down to the sweet sixteen of the 0:00:41.280 --> 0:00:46.320 NCBA tournaments. That's all straight Ahead on Bloomberg day Break, 0:00:46.440 --> 0:00:49.199 The business news you need, disturn your day, and just 0:00:49.400 --> 0:00:53.600 one fifteen minute podcast each pointing on Apples, Spotify, the 0:00:53.640 --> 0:01:00.440 Bloomberg Business Appen everywhere you get your podcasts. Good morning, 0:01:00.440 --> 0:01:03.280 I'm Nathan Hager and I'm Kieron Moscow. Here are the 0:01:03.320 --> 0:01:06.880 stories we're following today. We begin with reaction to the 0:01:06.959 --> 0:01:10.759 hastily arranged takeover of Credit Suis. So far, the deal 0:01:10.920 --> 0:01:13.839 is failing to calm fears in the banking industry. Shares 0:01:13.880 --> 0:01:18.080 of Credit Suis right now are down nearly sixty percent, 0:01:18.319 --> 0:01:22.479 while the bank that bought that firm, UBS is lower 0:01:22.520 --> 0:01:25.520 by nine percent. That's after UBS agreed to buy Credit 0:01:25.560 --> 0:01:28.920 Suie for three point two billion dollars. The chairman of UBS, 0:01:29.000 --> 0:01:32.200 Calm Kelleher, is trying to soothe concerns about the government 0:01:32.200 --> 0:01:35.280 broker deal. It's a historic day in Switzerland, then, a 0:01:35.360 --> 0:01:38.600 day frankly we hoped would not come. I would like 0:01:38.680 --> 0:01:41.880 to make it clear that while we could not initiate discussions, 0:01:42.319 --> 0:01:46.800 we believe that this transaction is financially attractive for UBS shareholders, 0:01:46.920 --> 0:01:51.200 protects UBS from additional downside and should support earning his 0:01:51.320 --> 0:01:54.840 growth over time. UBS chairman Calm Kellerher says he will 0:01:54.840 --> 0:01:57.320 shrink the investment bank a Credit Suie, a unit that 0:01:57.400 --> 0:02:00.160 racked up losses in recent years, and Nathan, I mean 0:02:00.200 --> 0:02:02.680 a global team. Coverage of this historic dl we begin 0:02:02.760 --> 0:02:06.040 with the Bloomberg's francy in Lakwise in Switzerland who attended 0:02:06.080 --> 0:02:09.880 the UBS Credit Suite press conference in Berne yesterday. They 0:02:09.919 --> 0:02:11.880 feel the questions for about an hour and a half. 0:02:11.919 --> 0:02:13.920 I think they thought this would last for about forty 0:02:13.919 --> 0:02:16.440 five minutes, and there are so many questions. First of all, 0:02:16.520 --> 0:02:18.840 UBS got this quite on the cheap. I mean, why 0:02:18.840 --> 0:02:20.239 did they get it so cheap? I think it is 0:02:20.240 --> 0:02:21.880 probably one of the first questions when you look at 0:02:21.919 --> 0:02:25.079 the valuation on Friday and also the amount of liquidity 0:02:25.120 --> 0:02:27.600 of guarantees that they had to get from the government. 0:02:28.000 --> 0:02:30.800 Do they know something in Cretty sueee that no one 0:02:30.800 --> 0:02:32.239 else knows. I think this is one of the first 0:02:32.320 --> 0:02:34.680 questions that a lot of people will ask. Certain market 0:02:34.680 --> 0:02:37.120 participants will try and tell did they see a scary 0:02:37.200 --> 0:02:40.359 movie and so wanted to make sure that they were protected. 0:02:40.680 --> 0:02:43.920 Bloomberg's Francy Laquais reporting from Switzerland and we continue our 0:02:43.960 --> 0:02:46.840 team coverage in Zurich now where a long time Credit 0:02:46.840 --> 0:02:49.520 Suice reporter man As Cranny picks up the story. This 0:02:49.560 --> 0:02:53.239 is about liquidity, a lifeline and ensuring the borders of 0:02:53.320 --> 0:02:56.960 Switzerland remain robust of financial borders. This could be the 0:02:57.000 --> 0:03:01.080 steel of the century for UPS. Colin Gallaher and Ralph Hammers. Actually, 0:03:01.080 --> 0:03:03.160 if they slept on it overnight, I thought, wow, your 0:03:03.200 --> 0:03:05.520 credit space was worth eighty billions? Was Franks At one 0:03:05.560 --> 0:03:09.160 juncture they got a three and Bloomberg's menace Cranny reporting 0:03:09.200 --> 0:03:11.760 from Zurich, more team coverage on the way now as 0:03:11.800 --> 0:03:15.000 we assessed the fallout from this