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Speaker 1: This is Bloomberg Daybreak Europe for this Thursday, the sixteenth

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Speaker 1: of March in London. Coming up today. Unwarranted panic. Saudi

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Speaker 1: National Bank chairman tries to calm markets after telling Bloomberg

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Speaker 1: yesterday he wouldn't raise his stake in Credit Suiz. Reaching

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Speaker 1: for a lifeline the trouble Swiss lander taps up to

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Speaker 1: fifty four billion dollars of central bank funding. No such

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Speaker 1: thing as a sure thing. Traders split on a half

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Speaker 1: point hike at today's ECB meeting. Plus as money managers

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Speaker 1: kept their eyes blue to the terminal, the Chancellor's attention

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Speaker 1: was elsewhere will bring you details of Jeremy Hunt's first budget.

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Speaker 1: That's all straight ahead on Bloomberg Daybreak Europe. The business

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Speaker 1: news you need to start your day in just one

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Speaker 1: fifteen minute podcast on Apple, Spotify, the Bloomberg Business App

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Speaker 1: and everywhere you get your podcasts. Good morning, I'm Stephen

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Speaker 1: Carroll and I'm Charlie Wells. Here are the stories we're

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Speaker 1: following today. Well Credit Sue's top shareholder says the market

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Speaker 1: panic around the troubled lender is quote unwarranted. The Saudi

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Speaker 1: National Bank chairman Amal all Koudry told CNBC regulators are

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Speaker 1: ready to plug holes when they appear, but it was

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Speaker 1: his comments yesterday to Bloomberg that sparked the turmoil. Use

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Speaker 1: of Kamal el Din asked him if they would be

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Speaker 1: injecting any more cash into the lender. The answer is

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Speaker 1: absolutely not, for many reasons outside the simplest reason, which

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Speaker 1: is regulatory and statutory. We now own nine point eight

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Speaker 1: percent of the bank. If we go aboff ten percent,

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Speaker 1: all kinds of new rules kick in, whether it be

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Speaker 1: by our regulator or the European regulator, or this was

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Speaker 1: the regulator, and we're not inclined to get into a

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Speaker 1: new regulatory regime. That's Saudi National Bank Chairman Amarl Cowdrey

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Speaker 1: speaking to Bloomberg. Shares slump by as much as thirty

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Speaker 1: one percent in Zurich trading, while credit SUIICEAS bonds fell

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Speaker 1: to levels that warn of deep financial distress, and we've

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Speaker 1: seen somewhat reversal in not trend this morning since there's

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Speaker 1: been that funding deal around credit suits, the bank tapping

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Speaker 1: Switzerland Central Bank for as much as fifty billion francs

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Speaker 1: from a liquidity facility as it tries to stem that

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Speaker 1: crisis of confidence. That sends shockwaves across global financial markets.

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Speaker 1: The troubad lender is also making a tender offer to

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Speaker 1: buy back up to three billion francs of dollar and

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Speaker 1: eurodenominated debt. Now. This announcement following a frantic trading session

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Speaker 1: that had alarmed regulators and prompted some firms to reassess

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Speaker 1: their exposure to Credit Suis. Despite all the thoughts, Saxo

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Speaker 1: Banks CEO Kim Fourney says, the situation isn't like two

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Speaker 1: thousand and eight. I don't think it's a Leman moment

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Speaker 1: by the way. I think that this is really bad,

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Speaker 1: and of course it can get out of control, but

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Speaker 1: I don't think that that sames for paying so anyone

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Speaker 1: else can just sit and watch this. So that was

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Speaker 1: Saxo Banks CEO Kim Fourney speaking to Bloomberg a little earlier.

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Speaker 1: The Swiss market index has open trading. It's up by

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Speaker 1: eight tenths of one percent. Still no trading yet though

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Speaker 1: in Credit Suis shares and the European Central Banks, plans

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Speaker 1: may be appended by the market turmoil. Bloomberg Economics says

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Speaker 1: Christine Legard will probably engineer a twenty five basis point

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Speaker 1: hike today, foregoing earlier guidance of a half point move.

