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Speaker 1: This is Bloomberg Daybreak Europe for this Monday, the thirteenth

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Speaker 1: of March in London. Coming up today. Sold for a pound,

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Speaker 1: HSBC buys the UK division of Silicon Valley Bank for

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Speaker 1: a nominal fee. Safe, sound and well capitalized. The Bank

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Speaker 1: of England seeks to offer reassurance on the wider UK

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Speaker 1: banking system. The backup Plan. US authorities protect SVB depositors

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Speaker 1: in a bid to avert contagion plus fed fallout Goldman scraps.

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Speaker 1: It's bet on a March rate hike because of the

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Speaker 1: recent stress in the banking system. That's all straight ahead

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Speaker 1: on Bloomberg Daybreak Europe. The business views you need to

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Speaker 1: start your day in just one fifteen minute podcast on Apple, Spotify,

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Speaker 1: the Bloomberg Business app and everywhere you get your podcasts.

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Speaker 1: Good morning from London. I'm Stephen Carroll and I'm mann

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Speaker 1: at Edwards. You're listening to Daybreak Europe our top story.

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Speaker 1: Chancellor Jeremy Hunt has announced a deal to buy out

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Speaker 1: the UK unit of the collapse seeing Silicon Valley Bank.

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Speaker 1: A sale has been agreed to HSBC, which is Europe's

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Speaker 1: biggest bank, one of the most creditworthy institutions in the world,

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Speaker 1: and what that means is that all those really important

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Speaker 1: companies that had deposits with Silicon Valley Bank UK can

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Speaker 1: access their deposits, can access normal banking services. As of

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Speaker 1: this morning, it's a very important outcome. No taxpayers money

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Speaker 1: has been used, Jeremy Hunt. They're telling reporters the transaction

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Speaker 1: has been completed immediately and that customers with SVBUK will

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Speaker 1: be able to bank as normally. Irresponding to the news

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Speaker 1: moments after it broke, Octavio Morenzi, CEO of Capital Markets

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Speaker 1: Consultancy apamis, said claims that no taxpayer money is involved

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Speaker 1: are perhaps not what they seem. Well. My census that

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Speaker 1: HSBC could not possibly have done any sort of due

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Speaker 1: diligence on the acquisition target in the time available, So

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Speaker 1: I don't believe they were pouring through the books over

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Speaker 1: the weekend or maybe at some very superficial level to

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Speaker 1: get understanding what they're actually buying. So I'm assuming that

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Speaker 1: HSBC must have got some sort of very strong, ironclad

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Speaker 1: guarantees from the Treasury or from the Bank of England

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Speaker 1: that HSBC is not going to incurney losses on this

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Speaker 1: deal that basically say Okay, we'll take it site unseen,

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Speaker 1: but you are going to have to guarantee the performance.

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Speaker 1: Octavio Marenz's comments come after Minister as An officials spent

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Speaker 1: the weekend drawing up plans to ring fence the UK's

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Speaker 1: technology and life sciences industries, following warnings they could be

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Speaker 1: crippled without intervention. Over SVB over to the US now,

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Speaker 1: and authorities have stepped in to protect all Silicon Valley

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Speaker 1: Bank depositors there as they look to stem jitters about

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Speaker 1: the health of the financial sector. The Treasury Department, Federal Reserve,

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Speaker 1: and Federal Deposit Insurance Corps jointly announced the effort to

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Speaker 1: strength and confidence in the banking system. Speaking to CBS,

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Speaker 1: US Treasury Secretary Janet Yellen says this is a problem

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Speaker 1: caused not by the tech sector, but by higher rates,

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Speaker 1: been suffering from mid downturn and has head some significant lawyers.

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Speaker 1: The problems of this bank from reporting about its situation

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Speaker 1: suggest that because we're in a higher interest rate environment,

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Speaker 1: assets that it holds, many of which are Treasury essets

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Speaker 1: or mortgage backed securities that are guaranteed by the government,

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Speaker 1: lose market value. US Treasury Secretary Janet Yillen there, speaking

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Speaker 1: on Face the Nation. In a statement, President Biden said

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Speaker 1: the solution quote protects American workers and small businesses and

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Speaker 1: keeps on financial systems safe. Now it's not just SVB.

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Speaker 1: Three banks have collapsed in the US in a week.

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Speaker 1: SVB the crypto friendly banks, Silvergate Capital, and Signature Bank,

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Speaker 1: which was closed by New York State regulators on Sunday.

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Speaker 1: Authorities say both Signatures ensured and uninsured customers will be

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Speaker 1: able to access their deposits today. The bank had faced

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Speaker 1: a torrent of deposit outflows on Friday, but Barney Frank,

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Speaker 1: a Signature board member known for the Dad Frank Act,

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Speaker 1: said he thought the bank could have been a going concern.