deal, Bloomberg Finance reporter 0:03:15.120 --> 0:03:18.520 Marion Helftermeyer says thousands of job cuts are likely on 0:03:18.560 --> 0:03:20.880 the way now. The next step to watch for will 0:03:20.919 --> 0:03:23.520 be just how they actually combine these two banks. There 0:03:23.560 --> 0:03:26.239 will be massive, massive job cuts here because there is 0:03:26.240 --> 0:03:29.200 an incredible amount of overlap between the two banks, both 0:03:29.240 --> 0:03:33.119 in Switzerland and globally, and in particular UBS has said, 0:03:33.160 --> 0:03:35.880 you know, we have our own investment bank, so you know, 0:03:35.960 --> 0:03:38.600 watched out for a massive windown of the Credit swieas 0:03:38.640 --> 0:03:42.960 investment bank and Bloomberg Finance reporter Maryon Halftermeyer reports bondholders 0:03:43.040 --> 0:03:45.640 are also angry about the terms of the takeover. The 0:03:45.680 --> 0:03:48.720 fourth sale means seventeen billion dollars of the risky of 0:03:48.800 --> 0:03:52.400 bonds at Credits Suite are now worthless well Karen. Reaction 0:03:52.440 --> 0:03:55.080 continues to pour into the takeover of THEE hundred sixty 0:03:55.160 --> 0:03:57.560 six year old bank. We got the take from Bloomberg 0:03:57.600 --> 0:04:02.080 opinion calumnist Muhammadhalarrian and Bain Appital CoA chairman Steve Pagliuka. 0:04:02.240 --> 0:04:05.040 This was not the best solution, but it dominated the 0:04:05.040 --> 0:04:08.480 other two, which was either nationalization or trying to wind 0:04:08.520 --> 0:04:11.640 down the bank. But it's full of contradictions. When the 0:04:11.720 --> 0:04:14.000 first crisis happened in two thousand and eight, the whole 0:04:14.040 --> 0:04:16.480 issue was systemic collapse. We don't have a systemic collapse. 0:04:16.520 --> 0:04:19.320 Now we have a crisis of confidence, and that crisis 0:04:19.360 --> 0:04:22.640 of confidence can ratchet into a bad economy. Muhammadal Area 0:04:22.680 --> 0:04:25.720 and Steve Pagliuca made their comments on yesterday special edition 0:04:25.720 --> 0:04:29.520 of Bloomberg Surveillance on Bloomberg Radio and Television. So how 0:04:29.560 --> 0:04:33.760 will this banking turmoil impact rates at this week's FED decision, Nathan, 0:04:33.760 --> 0:04:36.880 While we spoke with former Atlanta Fed President Denis Lockhart. 0:04:37.360 --> 0:04:41.640 At this stage, I am inclined to give a majority 0:04:41.760 --> 0:04:45.400 probability to a twenty five basis point hike, but a 0:04:45.480 --> 0:04:49.560 non trivial probability to a pause. And former Atlanta Fed 0:04:49.600 --> 0:04:52.640 President Denis Lockhart says the Fed's rapid rate increases have 0:04:52.760 --> 0:04:55.960 taken some bank executives by surprise. Now back here in 0:04:56.000 --> 0:04:59.560 the US, Karen banking turmoil is also in focus. Signature 0:04:59.640 --> 0:05:02.560 was a three major banks that collapsed this month, and 0:05:02.720 --> 0:05:06.800 starting this morning, it's forty branches will operate as Flagstar. 0:05:06.960 --> 0:05:09.760 We get more in this live report from Bloomberg's John Tucker. 0:05:09.800 --> 0:05:12.479 Good morning, John, and Nathan. Flagstar Bank of Hicksville, a 0:05:12.600 --> 0:05:15.480 unit of New York Community Bankcorps, agreed to buy thirty 0:05:15.480 --> 0:05:19.159 eight billion dollars of Signature's assets from the FDIC. Well, 0:05:19.160 --> 0:05:21.920 the sale didn't offload all of Signature, it does show 0:05:21.920 --> 0:05:25.120 there are buyers out there for such assets. Regulators hope 0:05:25.160 --> 0:05:27.359 it's a move that could calm some of the turmoil. 0:05:27.640 --> 0:05:31.719 Flagstar also assumed liabilities about thirty six billion dollars. That 0:05:31.800 --> 0:05:34.760 includes thirty four billion dollars in deposits a bunch. Like 0:05:34.839 --> 0:05:37.640 Silicon Valley Bank, Signature had a deposit base that was 0:05:37.800 --> 0:05:41.760 mostly unensured. Live in New York, I'm John Tucker, Bloomberg Daybreak. 