WEBVTT - B. Riley Faces Wider Probe, Markets Rebound 0:00:02.920 --> 0:00:08.680 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:17.000 weekdays at ten am Eastern on affle Cardplay and Android 0:00:17.000 --> 0:00:20.120 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:20.160 --> 0:00:23.360 you get your podcasts, or watch us live on YouTube. 0:00:24.880 --> 0:00:27.040 All right, well, one stock this down about fifty percent 0:00:27.120 --> 0:00:30.400 is b Riley. It's facing a wider probe on some 0:00:30.520 --> 0:00:33.520 risk disclosure disclosure. So we want to get a little 0:00:33.520 --> 0:00:36.680 bit more into this with David Viacos. He is Bloomberg 0:00:36.760 --> 0:00:39.440 Legal reporter. Can you just explain to me, David, what's 0:00:39.479 --> 0:00:41.159 going on here? What this probe is. 0:00:42.280 --> 0:00:46.879 The Security and Exchange Commission has been investigating for several 0:00:46.920 --> 0:00:52.159 months the accuracy of the financial disclosures from b Riley, 0:00:52.200 --> 0:00:56.520 which is a Los Angeles based investment firm, and we 0:00:56.760 --> 0:01:00.600 reported this morning that they're also looking into whether they've 0:01:00.640 --> 0:01:05.000 adequately disclosed the risk in some of the assets, and 0:01:05.040 --> 0:01:09.399 they're looking at possible improper trading by insiders as well. 0:01:10.319 --> 0:01:15.559 The company today announced that it's likely to miss its 0:01:15.680 --> 0:01:21.319 earnings by a good bit and so I think the 0:01:21.480 --> 0:01:27.440 poor earnings announcement, combined with the SEC news, is punishing 0:01:27.480 --> 0:01:28.559 the shriffs. 0:01:28.360 --> 0:01:33.120 Down fifty four percent over the trailing twelve months. That 0:01:33.160 --> 0:01:36.440 really does suggest that the stock market is really concerned 0:01:36.480 --> 0:01:39.280 about this thing. Is there a solution here? Is there 0:01:39.319 --> 0:01:42.520 a restructuring out there? Is there just is there something 0:01:42.520 --> 0:01:45.240 out there that can save this company and shareholders and 0:01:45.360 --> 0:01:45.959 bond holders? 0:01:45.959 --> 0:01:48.960 I guess, well that's the question. I mean, Bryan Riley, 0:01:49.040 --> 0:01:52.920 the founder and CEO, said today that they're refocusing their 0:01:52.960 --> 0:01:56.559 business on their core operations, and I guess we'll see 0:01:57.720 --> 0:02:01.160 how investors react. Their problem is they have a lot 0:02:01.200 --> 0:02:04.680 of problematic debt that they're going to have to work 0:02:04.720 --> 0:02:11.280 through now. And they also, uh, it's unknown just the 0:02:11.320 --> 0:02:16.240 precise nature of their relationship with a guy named Brian Khan, 0:02:16.480 --> 0:02:22.440 who be Riley helped take his company, Franchise Group public 0:02:22.800 --> 0:02:26.040 and then help him take it private, and so there's 0:02:26.040 --> 0:02:29.440 a lot of interlocking relationships between the two of them, 0:02:30.200 --> 0:02:33.640 and there's a criminal investigation that's caught up Brian Khan. 0:02:34.760 --> 0:02:39.200 So why would anyone own the stock right now? I mean, 0:02:39.200 --> 0:02:42.200 what's in it for investors to hold onto the stock? 0:02:43.280 --> 0:02:45.840 Like how soon will this legal worries be resolved or not? 0:02:46.080 --> 0:02:47.320 Like how drawn out? Could this be? 0:02:48.880 --> 0:02:48.960 It? 0:02:49.880 --> 0:02:53.160 The company is contracting pretty rapidly. If you look at 0:02:53.200 --> 0:02:57.360 its market share, it's down considerably. So this could go quickly. 0:02:58.520 --> 0:03:01.240 And I guess it's a matter of whether investors still 0:03:01.280 --> 0:03:03.320 have faith in this company to right itself. 