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Speaker 1: Bloomberg's reporting an auction for the business could begin as

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Speaker 1: soon as today. Stress in the banking sector means some

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Speaker 1: see a rethink for the Federal Reserve. Economists led by

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Speaker 1: Janhatsius at Goldman Sachs say they no longer expect the

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Speaker 1: Fed to raise borrowing costs. In March, citeeing a quote

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Speaker 1: recent stress in the banking system, JP Morgan said in

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Speaker 1: a note on Sunday that it continues to expect a

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Speaker 1: twenty five basis point hike and next week's meeting, this

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Speaker 1: ahead of US inflation data which is due on Tuesday,

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Speaker 1: with economists expecting CPI to rise by zero point four

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Speaker 1: percent from the previous month, down slightly from the zero

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Speaker 1: point five percent rate in January. And that concludes our

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Speaker 1: top stories Stephen and A nice place to linger for

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Speaker 1: a moment, because Goldman Sachs might be saying that the

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Speaker 1: Fed will be done with hiking as a result of this,

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Speaker 1: because of course it will tighten lending conditions, So you

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Speaker 1: can see that argument. Others say, well, yes, lending conditions

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Speaker 1: might be tightened, but that might not be enough to

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Speaker 1: weigh down on inflation, and the Fed will still have

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Speaker 1: an inflation problem that requires great hikes. So there are

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Speaker 1: both of those sides, both of those voices being heard

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Speaker 1: this morning. Yeah, and certainly on the w IRP function.

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Speaker 1: On the terminal, they are still market still pricing in

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Speaker 1: a twenty five basis point hike at the next meeting

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Speaker 1: on the twenty second of this month, so that debate

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Speaker 1: still ongoing. I am keeping one eye on HSBC share

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Speaker 1: is still not much movement on them, just down by

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Speaker 1: a tenth of one percent in London this morning. But

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Speaker 1: of course we are focused on the news that we've

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Speaker 1: had today that HSBC is buying the British arm of

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Speaker 1: Silicon Valley Bank. The Chancellor, Jeremy Hunt, has been speaking

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Speaker 1: about this a short time ago. Let's take a listen

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Speaker 1: to what he had to say. Well, there was never

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Speaker 1: a systemic risk to our financial stability in the UK.

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Speaker 1: The Bank of England Governor made that clear from the outset.

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Speaker 1: But a number of our most promising, an important technology

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Speaker 1: and life science companies had their money with Silicon Valley

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Speaker 1: Bank in their UK branch. So we've been working over

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Speaker 1: the weekend. I've been in constant contact with the Governor

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Speaker 1: of the Bank of England, the Prudential Regulatory Authority, the

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Speaker 1: Prime Minister to work up a solution. We do not

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Speaker 1: have that solution. A sale has been agreed to HSBC,

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Speaker 1: which is Europe's biggest bank, one of the most creditworthy

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Speaker 1: institutions in the world. And what that means is that

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Speaker 1: all those really important companies that had deposits with Silicon

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Speaker 1: Valley Bank UK can access their deposits, can access normal

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Speaker 1: banking services as of this morning. It's a very important outcome.

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Speaker 1: No taxpayers money has been used and I think it's

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Speaker 1: a result of a lot of hard work. But I

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Speaker 1: also think it shows that the UK has great resilience

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Speaker 1: in its financial system that we're able to step in

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Speaker 1: with one of our biggest UK banks in a situation

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Speaker 1: like this and protect a very important sector. It has

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Speaker 1: been a weekend of frenzied activity. We know that why

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Speaker 1: was it so important to get this done quickly? Well,

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Speaker 1: when you have very young companies, very promising company is

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Speaker 1: they're also fragile. They need to pay their staff and

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Speaker 1: they were worried that as of eight o'clock this morning

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Speaker 1: they might literally not be able to access their bank accounts.

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Speaker 1: Some of them only had bank accounts with Silicon Valley

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Speaker 1: Bank UK and so for that reason, we were faced

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Speaker 1: with a situation where we could have seen some of

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Speaker 1: our most important companies, our most strategic companies, wiped out,

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Speaker 1: and that would have been extremely dangerous. We have built,

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Speaker 1: over the last decade the third largest tech economy in

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Speaker 1: the world, after only China and the United States. So

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Speaker 1: it's very important to us as a country that this

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Speaker 1: sector thrives, and that's why the Prime Minister eye the

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Speaker 1: Bank of England. We're all rolling our sleeves up over

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Speaker 1: the weekend to make sure we had a solution. Okay,

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Speaker 1: but this whole crisis emerged from something completely unexpected, the

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Speaker 1: collapse of a US bank because of unforeseen circumstances, unforeseen

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Speaker 1: weaknesses in the financial system. Concerned are you that there

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Speaker 1: might be other similar situations brewing up inside the financial system? Well,

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Speaker 1: we always have to watch everything that's happening everywhere in

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Speaker 1: the world when it comes to financial stability. But what

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Speaker 1: I would say is the Bank of England is very clear.