0:05:41.839 --> 0:05:43.840 All right, John, thank you. When it comes to Silicon 0:05:43.920 --> 0:05:46.840 Valley Bank, it looks like US regulators are getting closer 0:05:46.880 --> 0:05:49.320 to a breakup plan, and we get the details live 0:05:49.320 --> 0:05:52.160 with the Bloomberg. Steve Rappaport, Steve, good morning, Good morning, 0:05:52.240 --> 0:05:54.400 Karen and Nathan. Sources tell us the plan is to 0:05:54.440 --> 0:05:57.400 sell SVB in two parts. The FDIC set up a 0:05:57.400 --> 0:05:59.880 so called bridge bank to take receivership of the firm's 0:06:00.000 --> 0:06:02.880 assets and liabilities. Bids for that or do Friday. The 0:06:02.960 --> 0:06:06.240 regulator will take bids by Wednesday for SBB Private Bank. 0:06:06.440 --> 0:06:08.960 That's the remnants of Boston Private acquired by the bank 0:06:08.960 --> 0:06:11.839 in twenty twenty one. The FDIC tried to sell both 0:06:11.880 --> 0:06:14.359 parts together over the weekend, but extended the deadline to 0:06:14.400 --> 0:06:18.000 attract more potential buyers. Live in New York. I'm Steve Rappaport, 0:06:18.120 --> 0:06:20.320 Bloomberg Daybreak. Thank you, Steve. And when it comes to 0:06:20.400 --> 0:06:23.520 First Republic Bank, those shares are plunging again this morning. 0:06:23.520 --> 0:06:26.240 There's still no word of a rescue plan there. SMP 0:06:26.400 --> 0:06:30.280 Global has downgraded the bank again. First Republic shares are 0:06:30.320 --> 0:06:37.599 falling nearly twenty percent in early trading. It's thirty two 0:06:37.600 --> 0:06:39.440 degrees in New York. It's going to be sunny and 0:06:39.440 --> 0:06:41.560 mild today, heading the low fifties, and we'll get down 0:06:41.560 --> 0:06:44.440 to the upper thirties tonight under a clear sky. Time 0:06:44.480 --> 0:06:45.920 Now for a look at some of the other stories 0:06:45.920 --> 0:06:47.800 making news in New York and around the world, with 0:06:47.800 --> 0:06:50.799 Bloomberg's Michael Barr a Good Morning, Mike Call, Good Morning Nathan. 0:06:50.880 --> 0:06:54.480 A lawyer allied with Donald Trump, plans to testify before 0:06:54.600 --> 0:06:58.320 New York grand jury today. Robert Costello is expected to 0:06:58.320 --> 0:07:01.359 make the kays the former president should not face criminal 0:07:01.480 --> 0:07:04.800 charges over hush money paid during his twenty sixteen campaign 0:07:05.120 --> 0:07:08.480 to poor and start Stormy Daniels. Costello says he has 0:07:08.520 --> 0:07:11.520 information raising questions about the credibility of a key witness 0:07:11.600 --> 0:07:15.119 in the investigation, former Trump lawyer and fixer, Michael Cohen. 0:07:15.400 --> 0:07:19.760 Democratic Senator Elizabeth Warren that investigation should be allowed to 0:07:19.800 --> 0:07:23.880 go forward appropriately. If it's time to bring indictments, then 0:07:23.920 --> 0:07:28.360 they'll bring indictments. That's how our legal system works. Senator 0:07:28.400 --> 0:07:31.240 Warren spoke on ABC's This Week, which can be heard 0:07:31.280 --> 0:07:35.600 Sundays on Bloomberg. Trump says if he is arrested tomorrow, 0:07:35.720 --> 0:07:39.040 he is calling for protests if it happens. Among his 0:07:39.080 --> 0:07:42.520 supporters outside Merolago yesterday was this woman who traveled from 0:07:42.560 --> 0:07:45.800 New Jersey. It's just about everybody coming out together and 0:07:46.000 --> 0:07:50.360 supporting altogether. It's like one big happy family Manhattan. DA 0:07:50.400 --> 0:07:53.240 Alvin Bragg is not saying whether he'll charge Trump, but 0:07:53.280 --> 0:07:56.360 he emailed his staff over the weekend saying we do 0:07:56.480 --> 0:08:01.080 not tolerate attempts to intimidate all our office. Instigations continue 0:08:01.120 --> 0:08:04.120 after five children from Connecticut, ranging an age from eight 0:08:04.160 --> 0:08:07.760 to seventeen, were killed in a fiery early morning crash 0:08:07.840 --> 0:08:11.640 yesterday on a New York highway in Westchester County. Police 0:08:11.680 --> 0:08:14.320 believe the vehicle was being driven by a sixteen year 0:08:14.320 --> 0:08:17.560 old boy when it veered off the Hutchinson River Parkway 0:08:17.640 --> 0:08:20.760 and Scarsdale, hit a tree and caught fire. The only 0:08:20.760 --> 0:08:24.320 survivor was a nine year old boy. Russian President Vladimir 0:08:24.320 --> 0:08:27.880 Putin hosts Chinese President Chijingping for meetings today in Moscow. 