0:03:03.880 --> 0:03:05.600 You know, I'm just looking at you know, when you 0:03:05.600 --> 0:03:09.160 think about these investors, banks, these brokers, firms, it's in 0:03:09.200 --> 0:03:11.120 the marketplace, it's all about trust. We saw that with 0:03:11.200 --> 0:03:14.440 Lehman Brothers, bear Stearns, much bigger firms. But if you 0:03:14.560 --> 0:03:18.760 lose that counterparty trust, you're done. Everybody just walks away 0:03:18.760 --> 0:03:21.680 from you. Is that kind of It feels like we're 0:03:21.720 --> 0:03:22.920 kind of at that point right now. 0:03:23.200 --> 0:03:26.880 It does feel like we're at an inflection point, you know, 0:03:26.919 --> 0:03:32.840 whether investors will continue to trust and so I guess 0:03:32.840 --> 0:03:36.120 we'll have to see how the investigations play out as well. 0:03:36.760 --> 0:03:39.120 All Right, David, thank you very much for that reporting. 0:03:39.240 --> 0:03:41.640 It looks like a brutal day for b Riley and 0:03:41.640 --> 0:03:45.480 A shareholders down fifty percent. Here David Orriaco's Bloomberg legal reporter, 0:03:45.560 --> 0:03:47.840 talking to us about b Riley. R I l Y 0:03:48.840 --> 0:03:50.240 is the ticker. 0:03:51.560 --> 0:03:55.440 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:03:55.560 --> 0:03:58.640 weekdays at ten am Eastern on applecar Play and and 0:03:58.840 --> 0:04:01.520 right OUTO with the bloom Business at You can also 0:04:01.600 --> 0:04:04.760 listen live on Amazon Alexa from our flagship New York 0:04:04.840 --> 0:04:08.119 station Just Say Alexa playing Bloomberg eleven. 0:04:07.920 --> 0:04:12.320 Thirty, Malex Steel Paul SWEENI will be back momentarily. This 0:04:12.360 --> 0:04:14.880 is the Bloomberg Intelligence Radio. We bring you all the 0:04:14.920 --> 0:04:17.640 top news in business and finance and economics. There are 0:04:17.720 --> 0:04:20.239 lens of our Bloomberg Intelligence folks. They cover two thousand 0:04:20.320 --> 0:04:23.560 companies and one hundred and thirty industries worldwide. We also 0:04:23.640 --> 0:04:26.080 take you outside the Bloomberg Intelligence universe to get the 0:04:26.120 --> 0:04:28.240 read on what people are doing with their money, and 0:04:28.240 --> 0:04:30.520 for that we go to Christina Hooper, a chief Global 0:04:30.520 --> 0:04:33.600 market strategist at Invesco. She joins us. Now, Christina, you're 0:04:33.640 --> 0:04:36.800 one of the best about putting situations in the market 0:04:36.960 --> 0:04:41.200 into context, into perspective. So just let's start broad. How 0:04:41.200 --> 0:04:44.120 would you categorize the last couple weeks within the within 0:04:44.120 --> 0:04:45.840 the market. 0:04:46.320 --> 0:04:48.880 So Alex, I would characterize it this way. We have 0:04:49.120 --> 0:04:53.440 seen valuations get stretched. Let's face it, We've seen a 0:04:53.560 --> 0:04:57.839 very very strong rally over multiple multiple months without much 0:04:57.839 --> 0:05:00.800 of a pullback, So it makes sense that when stocks 0:05:00.800 --> 0:05:06.360 are closer to being priced for perfection, jitters enter the 0:05:06.400 --> 0:05:13.120 market environment, especially when we see some cracks appearing in 0:05:13.160 --> 0:05:16.560 the economy at the same time that the FED is 0:05:16.720 --> 0:05:20.240 holding rates at very high levels. What I would argue 0:05:20.640 --> 0:05:26.000 is very restrictive given the level of disinflationary progress we've 0:05:26.000 --> 0:05:28.760 seen thus far. So I think of it as something 0:05:28.800 --> 0:05:33.359 of a small but almost perfect storm that caused a 0:05:33.480 --> 0:05:37.479 sell off. Certainly that was the case in the United States, 0:05:37.520 --> 0:05:41.720 of course, greatly exacerbated and initially triggered by what happened 0:05:41.720 --> 0:05:45.200 in Japan with the carry trade. The banker Japan gave 0:05:45.240 --> 0:05:51.320 a somewhat surprising rate hike, and that triggered an unwind. 0:05:51.560 --> 0:05:56.080 And so we had several different events that came together 0:05:56.440 --> 0:05:59.760 to cause the sell off. But just as quickly as 0:05:59.800 --> 0:06:04.400 at occurred, we saw a retracing of much of it 0:06:04.480 --> 0:06:09.040 because those proximate causes dissipated. And by that I mean 0:06:09.120 --> 0:06:11.839 we heard from the Bank of Japan that in fact, 0:06:11.839 --> 0:06:13.599 they're going to be a lot more cautious with any 0:06:13.640 --> 0:06:17.600 more rate hikes if there is market turmoil or instability. 