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Speaker 1: This comes as a governing council grapples with the Credit

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Speaker 1: Suite fallout. Bloomberg's Maria Today O has the details. Now,

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Speaker 1: the European Central Bank is expected to unveil its latest

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Speaker 1: monetary policy decision against a backdrop of market volatility following

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Speaker 1: the collapse of the Silicon Valley Bank and amplified by

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Speaker 1: fears around the future of Credit suiz. Now, the question

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Speaker 1: going into this meeting, and this is really the core

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Speaker 1: of the issue, is will the European Central Bank stick

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Speaker 1: to its very well guided, very well calibrated fifty basis

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Speaker 1: points hike that was expected today or actually go for

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Speaker 1: a softer hike if twenty five basis points. Given the

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Speaker 1: volatility in the European banking sector in Frankfurt, Maria TODAYO

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Speaker 1: Bloomberg Dayberg Europe well bond traders have been scrambling to

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Speaker 1: change how their pricing right paths around the world was

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Speaker 1: huge volatility in yields yesterday, both in the US and

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Speaker 1: in Europe. Today we are seeing a sell off on

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Speaker 1: bonds as yields take up across the European bond space

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Speaker 1: and on treasury yields as well. Bob Michael, JP Morgan

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Speaker 1: Cio thinks the Fed and the ECB need to change

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Speaker 1: their plans. I think with Credit Suite on the table,

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Speaker 1: they will pause. I think they should pause. I think

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Speaker 1: hiking rates, either the ECB hiking rates this week or

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Speaker 1: the FED hiking rates next week, has the potential to

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Speaker 1: be the greatest gaff since the ECB hike rates in

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Speaker 1: June two thousand and eight. JP Morgan Cio, Bob Michael.

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Speaker 1: Their rates are moving so quickly. The trading was briefly

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Speaker 1: halted in a key corner of the US interest rate

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Speaker 1: market yesterday as features contracts soared through circuit breakers. Just

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Speaker 1: to keep you up to date on where Credit Suites

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Speaker 1: shares are moving, they have now opened, rising forty percent,

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Speaker 1: the most on records. Trading, though has already been halted

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Speaker 1: in THO shares, and Bloomberg understands that San Francisco based

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Speaker 1: First Republic Bank is exploring strategic options, including a sale.

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Speaker 1: The London was cut to junk by SMP and Fitch yesterday.

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Speaker 1: People familiar with the matter say no decision has been reached,

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Speaker 1: and the bank could still choose to remain independent. First

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Speaker 1: Republic shares have plummeted since the collapse of Silicon Valley Bank,

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Speaker 1: despite its saying it has more than seventy billion dollars

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Speaker 1: in unused liquidity. Okay, so, of course, another strand of

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Speaker 1: the banking story that we've been following so closely the

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Speaker 1: royals markets over the past week. Charlie, let's bring in

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Speaker 1: our market support Valerie title to take us through exactly

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Speaker 1: how things have been moving. Valerie, let's look at the

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Speaker 1: bond markets. Then a big reversal it seems of at

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Speaker 1: least some of the moves that were made yesterday. Yeah,

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Speaker 1: after yesterday's record rally in German two year year olds

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Speaker 1: renouncing a record sell off. Two year ye olds are

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Speaker 1: twenty four basis points higher this morning after rallying nearly

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Speaker 1: fifty basis points yesterday, and what we have priced in

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Speaker 1: for the ECB meeting in just five hours is now

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Speaker 1: standing around forty basis points. So we are in the

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Speaker 1: middle of is it going to be a twenty five

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Speaker 1: or is it going to be a fifty. European bank

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Speaker 1: stocks are recovering broadly, though the SX seventy the bank's

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Speaker 1: index is up nearly three percent after closing down nine

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Speaker 1: percent yesterday, So it does seem like risk as assets

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Speaker 1: are seeing a bounce this morning. But will it be

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Speaker 1: enough to embolden the ECB to continue on its path

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Speaker 1: and hiked fifty basis points as promised. Let's just remember

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Speaker 1: it was only twenty four hours ago the ECB had

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Speaker 1: leaked a story to the media that they intended to

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Speaker 1: raise rates by fifty basis points at today's meeting. Will

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Speaker 1: they be undeterred or not? Valerie's so much emphasis on

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Speaker 1: Europe this week, I mean, let's look across the Atlantic

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Speaker 1: at the Fed. I mean, will all of this news

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Speaker 1: change the move that the Fed makes next week? Oh?

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Speaker 1: There has been a deafening silence from the Federal Reserve.

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Speaker 1: I am one that is surprised that we have not

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Speaker 1: heard from them in some manner, either in a statement

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Speaker 1: or a leaked to the media on their intentions next week.