0:08:28.280 --> 0:08:32.720 Fordham University professor Beth Noble says the ongoing conflict with 0:08:32.840 --> 0:08:36.120 Ukraine will be a major focus. The Chinese leader, Shijinping 0:08:36.320 --> 0:08:39.240 is portraying his visit to Russia as a personal mission 0:08:39.320 --> 0:08:41.920 to help bring peace to Ukraine, but he's hardly been 0:08:41.960 --> 0:08:45.160 an honest broker so far. China has proposed a peace 0:08:45.200 --> 0:08:47.880 plan for Ukraine, but it's one that many world leaders 0:08:47.880 --> 0:08:50.559 have said is a non starter since it leans heavily 0:08:50.600 --> 0:08:54.320 towards Russia. Professor Noble as China and Russia is said 0:08:54.320 --> 0:08:57.360 to have a no limits partnership. About twenty five thousand 0:08:57.440 --> 0:09:01.359 runners participated in the New York City half Rathon. Olympian 0:09:01.600 --> 0:09:05.360 Jacob to Plomo from Uganda won the race. Global teams 0:09:05.360 --> 0:09:07.480 twenty four hours a day, powered by more than twenty 0:09:07.520 --> 0:09:10.400 seven hundred journalists and analysts and over one hundred twenty countries. 0:09:10.760 --> 0:09:13.760 Michael Barr and this is Bloomberg. Nathan. All right, Michael, 0:09:13.800 --> 0:09:20.719 thank you time now for the Bloomberg Sports Update, brought 0:09:20.760 --> 0:09:22.480 to you by Trice State. Howdy you got Morney John 0:09:22.520 --> 0:09:25.400 Stash After morning, Nathan, the Nights of Fairlie Nakin. Soon 0:09:25.400 --> 0:09:28.040 they'll be back on campus in Teenac today. They had 0:09:28.080 --> 0:09:31.000 a heck of a weekend at the NCAA Tournament Columbus, Ohio. 0:09:31.080 --> 0:09:33.679 The stunning upset Friday night of top seeded per DWO 0:09:33.720 --> 0:09:37.200 and FTU came out strong second half last night, had 0:09:37.200 --> 0:09:39.959 a five point lead on Florida Atlantic with the Owls, 0:09:39.960 --> 0:09:42.600 who are thirty three and three on the season, came 0:09:42.640 --> 0:09:45.480 back to win seventy eight to seventy When Marquette the 0:09:45.559 --> 0:09:47.880 two seed in the East was upset by Michigan State. 0:09:47.880 --> 0:09:49.760 Had meant that each of the four days of the 0:09:49.760 --> 0:09:52.800 Attorney a one or two seed had lost. Michigan State 0:09:52.840 --> 0:09:56.360 will now play at the Garden Thursday against Kansas State, 0:09:56.400 --> 0:09:58.679 who'll be Kentucky. The other game at MSG will be 0:09:58.800 --> 0:10:02.200 Florida Atlantic again Tennessee. It was hockey at the Yard 0:10:02.360 --> 0:10:04.160 last night, and the Rangers tied a club record with 0:10:04.240 --> 0:10:06.839 a six goal first period. They meet in Nashville seven 0:10:06.920 --> 0:10:09.400 to nothing the night after the Blue Shirts. They had 0:10:09.440 --> 0:10:12.200 beaten Pittsburgh six to nothing. KeAndre Miller last night two 0:10:12.240 --> 0:10:15.400 goals to assist just in the opening period. Devil's Lightning 0:10:15.480 --> 0:10:17.080 met for the third time in the six days. New 0:10:17.160 --> 0:10:20.640 Jersey one at Tampa five two, first career hat trick 0:10:20.679 --> 0:10:23.760 for Yesford Bratt at Barclay's Nets lost to Denver one 0:10:23.760 --> 0:10:26.079 O eight, one h two, thenothers Jamal Murray twenty five 0:10:26.120 --> 0:10:29.520 points in the first quarter. Nick's host Minnesota tonight, a 0:10:29.640 --> 0:10:32.480 US route at the World Baseball Classic semifinals in Miami, 0:10:32.600 --> 0:10:35.599 fourteen to two over Cuba. Pair of home runs for 0:10:35.679 --> 0:10:38.079 Trade Turner Paul goldschmid homer. They both drove in four 0:10:38.120 --> 0:10:42.240 runs championship game tomorrow against either Mexico or Japan. Mets 0:10:42.280 --> 0:10:44.600 lost the Cardinals eight seventy. Yankees lost in the Oils 0:10:44.640 --> 0:10:46.920 five to three. Garrett Cole four scoreless innings, but then 0:10:46.920 --> 0:10:49.760 he gave up four runs in the fifth. Carlos Alcarez 0:10:49.840 --> 0:10:52.439 won the tennis at ending Wells regained the world number 0:10:52.440 --> 0:10:59.160 one night. Johnskashawar Bloomberg Sport live from coast to coast, 0:10:59.320 --> 0:11:02.680 from New York to San Francisco, Boston to Washington, DC, 0:11:03.120 --> 0:11:06.920 nationwide on Sirius, XAMP, the Bloomberg Business app, and Bloomberg 0:11:07.040 --> 0:11:11.920 dot Com. This is Bloomberg Daybreak. Good morning on Nathan Hagar. 