0:06:18.000 --> 0:06:22.280 And number two, we got a data point in labor. 0:06:22.320 --> 0:06:25.239 The initial jobless claims that was better than expected because 0:06:25.279 --> 0:06:27.919 in the US, the trigger, of course for concerns about 0:06:27.960 --> 0:06:33.040 a heightened probability of recession came from the July jobs report, 0:06:33.600 --> 0:06:37.360 and that increased in unemployment. So we've seen something of 0:06:37.800 --> 0:06:41.440 a recovery. I think we're going to continue to see 0:06:41.600 --> 0:06:45.320 investors walking on eggshells in the near term because there's 0:06:45.320 --> 0:06:47.640 still a lot of uncertainty out there. But I think 0:06:47.680 --> 0:06:49.880 it definitely was an over sold situation. 0:06:50.520 --> 0:06:53.320 So then how does that set us up into CPI 0:06:53.400 --> 0:06:56.680 this week? Although I might say initial jobless claims before CPI, 0:06:56.800 --> 0:07:00.000 for example, more important, and then Jackson Hole, if position 0:07:00.320 --> 0:07:02.200 is kind of cleaned out a little bit, if we've 0:07:02.240 --> 0:07:07.080 kind of delevered enough, if technically we've already sort of stabilized, 0:07:07.120 --> 0:07:08.200 how does that set us up? 0:07:10.200 --> 0:07:14.000 So I think we certainly will have jitters around, not 0:07:14.120 --> 0:07:17.320 just initial jobless claims, but clearly CPI, But we have 0:07:17.360 --> 0:07:19.040 to take it with a grain of salt, right because 0:07:19.080 --> 0:07:23.920 we are seeing other signs of disinflation. In fact, I 0:07:23.920 --> 0:07:26.280 thought the most important data point from the July jobs 0:07:26.280 --> 0:07:29.360 report was wage growth, which has fallen to three point 0:07:29.400 --> 0:07:33.040 six percent year over year. But certainly we'll have markets 0:07:33.360 --> 0:07:38.040 hypersensitive to the data this week, especially CPI, and then 0:07:38.080 --> 0:07:42.200 of course we'll have a lot of sensitivity around Jackson Hole. 0:07:42.640 --> 0:07:45.640 Now I look to history and say that typically that 0:07:45.840 --> 0:07:51.920 is used as an opportunity for central bankers to signal 0:07:52.000 --> 0:07:55.400 shifts in monetary policy, and I would expect that to 0:07:55.520 --> 0:07:58.400 happen at Jackson Hole, not in every speech, but I 0:07:58.400 --> 0:08:02.040 think we should get some sense that the Fed will 0:08:02.120 --> 0:08:04.280 cut in September. Now, I don't think we're going to 0:08:04.280 --> 0:08:06.760 get an emergency cut before then. I don't think we're 0:08:06.760 --> 0:08:09.760 going to get bigger than fifty basis points because the 0:08:09.800 --> 0:08:12.440 Fed seems to be very confident in their approach. And 0:08:12.520 --> 0:08:15.360 keep in mind, they did a similar thing back in 0:08:15.400 --> 0:08:19.120 twenty twenty two. Many thought they were behind I think 0:08:19.240 --> 0:08:21.160 they thought they might be behind it, but they still 0:08:21.160 --> 0:08:24.200 only started with twenty five basis points, and I think 0:08:24.200 --> 0:08:25.640 we'll see the same in September. 0:08:25.840 --> 0:08:29.000 So to that point, how does the FED signal cuts 0:08:29.080 --> 0:08:31.600 when the market's already pricing in one hundred basis points 0:08:31.640 --> 0:08:33.960 of cuts? So it's like if they go too far 0:08:33.960 --> 0:08:35.040 and then all of a sudden, we're going to be 0:08:35.040 --> 0:08:37.480 looking at what fifty again are being priced in. 0:08:38.960 --> 0:08:42.560 Well, I think it's a reiteration that we're going to 0:08:42.559 --> 0:08:47.040 be gradual, that we are going to start cutting, but 0:08:47.240 --> 0:08:50.400 don't expect it to be at the level you think 0:08:50.440 --> 0:08:54.119 it is, because we're very comfortable with where the economy 0:08:54.280 --> 0:08:57.920 is right now, although monetary policy is too restrictive, so 0:08:57.960 --> 0:09:01.520 I think that's going to be the approach. So certainly 0:09:01.600 --> 0:09:07.000 not not hawkish, but not the dubvishness that markets are 0:09:07.040 --> 0:09:08.439 pricing in at this point. 