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Speaker 1: The UK banking system is extremely secure. It's well capitalized,

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Speaker 1: and I think we demonstrated that resilience by what was

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Speaker 1: happening over the weekend and the fact that we were

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Speaker 1: able to come up with a solution so quickly. And

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Speaker 1: final question, why did you push for a sale there

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Speaker 1: were other options on the table. Well, we were keen

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Speaker 1: to make sure there was a solution that protected our

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Speaker 1: tech sector, protected these companies. We were neutral as to

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Speaker 1: what that solution was, except for the fact obviously we

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Speaker 1: did not want taxpayers money to be used. But we

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Speaker 1: were looking at all options and we needed to be

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Speaker 1: sure that if the sale didn't happen, we had other

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Speaker 1: solutions ready. That's why it was brought to do a

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Speaker 1: huge amount of work on a variety of solutions over

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Speaker 1: the weekend. That was the Chancellor, Jeremy Hunt there speaking

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Speaker 1: two journalists just a short time ago. Okay, let's get

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Speaker 1: some analysis. Joining us now, Peter Hahn, who's the emeritus

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

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Speaker 1: Banking and Finance and a non executive director at the

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Speaker 1: Isle of Man Financial Services Authority. He was a senior

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Speaker 1: advisor to the Bank of England's pr A when they

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Speaker 1: set the rules after two thousand and eight, so a

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Speaker 1: great voice to have with us today. Peter, thank you

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Speaker 1: so much for joining us. Is this the right response

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Speaker 1: do you think then? From the UK Treasury? The UK

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Speaker 1: looks pretty good in this In fact, compared to fifteen

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Speaker 1: years ago in the last banking crisis, we looked like

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Speaker 1: we handled it quickly. In the UK, we took it

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Speaker 1: out of the public domain very fast. The US looks

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Speaker 1: like quite a bit of failures of oversight. It's a

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Speaker 1: complete reverse of the last financial crisis where we're actually

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Speaker 1: looking like we got through it efficiently and they're in

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Speaker 1: a big mess that they've got settle still, So for

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Speaker 1: you is this is everything sorted now? Has this been resolved?

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Speaker 1: I think for the UK it has been resolved. It's

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Speaker 1: it's a it's a tiny dot for HSBC worldwide. I

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Speaker 1: know you've been mentioning what's happening with the share price

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Speaker 1: costing a pound, but it's I'm sure there's more to it,

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Speaker 1: whether those details eventually, how they come out, because as

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Speaker 1: a prior commentator mentioned, there wasn't a lot of time

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Speaker 1: to do due diligence and stuff on this transaction. So

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Speaker 1: you know, but a deal has been done, it's taken

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Speaker 1: out of the public public domain. There's no crisis to happen.

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Speaker 1: There's no system, systemic plan that needs to be developed,

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Speaker 1: so it should It does look done and dusted on

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Speaker 1: the UK side. What's still missing in the US response? Then? Oh,

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Speaker 1: for the US, they don't have a buyer, but they

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Speaker 1: have guaranteed deposits and they put in place and cheap

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Speaker 1: funding for banks. Oh yes, No, the whole plan is

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Speaker 1: going to get looked over today. How much public money

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Speaker 1: is going into it that the US has said it's

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Speaker 1: not taxpayers money, but in a sense, the plan to

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Speaker 1: buy securities at market value that they've come up with banks,

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Speaker 1: somebody's subsidizing a purchase of securities at a non market price.

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Speaker 1: Some of the guaranteed for deposits that may be paid

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Speaker 1: out might come out of the FDIC Reserve fund that's

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Speaker 1: been funded by in a sense of tax hunt deposits

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Speaker 1: who pays that tax hunt deposits in America, depositors that

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Speaker 1: use the banking system. That's the public. So the politics

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Speaker 1: will run and run. But in terms of the crisis,

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Speaker 1: have they averted that? Yes? I think they have. But

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Speaker 1: what the risk is that they've thrown out about ten

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Speaker 1: years worth of resolution concepts and essentially the quick answer

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Speaker 1: was to guarantee all deposits. So the next bank that

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Speaker 1: goes under, wouldn't you, if you were an uninsured depositor,

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Speaker 1: say what about me? What about my employees? What about

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Speaker 1: what's going to happen to us? I wonder what you

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Speaker 1: make of the comments from Prestige Economics president Jason Schanker

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Speaker 1: that there's never just one cockroach. Do you think there

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Speaker 1: could be more banks type? I'm so sure there are.