0:11:12.000 --> 0:11:15.360 The hastily arranged takeover over the weekend of Credit Suis 0:11:15.640 --> 0:11:18.439 by UBS does not appear to be offering solace to 0:11:18.520 --> 0:11:22.559 investors this morning. Worries continue about even wider fallout from 0:11:22.600 --> 0:11:25.520 a crisis in banking confidence that has now been going 0:11:25.600 --> 0:11:29.199 on for several days. Let's bring in Alison william senior 0:11:29.240 --> 0:11:33.560 analysts for Global investment banks and asset managers at Bloomberg Intelligence, 0:11:33.720 --> 0:11:36.720 as well as Bloomberg's Mannis Cranny, who has covered UBS 0:11:36.800 --> 0:11:40.280 and Credit Suis for years, was in burn Switzerland, for 0:11:40.320 --> 0:11:45.560 the takeover announcement, and Mannis joins me from Switzerland. Now Mannis, 0:11:45.640 --> 0:11:50.040 I'm watching shares of UBS and Credit suis plummet this morning. 0:11:50.080 --> 0:11:52.360 Before we get to the price action, though, let's just 0:11:52.400 --> 0:11:56.240 talk about how historic this is that a bank that 0:11:56.320 --> 0:11:59.840 has more than one hundred sixty year history is now 0:12:00.120 --> 0:12:03.160 being taken over by its rival right across the street. 0:12:04.840 --> 0:12:07.400 Made in a very good days year, Allison, This just 0:12:07.520 --> 0:12:10.440 symbody was never supposed to happen. Ever again post GFC 0:12:10.640 --> 0:12:14.480 taking my own back to Leahman's going under, to Namura 0:12:14.559 --> 0:12:16.559 coming in and scooping up the paths to RBS in 0:12:16.600 --> 0:12:20.439 the UK being nationalized, this was a marriage of very 0:12:20.559 --> 0:12:23.920 unequal partners. This is a very uncomfortable, one could say, 0:12:24.040 --> 0:12:26.600 and many have used the phrase shotgun wedding. The issue 0:12:26.600 --> 0:12:28.520 with that is you never know what your in laws 0:12:28.520 --> 0:12:30.040 are going to be like. In other words, what is 0:12:30.080 --> 0:12:33.520 still remaining inside Credit Suites that UBS has not had 0:12:33.559 --> 0:12:36.840 the chance to do due diligence on the finance minister 0:12:36.840 --> 0:12:38.960 in Burne last night. Frantine was in Burne, I was 0:12:39.000 --> 0:12:41.040 in Zurich. And the phrase that was used, this is 0:12:41.040 --> 0:12:44.400 not a bail ote, this is not a baylight. Well, 0:12:44.440 --> 0:12:46.440 if this is not a baylight, one hundred billion of 0:12:46.480 --> 0:12:49.000 a backstop in liquidity for credits for the new entity 0:12:49.120 --> 0:12:52.560 is there? And a nine billion backstop in terms of 0:12:52.679 --> 0:12:55.840 losses potential losses that the new entity may need to 0:12:55.880 --> 0:12:58.520 take in the event of winding down what are called 0:12:58.600 --> 0:13:04.080 highly liquid or level three instruments inside the credit police vehicles. 0:13:04.120 --> 0:13:06.880 So right now this is a bail in of bombs 0:13:07.440 --> 0:13:10.840 and that's the big spooky issue for markets, credit and 0:13:10.920 --> 0:13:15.280 equity markets today. What kind of unanswered questions, manness, are 0:13:15.320 --> 0:13:18.920 there about Credit suisses books? I mean, we understand that 0:13:18.960 --> 0:13:23.120 they have had a number of scandals over the years, 0:13:23.160 --> 0:13:26.480 a number of crises over the years. Is that part 0:13:26.480 --> 0:13:29.760 of the reason why we're seeing this drop in both 0:13:30.000 --> 0:13:33.880 companies shares this morning, that we don't have a fully 0:13:33.880 --> 0:13:38.720 clear picture of what the books look like at Credit Suez. Look, 0:13:38.720 --> 0:13:40.800 I think that's part of it. But be