0:09:08.760 --> 0:09:11.120 Do you feel, then, from that perspective that the carry 0:09:11.640 --> 0:09:14.600 trade unwine blow up thing that we saw is that over? 0:09:14.679 --> 0:09:16.559 Because the funny thing is if the FED cuts more 0:09:16.600 --> 0:09:19.360 than we think, that's actually worse for the carry trade 0:09:19.360 --> 0:09:22.440 blow up. Do we think that that part of the 0:09:22.480 --> 0:09:23.760 market turmoil is done? 0:09:25.640 --> 0:09:29.160 I think it's largely done. I would say it's entirely 0:09:29.880 --> 0:09:33.200 but I do take comfort in the reassurances from the 0:09:33.240 --> 0:09:35.920 Bank of Japan and frankly, I don't think they need 0:09:36.200 --> 0:09:40.160 to hike again for some time. But yeah, certainly there 0:09:40.200 --> 0:09:43.000 could be wrenches thrown into it if the FED, for example, 0:09:43.080 --> 0:09:45.200 is more dubbish. I just don't see that on the 0:09:45.320 --> 0:09:46.520 very near term horizon. 0:09:46.920 --> 0:09:48.600 All right, fair enough, what do you think we are 0:09:48.640 --> 0:09:50.680 going to see for CPI? On Wednesday. 0:09:52.640 --> 0:09:55.920 I think we'll probably see it somewhat in line with expectations. 0:09:55.960 --> 0:09:58.280 But I always take a step back and say, Okay, 0:09:58.520 --> 0:10:01.440 let's say that the month over month number is higher 0:10:02.040 --> 0:10:04.240 than we'd want to see. At the end of the day, 0:10:04.440 --> 0:10:07.040 the FED is looking at a mosaic of data, and 0:10:07.320 --> 0:10:09.760 more important to the FED, of course, is forre PCEE. 0:10:10.400 --> 0:10:14.040 And also I think we often overlook that an important 0:10:14.040 --> 0:10:17.760 part of the Fed's calculus is consumer inflation expectations. We'll 0:10:17.760 --> 0:10:21.040 get the Michigan numbers on Friday, and I think that 0:10:21.120 --> 0:10:23.400 plays a role. Keep in mind that back in June 0:10:23.440 --> 0:10:25.800 of twenty twenty two, when the FED decided to hike 0:10:25.880 --> 0:10:29.520 rate seventy five basis points rather than fifty, they gave 0:10:29.600 --> 0:10:32.120 as their argument in the press conference a couple of 0:10:32.120 --> 0:10:34.800 different data points that they had received, not just CPI 0:10:35.200 --> 0:10:38.679 but inflation expectations. So I think that's an important part of. 0:10:38.600 --> 0:10:41.360 The Calculus's such a good point. And it's also like 0:10:41.360 --> 0:10:44.719 the trend, you know, the directionality to be important there too. 0:10:44.800 --> 0:10:46.720 So when my husband texts me and says, oh my gosh, 0:10:46.760 --> 0:10:48.360 look at this market, what are we doing here? We 0:10:48.440 --> 0:10:50.400 have to do something. What do I tell him like, 0:10:50.440 --> 0:10:52.400 calm down, stay in your positions, or are we going 0:10:52.440 --> 0:10:53.240 to buy the dip? Here? 0:10:53.360 --> 0:10:53.440 Like? 0:10:53.480 --> 0:10:55.160 How do you deal with it as a market participant? 0:10:56.640 --> 0:10:59.000 Well, I look at it this way. If we had 0:10:59.080 --> 0:11:02.079 been sparn enough to turn off our. 0:11:01.960 --> 0:11:07.199 Bloomberg terminals, this is so true, and turned on the 0:11:07.240 --> 0:11:10.240 TV and just watched the Olympics since the start, and 0:11:10.280 --> 0:11:14.480 then turned back everything on today, it wouldn't seem like 0:11:14.559 --> 0:11:17.839 anything dramatic, very dramatic had happened while we were enjoying 0:11:17.840 --> 0:11:19.880 the Olympics, including the break dancing section. 0:11:20.440 --> 0:11:26.439 And yet that is not what we as humans tend 0:11:26.480 --> 0:11:29.480 to do. We fixate on every move and every data point. 