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Speaker 1: Thank thankfully we did have PPI yesterday. The components there

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Speaker 1: came in a bit soft, so that does really open

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Speaker 1: the door to a pause or to a twenty five

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Speaker 1: basis point hike. The market is still as confused. They

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Speaker 1: are smack in the middle, pricing sixteen basis points for

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Speaker 1: next week. The FED has a lot to deal with, um,

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Speaker 1: you know, they they've only announced this new lending facility

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Speaker 1: on Sunday night. We do not know yet the current

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Speaker 1: take up that regional banks have been borrowing from this

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Speaker 1: new lending facility. Perhaps we'll hear it in a statement

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Speaker 1: release today. The FED normally releases their balance sheet in

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Speaker 1: a statement called the H four this evening. Will that

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Speaker 1: new lending facility be involved in that? And will the bank?

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Speaker 1: Will the federal reserves balance sheet have expanded in trying

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Speaker 1: to to to really assist regional banks with this deposit

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Speaker 1: flight that they have been seeing since svb's bailout fattery

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Speaker 1: we've seen, you know, in credit terms of credit Suite.

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Speaker 1: So okay, the shares have jumped back up in trading

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Speaker 1: this morning, thirty percent higher when they were halted for

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Speaker 1: trading credit Swice bonds, pairing their losses as well after

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Speaker 1: that cash tender offer. Are we looking at a blip

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Speaker 1: that we're going to be able to move on from

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Speaker 1: when we look at the broader market and the picture

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Speaker 1: for central banks, Is this something that they're going to

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Speaker 1: be able to essentially move on from, or do you

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Speaker 1: think there's still further elements of the story to shake out. Look,

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Speaker 1: I've got my eye on how the broader credit market

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Speaker 1: is opening this morning. Crossover, which is a index of

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Speaker 1: high yield credit bonds, is opening up forty basis points tighter,

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Speaker 1: but it has not undone the move of the last

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Speaker 1: five days. We've seen an incredible widening in bank CDs spreads.

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Speaker 1: More so positioning washout and then ignited over this credit

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Speaker 1: suite tobaccle. We have to remember that being long European

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Speaker 1: banks was a very favorite trade just weeks ago, as

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Speaker 1: many expected European banks to be strong based on the

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Speaker 1: ECB normalizing policy. Wash out of that positioning has really

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Speaker 1: caused bank CDs credit spreads to widen, and that is

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Speaker 1: not something the ECB wants to hike into today. We're

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Speaker 1: seeing a really frally so far this morning, right, Valerie Titel,

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Speaker 1: thank you so much for joining us. That was Valerie Titel,

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Speaker 1: our markets reporter. Well, let's stay with the credit swee story.

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Speaker 1: Peter Han is a meritive emeritus Professor of Banking and

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Speaker 1: Finance at the London Institute of Banking and Finance and

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Speaker 1: former senior advisor to the Bank of England. Where he

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Speaker 1: helped to create the UK's post two thousand and eight

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Speaker 1: financial rules. Peter Han, good morning to you. What's your

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Speaker 1: assessment of how regulators have reacted to the credit suits turmoil.

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Speaker 1: We've seen how the markets are taking it well. They

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Speaker 1: needed to do something, they did it. The choice was

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Speaker 1: either liquidity or frankly, nationalization in some form over another.

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Speaker 1: I think probably the question with credit Swiss is is

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Speaker 1: this the end of the assistance? So at the beginning,

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Speaker 1: I think one of the things that was forgotten as

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Speaker 1: to what happens where the share price of a bank

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Speaker 1: bullets quickly is that there's a class of financing called

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Speaker 1: bail in bonds, which convert to equity at the discretion

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Speaker 1: really of the regulator. That's part of recovery structuring. So

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Speaker 1: when bank stocks fall, the likelihood of those bail in

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Speaker 1: bonds being triggered increases dramatically. When you've got those and

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Speaker 1: they decline in value because of that potential triggering, the

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Speaker 1: only way to hedge them is to short the shares,

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Speaker 1: So it becomes a bit of a spiral the wrong way.