assured there's 0:13:40.800 --> 0:13:43.120 a liquidity boxtop of one hundred billions so stranks at 0:13:43.160 --> 0:13:44.880 the point one, this was a liquidity issue, not a 0:13:44.880 --> 0:13:49.480 capital issue that drove this shotgun wedding. However, Colin callaher 0:13:49.640 --> 0:13:52.000 the new chairman of the joint entity, and the chairman 0:13:52.120 --> 0:13:54.319 of UBS made it very very clear we're going to 0:13:54.400 --> 0:13:56.400 de risk. We're going to bring that investment bank dying 0:13:56.760 --> 0:13:58.800 to about twenty five percent of the overall size of 0:13:58.800 --> 0:14:01.280 the combined entity. That is going to mean some serious 0:14:01.320 --> 0:14:05.640 addressing of higher risk assets that are inside the investment bank. 0:14:05.960 --> 0:14:07.960 The issue with that, and I take you back to 0:14:08.320 --> 0:14:12.559 twenty twenty fourteen, when you're trying to sell off assets 0:14:12.600 --> 0:14:15.400 that are highly a liquid, difficult to price and nobody 0:14:15.440 --> 0:14:17.960 really wants. That's when the difficulty comes in. And that's 0:14:18.040 --> 0:14:21.440 maybe where the losses are potentially to come. But there 0:14:21.520 --> 0:14:23.560 is a backstop and I will use that word time 0:14:23.560 --> 0:14:26.880 and time again because that is yet to be fully comprehended. Here. 0:14:27.400 --> 0:14:29.840 Want to bring in Alison Williams this discussion and our 0:14:30.160 --> 0:14:33.880 senior analyst for a global investment big asset managers at 0:14:34.000 --> 0:14:37.520 Bloomberg Intelligence. Alison, what are some of the unanswered questions 0:14:37.560 --> 0:14:42.920 for you when it comes to this UBS credit sweet tip? Well, 0:14:43.240 --> 0:14:47.520 I think the biggest the biggest question for UBS shareholders 0:14:47.840 --> 0:14:51.920 is you know the length of time it's going to 0:14:51.960 --> 0:14:55.000 take for this deal to be a creative and in 0:14:55.040 --> 0:14:58.640 some sense they're they're taking on some of the restructuring 0:14:58.720 --> 0:15:01.960 challenges that credit Swos is already facing. They're doing it 0:15:02.000 --> 0:15:07.880 with a stronger balance sheet. Um, so that's helpful. But um, 0:15:07.920 --> 0:15:10.520 you know, the deal I think is a little unnerving 0:15:10.560 --> 0:15:13.760 to markets, just because of the treatment of the at 0:15:13.960 --> 0:15:21.440 ones and also that it's um not requiring approval of 0:15:21.600 --> 0:15:26.120 UBS shareholders. So I think those two things definitely are 0:15:26.600 --> 0:15:30.000 not something that the market likes. The market doesn't like 0:15:30.240 --> 0:15:34.160 when when the rules change like that, I guess if 0:15:34.160 --> 0:15:38.600 you will, but I would say that you know, if 0:15:38.600 --> 0:15:40.720 you if you look at the deal from the long 0:15:40.840 --> 0:15:44.840 term perspective of UBS, Yes, they are going to as 0:15:44.960 --> 0:15:48.120 many said, they want to limit the investive bank. But 0:15:48.200 --> 0:15:51.440 it is important to note that credits we had already 0:15:51.480 --> 0:15:54.880 been doing a lot of work in that direction. So um, 0:15:54.920 --> 0:15:57.520 they're already sort of at that twenty five percent. They've 0:15:57.560 --> 0:16:00.400 been selling off credits, we had been selling off assets 0:16:00.440 --> 0:16:05.040 to Apollo, and they're putting the remainder of those assets 0:16:05.080 --> 0:16:08.640 in the bank. And that does remain a big question. 