0:11:29.679 --> 0:11:32.080 So I think to a certain extent, putting blinders on 0:11:32.440 --> 0:11:36.880 and thinking about the long term trajectory of where inflation 0:11:37.000 --> 0:11:39.400 is going, where the FED is going, can be helpful. 0:11:39.840 --> 0:11:42.040 I think we get so caught up in the short 0:11:42.160 --> 0:11:46.719 term data and market moves when we often as investors, 0:11:46.960 --> 0:11:49.280 we typically have much longer time horizons. 0:11:49.679 --> 0:11:51.319 It's true, it's such a good point. I knew that 0:11:51.480 --> 0:11:54.880 double tasking here well on my terminal with my little 0:11:54.920 --> 0:11:56.760 TV up on the screen was the right call. Thank 0:11:56.800 --> 0:11:59.560 you for validating me, Christina. So does that mean that 0:11:59.800 --> 0:12:02.880 it's it's still going to be sort of growth or quality. 0:12:02.920 --> 0:12:06.680 Maybe you go out with quality quality over cyclicals or something. 0:12:07.040 --> 0:12:08.760 Is that a good way to also think about it. 0:12:10.080 --> 0:12:11.640 Well, probably in the near term it's going to be 0:12:11.760 --> 0:12:14.720 quality because there is a nervousness. There still is some 0:12:14.960 --> 0:12:18.240 risk off sentiment, even though I think certainly conditions became 0:12:18.280 --> 0:12:22.400 over sold. Having said all that, if the FED begins 0:12:22.400 --> 0:12:26.760 to cut and we start to see an improvement in 0:12:26.840 --> 0:12:30.320 economic data, then I think there's this assumption on the 0:12:30.360 --> 0:12:33.520 part of markets that there will be a reacceleration. That's 0:12:33.559 --> 0:12:37.599 my base case, and we'll see. In my opinion, markets 0:12:37.800 --> 0:12:41.319 anticipate that in advance, discount that in advance, which we 0:12:41.360 --> 0:12:46.160 would mean small caps and cyclicals are likely to outperform. 0:12:46.320 --> 0:12:48.800 All right, Christina, did you like break dancing? Like? How 0:12:48.800 --> 0:12:50.520 do we feel about that? In the Olympics so no 0:12:50.559 --> 0:12:52.240 one else will talk about this with me in radio? 0:12:52.320 --> 0:12:53.240 How did you feel about it? 0:12:54.520 --> 0:12:56.840 Well, I was very curious about it. I have to 0:12:56.920 --> 0:12:59.559 say that's something that I think of fondly as a 0:13:00.040 --> 0:13:04.040 out of the eighties. But I'm not sure I've seen 0:13:04.080 --> 0:13:06.040 breakdance moves like the ones I saw at the Olympics, 0:13:06.040 --> 0:13:07.800 so I didn't know if there were different rules in place. 0:13:08.000 --> 0:13:10.360 This is fair enough. John Tucker has something he wants 0:13:10.320 --> 0:13:14.600 to say, sport. No, it's not a whatever. Skate Do 0:13:14.600 --> 0:13:16.240 you think skateboarding is a sport? 0:13:16.760 --> 0:13:17.000 Yes? 0:13:17.280 --> 0:13:21.360 Okay, So what's the difference because they're on a board? Okay, 0:13:21.480 --> 0:13:24.000 I don't know. I don't know about that. I loved it. 0:13:24.080 --> 0:13:26.720 I'm so sad it's over all getting into a curmudgeon. 0:13:26.880 --> 0:13:29.720 By the way, I'm not turning you into anything. I'm 0:13:29.720 --> 0:13:32.480 just setting you up with certain questions. All right, Christina, 0:13:32.480 --> 0:13:36.160 thanks a lot. We appreciated Christina Hooper, chief Global market 0:13:36.200 --> 0:13:39.480 strategist at Invesco, to be totally fair to John Tucker. 0:13:39.640 --> 0:13:42.040 I'm not entirely clear on the break dancing thing either, 0:13:42.760 --> 0:13:45.440 but I support winners and that's all fine. 0:13:45.800 --> 0:13:49.679 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:13:49.760 --> 0:13:52.400 weekdays at ten am Eastern on Apple car Playing and 0:13:52.559 --> 0:13:55.480 broyd Otto with the Bloomberg Business app. Listen on demand 0:13:55.520 --> 0:14:00.160 wherever you get your podcasts, or watch us live on YouTube. 