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Speaker 1: So when the share price drops quickly, you actually increase

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Speaker 1: the number of shorts trying to protect them themselves from

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Speaker 1: their bond interests. So I think we saw that in

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Speaker 1: the last few days, right, Professor hand. I mean, look,

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Speaker 1: one of the one of the points here that executives

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Speaker 1: are credit sweets. Have you really been trying to hammer

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Speaker 1: in their statements recently, is that this is a bank

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Speaker 1: that is well capitalized, that it has ample liquidity. I mean,

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Speaker 1: do the events of the past twenty four hours tell

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Speaker 1: us that that doesn't matter? Yes? I think what when

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Speaker 1: you have a bank whose shares are trading at twenty

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Speaker 1: percent of book value? The market doesn't really believe the

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Speaker 1: book value. And part of that is an equation that

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Speaker 1: the market doesn't believe that there's a lot of profitability

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Speaker 1: that's going to be happening in the future. But it's

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Speaker 1: so there's a doubt on the business model, there's a

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Speaker 1: doubt on you know, is other surprises yet to come

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Speaker 1: some of the statements recently about controls, the scandals that

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Speaker 1: have been mentioned, So you credit Swiss to me, the

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Speaker 1: biggest challenge is retaining its customer client base, and I

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Speaker 1: think many of voices have said in the last few

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Speaker 1: days it's probably seeing it's some of its top clients.

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Speaker 1: Lead is this a Credit Swiss limited problem or is

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Speaker 1: this a broader issue now facing the banking sector, you know,

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Speaker 1: given the broader context of rising interest rates and thinking

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Speaker 1: with one eye on what's been happening in the US. Yeah,

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Speaker 1: I mean, I personally am much more positive about European banking.

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Speaker 1: But I think what happens is as soon as there's

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Speaker 1: an increase in risk awareness and the banking sector, what

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Speaker 1: tends to happen is the market quickly focuses on the

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Speaker 1: weakest player. That's always the strategy or for market participants

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Speaker 1: in a banking crisis, and Credit Swiss really stuck out.

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Speaker 1: So you know that example they just gave you. If

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Speaker 1: you started to see Credit Swiss shares for the bailing

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Speaker 1: bonds fall, shorts go up. If you're a market player,

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Speaker 1: you jump in and say, let me short sum too,

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Speaker 1: all right? And now has stability come in with a

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Speaker 1: Swiss National Banks assistance program to stop that declined for

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Speaker 1: or is it to stop it or is it just

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Speaker 1: a delay? Professor? Could you talk to us about what

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Speaker 1: you know the events of this week may mean for

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Speaker 1: Basle three banking rules. You know, as a bank that

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Speaker 1: obeys those rules still has this sort of turmoil. I mean,

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Speaker 1: what does this mean for that sort of regulation. Well,

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Speaker 1: I think that the point that I was raising about

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Speaker 1: the shorting of shares related to the bonds that was

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Speaker 1: essentially baked into the bail in rules, that that was

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Speaker 1: going to happen. People knew that was going to happen.

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Speaker 1: It was I guess, an accepted risk. But I think

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Speaker 1: they'd be They'll be reviewed and certainly some of the

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Speaker 1: liquidity rules that will put in which you know the

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Speaker 1: US did not necessarily follow, and the exemptions for smaller

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Speaker 1: institutions will be revisited and applied I think too smaller institutions.

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Speaker 1: So it's always good to actually look at what the

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Speaker 1: last regulatory round did that worked and what didn't work,

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Speaker 1: and revise it. So the regulatory community would be foolish

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Speaker 1: not to learn from this experience. Do other regulators, you know,

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Speaker 1: I'm thinking about the FCA here in the UK, for example,

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Speaker 1: need to still be concerned about this credit suite issue

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Speaker 1: or for now has the SNB sort of taken the

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Speaker 1: pressure off them? No, I think there's a lot of

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Speaker 1: concern of Kreit. Swiss has a substantial business footprint in

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Speaker 1: the UK, and I think the Prudential and the Conduct

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Speaker 1: Authority need to really focus on that very well, understand.

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Speaker 1: I'm sure they're having that dialogue. The other thing is

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Speaker 1: that anytime a major institution goes into trouble, as you

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Speaker 1: can clearly see, you know, it affects confidence in the sector.

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Speaker 1: So settling what happens that is a very important issue.