0:16:09.240 --> 0:16:12.040 And to Manny's point, those assets can be hard to sell, 0:16:12.080 --> 0:16:15.400 and that is why you know they're taking the first 0:16:15.440 --> 0:16:18.000 five billion dollars of loss, and then the government is 0:16:18.040 --> 0:16:23.440 taking the next nine billion, so those those assets are 0:16:23.480 --> 0:16:28.600 where they got the government guarantee. There's also the remaining 0:16:28.680 --> 0:16:31.560 legal risks, and I think that is sort of the 0:16:31.560 --> 0:16:34.280 playbook that a lot of US investors look to when 0:16:34.320 --> 0:16:39.160 we think about deals like bear Stearns and Washington Mutual 0:16:39.600 --> 0:16:41.760 and some of the legal risks behind. But I would 0:16:41.760 --> 0:16:46.960 say that two things. First, this is a very different 0:16:47.200 --> 0:16:50.480 situation than two thousand and eight. It's very different for 0:16:50.560 --> 0:16:54.880 the banking system as a whole. And second, most of 0:16:54.920 --> 0:16:59.280 the legal risks are are identified. There are obviously there's 0:16:59.280 --> 0:17:01.920 always a risk for unknowns, but ubs did take an 0:17:02.000 --> 0:17:05.920 added provision related to those risks. And that gets back 0:17:05.920 --> 0:17:08.000 to a point that Manness made Allison at the very 0:17:08.040 --> 0:17:11.200 beginning of this discussion that something like this wasn't supposed 0:17:11.240 --> 0:17:14.320 to happen after the two thousand and eight crisis. A 0:17:14.359 --> 0:17:18.920 bank that's systemically important, the likes of Credit Suite wasn't 0:17:18.960 --> 0:17:21.840 supposed to fail after this. Well, we have a deal 0:17:21.960 --> 0:17:27.040 like this where ubs is becomes the one systemically important 0:17:27.080 --> 0:17:31.800 bank in Switzerland. What kind of risk does that pose 0:17:32.200 --> 0:17:36.040 for UBS? Well, I think you know, one of the 0:17:36.119 --> 0:17:41.240 key drivers for Credit Suite to want to stabilize the 0:17:41.320 --> 0:17:46.560 situation is just a fact that these two banks do 0:17:46.680 --> 0:17:49.199 have ties to each other, and Credit Swee does have 0:17:49.240 --> 0:17:54.200 ties globally. And even though their capital and liquidity position 0:17:55.280 --> 0:18:00.280 were strong, as we know that liquidity, sometimes the situation 0:18:00.320 --> 0:18:03.880 can change quickly. And I think there's you know, there 0:18:03.920 --> 0:18:07.720 there are big differences between Credit suits and what's happening 0:18:07.760 --> 0:18:12.240 in the US, but the one similarity is just um, 0:18:12.280 --> 0:18:15.959 the sentiment and the confidence and so at Credit Suitee, 0:18:16.119 --> 0:18:20.240 the issue was that, especially with you know, a lot 0:18:20.240 --> 0:18:23.120 of the social media that they saw, it was sort 0:18:23.119 --> 0:18:26.320 of reminiscent to what they had seen in the fourth quarter. 0:18:26.359 --> 0:18:29.040 They saw significant outflows as a result of the sentiment 0:18:29.160 --> 0:18:34.879 sentiment and reports are that they were seeing significant UM 0:18:35.040 --> 0:18:38.880 outflows hopefully I use the word outflows earlier and um, 0:18:39.880 --> 0:18:42.840 but you know, and that was what the Swiss regulator 0:18:42.880 --> 0:18:45.199 pointed to as the reason why they they stepped in 0:18:45.280 --> 0:18:47.560 because they started to see those outflows and they really 0:18:48.359 --> 0:18:52.040 felt that they needed to stem you know, stem that 0:18:52.160 --> 0:18:55.679 and instill confidence. You know. The issue with all of 0:18:55.680 --> 0:18:58.240 these measures is that I think, you know, bank regulators, 0:18:58.280 --> 0:19:01.040 it's tough because they have to walk a fine line. 0:19:01.040 --> 0:19:04.159 They have to do enough to install confidence and not 0:19:04.280 --> 0:19:08.480 do too much that you shake investors confidence for the 0:19:08.560 --> 0:19:11.480 need for them to have to step in man. So 0:19:11.520 --> 0:19:13.399 I want to bring you back into the discussion. The 0:19:13.760 --> 0:19:17.520 Swiss National Bank is bringing in a hundred billion franc 0:19:17.880 --> 0:19:23.359 liquidity guarantee for UBS in this merger. What does that 0:19:23.400 --> 0:19:27.719 potentially mean when it comes to the type of confidence 0:19:27.840 --> 0:19:32.000 that investors can continue to have in this bank. Well, 0:19:32.000 --> 0:19:34.920 I think we've got to disaggregate here between depositors, people 0:19:34.920 --> 0:19:37.720 of Switzerland, people around the world, the rich, ultra rich 0:19:38.080 --> 0:19:40.439 and billionaire community around the world in terms of their 0:19:40.440 --> 0:19:42.600 allocation to credit suits in ubs, they