0:14:00.960 --> 0:14:03.240 The headline in a good way is Gocha Bank buying 0:14:03.280 --> 0:14:05.760 about fourteen point nine percent of Key Corp for about 0:14:05.760 --> 0:14:09.560 two point eight billion dollars. Now, remember Key Corp was 0:14:09.559 --> 0:14:12.079 one of the regional banks that was hit pretty hard 0:14:12.360 --> 0:14:15.559 in the tumult of twenty twenty three. So naturally, who 0:14:15.559 --> 0:14:18.120 do we go to? Herman Chan Bloomberg Intelligence senior analyst 0:14:18.200 --> 0:14:20.760 for US regional banks. Usually we call on him when 0:14:20.800 --> 0:14:22.840 things are going poorly. But this feels to be a 0:14:22.840 --> 0:14:25.240 good thing for Key Corp. Can you walk us through. 0:14:26.040 --> 0:14:29.040 Let's walk us through what Key Corp actually was before 0:14:29.280 --> 0:14:30.800 a Scochia bank decided to get in here. 0:14:30.920 --> 0:14:34.520 Sure, so Key Corp regional bank based in Ohio Cleveland, 0:14:35.640 --> 0:14:41.000 strong presence in commercial ending and has a really robust 0:14:41.240 --> 0:14:44.360 investment bank and capital markets capability for its size. On 0:14:44.440 --> 0:14:48.640 the flip side, the bank was really has been really 0:14:48.680 --> 0:14:52.360 pressured by the higher interest re environment. It got caught 0:14:52.360 --> 0:14:55.440 off sides a little bit by both its hedging strategy 0:14:55.480 --> 0:14:58.520 and its investments in lowly yielding securities when interest rates 0:14:58.520 --> 0:15:02.320 were near zero. So it's it's margin and profitability has 0:15:02.400 --> 0:15:04.640 lagged the peer group over the past couple of years. 0:15:05.600 --> 0:15:09.960 That being said, things were improving and didn't require any 0:15:10.000 --> 0:15:14.760 additional capital infusion. There was on a path to self help. 0:15:16.000 --> 0:15:19.160 Margin had already reached the bottom. But now the with 0:15:19.360 --> 0:15:22.480 the two point eight billion capital infusion from Scotia Bank, 0:15:22.520 --> 0:15:27.000 they can accelerate that earnings profitability improvement story. 0:15:27.520 --> 0:15:30.160 How long does it take to get something like this done? Like, 0:15:30.200 --> 0:15:31.520 has this been in the works for a while or what? 0:15:31.800 --> 0:15:36.320 Yeah, it seems like based on both the calls that 0:15:36.320 --> 0:15:39.880 that Key Corp. And Scotia Bank conducted earlier this morning, 0:15:40.680 --> 0:15:46.800 the CEOs had ongoing conversations about a potential investment. From 0:15:46.880 --> 0:15:49.840 what I understand, Scotia Bank wanted to expand in the 0:15:49.960 --> 0:15:54.080 US and had done a lot of due diligence in 0:15:54.240 --> 0:15:57.560 looking at opportunities, and Key Porp was their top choice. 0:15:58.320 --> 0:16:04.120 So it adds a great earning stream and exposure to 0:16:04.560 --> 0:16:07.280 the US for Scotia Bank and for Key Corp. It 0:16:07.440 --> 0:16:11.440 really improves its capital and liquidity and really puts them 0:16:11.440 --> 0:16:13.760 on offense rather than playing defense for the past couple 0:16:13.800 --> 0:16:14.160 of years. 0:16:14.240 --> 0:16:17.040 How are the banks like Key Corp doing as interest 0:16:17.120 --> 0:16:19.600 rates may fall somewhat soon. 0:16:19.840 --> 0:16:23.560 Yeah, I guess I would contrast it with the tumult 0:16:23.680 --> 0:16:28.520 of March and April of last year. The banks had 0:16:28.640 --> 0:16:33.640 largely been very defensive pretty much up to the end 0:16:33.720 --> 0:16:39.000 of last year. Reducing its lending capacity, trying to improve 0:16:39.040 --> 0:16:43.960 its capital and liquidity ahead of both fears about deposits 0:16:44.040 --> 0:16:48.560 leaving and also higher regulatory burden. Right now, it seems 0:16:48.600 --> 0:16:51.640 like they're in a much stronger position. Capital has been 0:16:52.120 --> 0:16:55.280 built up, they're back to lending. The only issue is 0:16:55.320 --> 0:16:58.160 there's not a lot of demand, and the banks are 0:16:58.200 --> 0:17:02.640 positioned for potentially or interest rates that can improve some 0:17:02.760 --> 0:17:05.840 lending going forward. They've had a lot of the potential 0:17:05.920 --> 0:17:09.040 rate decline, so they're in a fairly good position to 0:17:09.440 --> 0:17:11.800 really prosecute the opportunity. 