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Speaker 1: But again, I think what happened in the States, let's

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Speaker 1: having credits whist the wider European sector. Money in the

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Speaker 1: US flees much more quickly. There are alternatives to banks

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Speaker 1: and money funds. Those don't really exist in Europe. So

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Speaker 1: overall we don't see money coming out of deposits at

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Speaker 1: larger banks quickly and moving around, so that vatility isn't

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Speaker 1: the same here. We also have a much more consolidated

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Speaker 1: banking sectors, right, so we suffers. That's good to hear,

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Speaker 1: Professor Han, thank you so much for joining us. That

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Speaker 1: was Professor Peter Han, Emeritus, Professor of Banking and Finance

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Speaker 1: at the London Institute of Banking and Finance. It would

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Speaker 1: be an understatement to say that it has been a

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Speaker 1: massive twenty four hours for global financial markets, with the

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Speaker 1: Credit Suee's drama playing out in equities, fixed income, and

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Speaker 1: credit markets to discuss all of this. We're joined by

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Speaker 1: our finance editor Tom Metcalfe here in studio and here

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Speaker 1: in studio as well our credit market reporter Tasso's Vassos.

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Speaker 1: So great to have you guys both with us. I mean, Tom,

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Speaker 1: let's go to you first. How big of a shark

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Speaker 1: has this been to the broader European banking sector. Yeah, Look,

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Speaker 1: yesterday definitely felt like a moment. You know, I've been

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Speaker 1: doing this for about ten years, and I would say

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Speaker 1: that's probably the most frantic day I've ever had on news.

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Speaker 1: You know, I think the thing i'd sort of convey

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Speaker 1: is Credit Swiss is a gesip so one of the

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Speaker 1: world's sort of most important banks, which is why all

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Speaker 1: attentions is on it. But it did feel yesterday for

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Speaker 1: me that you know, this was not fundamentally driven in

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Speaker 1: any way. This was a very sentiment, very fear kind

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Speaker 1: of felt like the culmination of you know, often years

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Speaker 1: of bad news in the Credit Swiss this case, so

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Speaker 1: it's really fascinated to watch. And then obviously today you've

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Speaker 1: had the share prices zoom back up on this kind

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Speaker 1: of support, so you know, it's a really this is

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Speaker 1: the question we're trying to resolve, is you know, will

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Speaker 1: this be able to kind of be parceled off as

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Speaker 1: sort of, you know, a couple of days of term

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Speaker 1: of volatility or is there something bigger here? And you know,

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Speaker 1: that's what we're trying to track down right now. Tell

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Speaker 1: us us to talk to us about what happened in

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Speaker 1: credit markets first of all yesterday in terms of characterizing

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Speaker 1: how big or how significant the moves were, and then

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Speaker 1: what's been the reaction today. Well, actually, what happened yesterday

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Speaker 1: was something totally crazy. I can't find a better word

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Speaker 1: to describe that. So traders went to set at their

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Speaker 1: desks in the morning and they were trying to price

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Speaker 1: the risk of credit twist, for example, going past using

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Speaker 1: contracts called credit default swaps, and the differences in prices

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Speaker 1: were immense. People didn't exactly know where to price credit

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Speaker 1: twists and something very interesting. Two things came up that

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Speaker 1: were quite interesting. First of all, the circle TDS curve

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Speaker 1: was inverted, which meant that people were concerned about an

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Speaker 1: immediate failure by credit twist. And secondly, there was something

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Speaker 1: that we haven't seen since pretty much the EU area

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Speaker 1: dead crisis back ten years ago, which is traders quoting

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Speaker 1: those contracts in terms of points up front. Now, I

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Speaker 1: know from many people that doesn't mean much, but in

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Speaker 1: very plain terms, it means that if you believe that

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Speaker 1: a name is particularly distressed, you want trade this. They

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Speaker 1: put some money up front. When they enter a contract,

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Speaker 1: they see the s contract and this is something we

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Speaker 1: used to see for names like Greece, for example, But

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Speaker 1: ten years ago, that's not something you expect to see

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Speaker 1: from a global systemically important bank, and quite a few

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Speaker 1: people were shocked to see that actually happening. I want

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Speaker 1: to bring Tom back in to talk about some of

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Speaker 1: the news that we're getting this morning. You know, Credit

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Speaker 1: Swiss to borrow up to fifty billion Swiss franks from

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Speaker 1: the that country's central bank. Credit swe also buying back

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Speaker 1: some senior Dad, I mean, is this going to stem

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Speaker 1: the panic? Do you think that this is enough? Yeah?

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Speaker 1: I mean, look at the share price today, really up strongly.