probably have a 0:19:42.680 --> 0:19:44.840 kounds with both. So you have the depositor risk and 0:19:44.880 --> 0:19:48.320 then you have investor. An investor confidence and depositor confidence 0:19:48.400 --> 0:19:51.960 are very similar, but they are slightly different things. The 0:19:52.080 --> 0:19:54.600 issue this morning, I'm just looking at g or Or 0:19:54.880 --> 0:19:57.760 on the stock six hundred on the banks page, Deutsche 0:19:57.800 --> 0:20:01.960 Bank dying five percent, Iron Dine six percent, Bodies down 0:20:02.040 --> 0:20:04.680 five percent. The issue is this what has happened here 0:20:05.320 --> 0:20:07.680 from my very first initial reading, Alison, you can maybe 0:20:07.720 --> 0:20:11.760 help clarify this. Urinanalyst and just a vintage banker broker 0:20:12.040 --> 0:20:15.560 commodity drader, which is there has been an inversion of 0:20:15.560 --> 0:20:17.800 the capital structure. In other words, the at one bonds, 0:20:18.440 --> 0:20:23.200 those additional capital bonds have been subsumed to equity. There's 0:20:23.200 --> 0:20:26.560 a morsel of equity given to the shareholders, the pension fundholders, 0:20:26.840 --> 0:20:29.280 the pension people of Switzerland, your equity. You still get 0:20:29.320 --> 0:20:32.399 a morsel and a potential upside the bond. The eighty 0:20:32.440 --> 0:20:36.040 one bondholders have been wiped out. That's what's dislocated banking 0:20:36.080 --> 0:20:39.040 markets in Europe this morning. The cost of capital for 0:20:39.200 --> 0:20:44.359 everybody has shot higher this morning. That is a material risk. 0:20:44.400 --> 0:20:47.439 You waken up this morning to a higher risk of 0:20:47.440 --> 0:20:51.040 the cost of capital in banking, and that as a 0:20:51.080 --> 0:20:55.560 potential fcom or defcon moment in terms of constricting capital 0:20:55.640 --> 0:20:58.360 to the real economy. That's the chronology of risk as 0:20:58.400 --> 0:21:01.280 I see it from where I'm sitting this morning. Now, 0:21:01.359 --> 0:21:03.280 that is a big part of this story, the fact 0:21:03.280 --> 0:21:06.360 that we have something like seventeen billion dollars of these 0:21:06.480 --> 0:21:11.160 riskiest bonds now being completely written down because of this deal. 0:21:11.280 --> 0:21:17.280 Alison Williams, why do that? Why put the bondholders at 0:21:17.359 --> 0:21:21.960 risk rather than the shareholders, changing the order of who 0:21:22.200 --> 0:21:27.520 gets hit hardest by this. So management made clear that 0:21:27.640 --> 0:21:32.679 this was a government decision, and actually the way that 0:21:32.720 --> 0:21:36.400 it structures the deal, it actually provides some capital protection 0:21:37.000 --> 0:21:39.919 to UBS. But I think that Manny is right that 0:21:40.000 --> 0:21:45.200 I that holders of these securities were surprised in terms 0:21:45.240 --> 0:21:48.920 of the way that the capital structure worked. But there's 0:21:48.960 --> 0:21:51.080 actually a great note out this morning by your own 0:21:51.160 --> 0:21:56.200 Julius who covers these securities, and he does to Manny's point, 0:21:56.880 --> 0:22:02.639 you know, point out that precedent means that these type 0:22:02.640 --> 0:22:06.000 of investors for these securities will demand higher yields, and 0:22:06.040 --> 0:22:09.480 so obviously that puts us some questions about the future 0:22:09.480 --> 0:22:12.560 of securities, and it raises the cost of capital. But 0:22:12.600 --> 0:22:17.560 there is you know, with the securities of both UBS 0:22:17.640 --> 0:22:20.480 and Credit Suites are a little bit unique in terms 0:22:20.520 --> 0:22:24.119 of the permanent write down. It's the exception in Europe. 0:22:24.680 --> 0:22:28.600 And he points to the fact that as these securities 0:22:28.600 --> 0:22:33.119 are issued, the language is likely to be different in 0:22:33.160 --> 0:22:35.520 the future. So that's a little bit of a technical issue, 0:22:37.080 --> 0:22:40.000 but I think that's also an important to note. I 0:22:40.000 --> 0:22:43.760 also want to ask about the future of this bank. Now. 0:22:43.840 --> 0:22:47.040