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Speaker 1: I mean, look, the ultimately this starts with the rollback

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Speaker 1: of regulation five years ago in the States and you

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Speaker 1: have a bank with a two hundred billion dollar balance

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Speaker 1: sheet that didn't do basic liquidity practice, you know, that

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Speaker 1: was buying long term mortgage bonds with overnight depositor of money.

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Speaker 1: That's a gross failure of oversight. And I'm sure it

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Speaker 1: hasn't happened at just one institution because some of what

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Speaker 1: they were buying was because of regulation. Wasn't it the

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Speaker 1: fact that they were buying mortgage backed securities and treasuries

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Speaker 1: they post GFC banks had to do more of that, right,

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Speaker 1: But you're you're saying that they bought the wrong duration things.

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Speaker 1: The rules that came out, and this is a big

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Speaker 1: we in the UK and Europe tend to follow the

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Speaker 1: Basle guidance, which critically focuses on something called liquidity coverage

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Speaker 1: and net stable funding. In simple terms, it means that

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Speaker 1: if your deposits are overnight, you've got to keep your

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Speaker 1: money more or less overnight. The US follows that with

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Speaker 1: its largest banks, but it doesn't do it for banks

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Speaker 1: that are under two hundred and fifty billion. And that's

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Speaker 1: a huge, you know, lack of you know, attention to

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Speaker 1: that sector. So this bank, instead of it, it had

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Speaker 1: overnight deposits and was investing in potentially thirty year mortgage bonds.

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Speaker 1: That was what Lehman Brothers did, So you know, this

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Speaker 1: is a failure. So it looked like it was no risk,

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Speaker 1: but in fact it was really basic poor liquidity management.

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Speaker 1: Will those rules now have to change then? Will the

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Speaker 1: US have to apply them to smaller banks? I'm sure

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Speaker 1: they will. I'm sure they'll. They'll be quite a quick

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Speaker 1: rush over it. And that's part of the the FED

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Speaker 1: program that's been announced. It's probably to allow some smaller

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Speaker 1: banks to transition to better liquidity management. And the question

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Speaker 1: is who's going to pay for that? Yes, indeed, I

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Speaker 1: mean we mentioned the politics of this, that that will

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Speaker 1: run and run. I suppose yes, Oh no, there'll be

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Speaker 1: a lot of finger pointing and blame. And in fact,

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Speaker 1: it's it's probably going to come out that it's all

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Speaker 1: Donald Trump, But in fact it I believe a bipartisan

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Speaker 1: effort to roll back regulation five years ago. So it's

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Speaker 1: it's no single person. How did we miss this risk?

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Speaker 1: Do you think, well, what really is happening is we're

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Speaker 1: in the financial sector entirely, not just financial services. We're

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Speaker 1: transitioning back to normal. I'd call it We've gone from

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Speaker 1: this kind of zero rate environment which encouraged all kinds

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Speaker 1: of decisions that were based slowly over time on it

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Speaker 1: continuing forever. All right, So ge have interest rates day zero.

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Speaker 1: Let's let's buy something very long term that pays a

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Speaker 1: little more because interest rates are going to stay zero.

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Speaker 1: So as we transition back to what i'd calls a

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Speaker 1: more normal interest rate environment where there are interest rates,

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Speaker 1: I guess it's an easier way to say it, a

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Speaker 1: lot of those poor decisions are going to rise to

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Speaker 1: the surface. And it's not only poor decisions, but of

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Speaker 1: course there were all kinds of investment opportunities over the

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Speaker 1: last ten years that arose because of zero interest rates,

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Speaker 1: a lot of those in the digital assets space, and

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Speaker 1: they are all going to get another review in the

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Speaker 1: next few weeks, i'd say, in terms of the text,

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Speaker 1: in terms of the tech sector, I mean, you were

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Speaker 1: talking about a lack of regulation. Here is the tech

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Speaker 1: sector going to be found to be to blame though,

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Speaker 1: I mean, this is a sector that famously likes to

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Speaker 1: move fast and break things, and well they've broken something here,

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Speaker 1: I would say, for if we look in a couple

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Speaker 1: of easy ways, you've got one founder's sponsors groups for

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Speaker 1: tech companies who by definition diversify their portfolios and say

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Speaker 1: we've got fifty or five hundred companies that we invested,

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Speaker 1: but by the way, we like all those fifty or

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Speaker 1: five hundred companies to put their money in the same bank.

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Speaker 1: This sort of brings home the issue of how silly

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Speaker 1: he wasn