0:17:12.480 --> 0:17:17.640 What about deposits? Has deposit flight stopped, particularly if rates 0:17:17.680 --> 0:17:19.720 wind up coming down. I'm just waiting for my market's 0:17:19.760 --> 0:17:21.960 account all of a sudden started to tick lower and 0:17:22.119 --> 0:17:23.960 yield where are we here with that? 0:17:24.359 --> 0:17:28.360 My high savings account is already ticked down in anticipation 0:17:28.480 --> 0:17:31.520 for Rencooks, so American Express, I'm not a big fan 0:17:31.600 --> 0:17:36.040 of that. I would say that the posits have really stabilized. 0:17:36.440 --> 0:17:39.879 There's no real rush to build the posits now because 0:17:39.920 --> 0:17:42.600 as I said before, there's not a lot of demand 0:17:42.680 --> 0:17:45.160 for the lending side, so you don't need a lot 0:17:45.160 --> 0:17:48.200 of deposits to really fuel that that you know, the 0:17:49.200 --> 0:17:53.359 muted demand appetite out there for loans. That being said, 0:17:53.760 --> 0:17:56.919 the positle cards aren't rising either, and they're pretty stable 0:17:56.960 --> 0:18:01.080 because the Feds stabilized there the Fed funds rate for 0:18:01.520 --> 0:18:05.680 a bit now, and we'd expect, you know, some stable 0:18:05.800 --> 0:18:09.000 margin depending on the bank, some could be upcome, some 0:18:09.040 --> 0:18:11.240 could be down over the next year just based on 0:18:11.280 --> 0:18:12.080 their balance sheets. 0:18:12.440 --> 0:18:16.560 Are there other potential targets for investments from other banks 0:18:16.600 --> 0:18:17.640 in this kind of scenario. 0:18:17.880 --> 0:18:22.639 Yeah, from what I understand that there's a unique way 0:18:22.680 --> 0:18:28.320 of accounting for the Canadians where some small portion of 0:18:29.640 --> 0:18:36.679 investments in financial institutions has a as a positive capital calculation, 0:18:36.840 --> 0:18:40.360 So it might be more focused on the Canadians in general. 0:18:40.800 --> 0:18:43.880 But that being said that we have seen some pickup 0:18:44.119 --> 0:18:46.520 in traditional M and A activity in the United States. 0:18:48.040 --> 0:18:50.880 Discover Capital one is the biggest one that we're still 0:18:50.880 --> 0:18:54.560 waiting for regulatory regulatory approval, and then there's some smaller 0:18:54.600 --> 0:18:57.639 banks that have done some deals as well. So it 0:18:57.800 --> 0:19:01.480 seems like that the the activity is going to rebound 0:19:01.480 --> 0:19:03.320 even more once we get rate cuts. 0:19:03.600 --> 0:19:05.720 All right, really good stuff, Thank you so much. Herman 0:19:05.800 --> 0:19:08.399 chan He is so happy when he comes in and 0:19:08.440 --> 0:19:11.399 doesn't have to talk about banks blowing up, so exactly. 0:19:11.200 --> 0:19:13.639 I'm no longer the grim Reapers. 0:19:14.480 --> 0:19:16.399 It was like Sam Fizzelli for a while with COVID, 0:19:16.440 --> 0:19:17.879 and it was Herman Chan with the bank blow up, 0:19:17.880 --> 0:19:19.399 and now you know, we're in a different places. Herman 0:19:19.480 --> 0:19:22.639 Chan Bloomberg Intelligence, senior analysts for US regional banks. We 0:19:22.760 --> 0:19:24.439 very much appreciate that. 0:19:26.000 --> 0:19:29.880 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:19:29.960 --> 0:19:33.520 weekdays at ten am Eastern on applecar Play and Android 0:19:33.520 --> 0:19:36.280 Auto with the Bloomberg Business App. You can also listen 0:19:36.400 --> 0:19:39.520 live on Amazon Alexa from our flagship New York station 0:19:39.880 --> 0:19:42.560 Just Say Alexa, Play Bloomberg eleven. 