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Speaker 1: You know, this is what was needed just to kind

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Speaker 1: of sort of restore a bit of equilibri and give

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Speaker 1: the market time to breathe. You know, because again, if

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Speaker 1: you take a step back, you look at Credit Swiss,

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Speaker 1: massive bank, very heavily, very closely regulated, got extreme kind

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Speaker 1: of liquidity crack coverage. So really, you know, you know,

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Speaker 1: on a sort of fundamental level, it's these moves do

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Speaker 1: not actually tally make much sense. Obviously the mark at

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Speaker 1: his own beast, and you know that was what happened

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Speaker 1: in yesterday. I think it was a completely disconnect with

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Speaker 1: you know, normal kind of market valuations, et cetera, and

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Speaker 1: what was really happening. Um, you know, look, I think

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Speaker 1: it's all eyes are going to be on the share

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Speaker 1: price today. All I was going to be on the

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Speaker 1: bond price is use CDs. Is that Tassels mentioned? But yeah,

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Speaker 1: and this, you know, if people were worried about it's

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Speaker 1: not even the money. This is resolved that you know,

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Speaker 1: there is no riskler And then where did this come from?

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Speaker 1: Was this just sort of like an apples to oranges

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Speaker 1: comparison between what we were seeing with Silicon Valley Bank, which,

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Speaker 1: as Paul Davies are a banking columnists, to put it

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Speaker 1: very eloquently, those two banks are a million miles apart.

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Speaker 1: Was this just bad timing sort of um for credit squeeze? No?

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Speaker 1: I think so million miles apart is very very apt

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Speaker 1: there entirely different banks in entirely different sizes, and you know,

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Speaker 1: they're sort of deposits and all that stuff is very

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Speaker 1: very different. But I think it was just, yeah, an

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Speaker 1: unfortunate confidence of events, and you know, just maybe that

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Speaker 1: was just sort of the straw that broke the camels back,

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Speaker 1: as it were, and just that sentiment shift, and sometimes

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Speaker 1: that can be pretty hard to reverse. Though it does

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Speaker 1: look like we've all those actions overnight, they've managed to

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Speaker 1: reverse that. Just some more Credit Swiss news that I

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Speaker 1: want to bring our listeners this morning, the bank announcing

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Speaker 1: it's losing three senior Asia Equities executives. So that's the

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Speaker 1: cohead of Asia Equities for Apack Nick Silver is leaving,

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Speaker 1: the equity sales head Jenkins is leaving as well, and

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Speaker 1: the South as Asia equity head as well. Tom. This

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Speaker 1: is symptomatic of something we've seen else where a Credit

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Speaker 1: Swiss as well, more big name departures. Yeah, exactly. I

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Speaker 1: mean completely unrelated to the current news. This is, you know,

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Speaker 1: the whole bank is being restructured, as the CEO's come

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Speaker 1: out and said today, So you know, probably again slightly

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Speaker 1: unfortunate Diamond, but I wouldn't conflate the two. But that

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Speaker 1: is what has happened at Credit Swiss, right. They are

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Speaker 1: basically reimagining, reshaping this bank, making it a lot simpler,

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Speaker 1: making it just a lot more streamlined. And you know,

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Speaker 1: that is what they're coming out and saying is, look,

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Speaker 1: we have this plan, we have the capital to do it.

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Speaker 1: Just let's see what you know, give us the time

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Speaker 1: and we will be completely different right and task us.

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Speaker 1: You know, where else have we seen stressed in credit markets?

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Speaker 1: I mean it's not the only area. Whether it's a

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Speaker 1: bound to be drama, not at all. Actually, we were

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Speaker 1: coming into this with a negative battery of people reclibrating

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Speaker 1: their expectations on how far the Montro policy tightening is

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Speaker 1: going to go. So we had some weakness on the

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Speaker 1: back of that, and now credit twist came over and

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Speaker 1: then we saw a number of different banks also dropping

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Speaker 1: in sympathy. Let's not forget that credit twis as an

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Speaker 1: internal components, integrical component of all these indices, and if

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Speaker 1: people cannot hedge their exposure using specific credit twist instruments,

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Speaker 1: they're going to use broadway instruments where credit twist is

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Speaker 1: part of This is why we saw a number of

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Speaker 1: broad CDs trackers, for example, and the broad bondingness is

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Speaker 1: dropping quite a bit because people were taking exposure in

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Speaker 1: these large baskets trying to hedge credit twist. This is

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Speaker 1: Bloomberg Daybreak Europe. You're a morning brief on the stories

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