0:19:42.359 --> 0:19:46.120 Thirty, Alex Stee, Paul Swinny live here in our Bloomberg 0:19:46.119 --> 0:19:50.959 Interactive Broker's studio. Also streaming video on YouTube ahead over 0:19:51.000 --> 0:19:53.960 YouTube dot com and search Bloomberg Podcast. That's where you 0:19:53.960 --> 0:19:56.080 will find us. Boy, if you think back a week ago, 0:19:56.359 --> 0:20:00.000 right now, the market was panicking. It felt like, I mean, people, 0:20:00.040 --> 0:20:02.480 we're selling everything across the board, and it is a 0:20:02.520 --> 0:20:05.000 real confluence of events there that really spooked the market. 0:20:05.440 --> 0:20:07.959 The market stabilized kind of midday and into the afternoon 0:20:08.000 --> 0:20:10.399 on Monday, and then kind of clawed back some of 0:20:10.400 --> 0:20:13.760 that selling later in the week, which brings us today 0:20:13.880 --> 0:20:15.600 kind of a mixed market, red and green on the 0:20:15.600 --> 0:20:17.080 screen here. But let's see where we go from here, 0:20:17.240 --> 0:20:22.200 and we do that with a professional. Sarah Ponzik, Financial Advisor, UBS, 0:20:22.200 --> 0:20:26.919 Private Wealth Management, full disclosure. That's where the Sweeney pile 0:20:26.920 --> 0:20:29.600 of cash is at UBS. So they have a whole 0:20:29.640 --> 0:20:32.479 wing just taking care of me. That's nice. Yes, I've 0:20:32.520 --> 0:20:37.800 heard that Tonio c He does it just because he 0:20:38.560 --> 0:20:41.639 likes me. All right, Sarah, what were you What kind 0:20:41.640 --> 0:20:44.400 of conversations were you having with your clients last week? 0:20:44.440 --> 0:20:46.560 It must have been Monday. Must have been a little dicey, 0:20:46.800 --> 0:20:47.439 it was. 0:20:47.560 --> 0:20:50.040 And what a difference just a couple of days makes 0:20:50.640 --> 0:20:53.439 On Monday, if you woke up and you looked at 0:20:53.440 --> 0:20:56.240 the headlines, then you saw what had happened overseas, and 0:20:56.280 --> 0:20:58.240 then you looked at futures markets, and then the market 0:20:58.320 --> 0:21:00.480 opened at nine thirty am and it was just a 0:21:00.520 --> 0:21:01.119 sea of red. 0:21:01.359 --> 0:21:03.520 It felt like the world was falling apart. And I did. 0:21:03.560 --> 0:21:07.520 I mean I had incoming calls all day long from 0:21:07.560 --> 0:21:09.840 clients asking what is going on? 0:21:10.119 --> 0:21:11.440 Do we need to be concerned? 0:21:11.640 --> 0:21:14.520 Should we be selling our stock portfolio, and the answer 0:21:14.800 --> 0:21:17.720 was emphatically no, because as we saw by the end 0:21:17.760 --> 0:21:20.600 of the week, what a difference a couple of days makes. 0:21:20.640 --> 0:21:24.280 And if we think back to why why did Monday happen? 0:21:24.359 --> 0:21:27.159 Last week, there was a confluence of events. Yes, we 0:21:27.200 --> 0:21:30.600 saw the yen carry trade unwinding. It was, you know, 0:21:31.160 --> 0:21:36.920 just more concerns about recession posts that jobs report, and 0:21:37.240 --> 0:21:40.760 just also consider the fact that we had seen almost 0:21:40.800 --> 0:21:44.200 no volatility this year. We were due for some volatility, 0:21:45.160 --> 0:21:47.000 and then it just took a couple of days an 0:21:47.040 --> 0:21:49.120 initial job as claim suport, which showed maybe the labor 0:21:49.160 --> 0:21:53.000 market isn't as dire as the prior Friday had really suggested, 0:21:53.280 --> 0:21:55.800 which usually doesn't move markets, but it did. And then 0:21:55.920 --> 0:21:57.800 by the end of the week, if you had fallen 0:21:57.800 --> 0:22:00.000 asleep the entire week, you would have never known Monday happened. 0:22:00.160 --> 0:22:02.040 The S and P five hundred was unchanged by the end. 0:22:02.240 --> 0:22:05.119 I so wish that I had done that. I sleeping 0:22:05.119 --> 0:22:07.520 as my superpower. I could definitely have done that for 0:22:07.600 --> 0:22:10.520 like a whole week. So, Sarah, I guess the question 0:22:10.560 --> 0:22:12.560 then is, so if someone says, oh my gosh, I'm panicking, 0:22:12.560 --> 0:22:14.320 do I change what I do. You're like, no, just 0:22:14.359 --> 0:22:17.000