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Speaker 1: This is Bloomberg Daybreak Europe for this Friday, the tenth

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Speaker 1: of March in London coming up today, don't bank on it.

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Speaker 1: SVP's cash crunch sends financial stocks across the globe into

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Speaker 1: a tailspin. Shares in Deutsche Bank are down more than

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Speaker 1: seven percent, Santan dare down five percent, and Barkley's slumps

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Speaker 1: three and a half percent. Entompe, Cordial Sunac heads to

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Speaker 1: Barris to meet with makon as relations zees class looking

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Speaker 1: longingly across the pond, US starting paid beats the UK

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Speaker 1: and British grads aren't tapping. That's all straight ahead on

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

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Speaker 1: 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 Money from London. I'm Caroline Hepkem and I'm Tom McKenzie.

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Speaker 1: You're listening to Daybreak Europe. So we thought that the

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Speaker 1: US jobs data would dominate today, so throw that out.

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Speaker 1: It's been overtaken by major fears over US bank portfolios

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Speaker 1: and SVB, and it's a big story tied to what

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Speaker 1: was previously a largely unknown Bank, Silicon Valley Bank, and

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Speaker 1: top executives at Silicon Valley Bank are urging calm as

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Speaker 1: prominent venture capitalists advise businesses to withdraw their money. Peter

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Speaker 1: Teals found As Fund and others say companies should now

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Speaker 1: limit their exposure to the startup lender Quill Intelligence CEO

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Speaker 1: and chief strantus Danielle DiMartino Booth says markets are worried.

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Speaker 1: The market has now begun asking two questions, will there

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Speaker 1: be a white Knight and what bank is next? So

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Speaker 1: we've seen the largest movement spreads since last October. We're

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Speaker 1: seeing small and midsized banks coming under attack, and people

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Speaker 1: are beginning to ask how many banks are out there

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Speaker 1: with similar levels of losses that they're sitting on that

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Speaker 1: they cannot move The term or d Martina both spoke of.

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Speaker 1: There followed a surprise announcement from Silicon Valley Bank, then

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Speaker 1: it was holding a two point two five billion dollars

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Speaker 1: share sale after a significant loss on its portfolio. The

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Speaker 1: lenders scramble to prevent a bank run comes as Silvergate

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Speaker 1: Capital announced plans to wind down operations after last year's

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Speaker 1: crypto industry meltdown. Well, of course, the market sentiment on

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Speaker 1: the back of that has really soured the SMP five

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Speaker 1: hundred financials index ort its worst day since the COVID

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Speaker 1: pandemic meltdown. Yesterday. Bank of America, Wells, Fargo, JP, Morgan

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Speaker 1: Chase all slid at least five percent. That sentiment has

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Speaker 1: been echoed across Europe, with bank stocks taking a massive

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Speaker 1: hit this morning. Nat Alliance Security's head of International fixed Income,

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Speaker 1: Andrew Brenner, thinks this move may change the central banks

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Speaker 1: thinking now the question is will the Silgad Valley think

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Speaker 1: weggs in My answer is yeah to a point. I

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Speaker 1: don't think it's it's cause for cant aging, but people

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Speaker 1: are going to be scared about it, and I think

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Speaker 1: it's going to send a message over the fence bow.

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Speaker 1: So market watches like Brenna have an I on today's

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Speaker 1: jobs data out of the US, but also another on

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Speaker 1: potential default. This after many equity investors had piled into

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Speaker 1: financial stocks to ride out the federal reserves interest rate hikes. Now,

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Speaker 1: the UK economy grew zero point three percent in January

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Speaker 1: after a sharp fall in December when strikes halted activity.

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Speaker 1: The latest data from the Office of National Statistics is

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Speaker 1: raising hopes that the economy may avoid a protracted recession

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Speaker 1: or dodge a downturn altogether. That puts further pressure, though

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Speaker 1: on the Bank of England to keep raising interest rates

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Speaker 1: in its fight to bring down double digit inflation. Another

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Speaker 1: UK story, the government suspects that Russians have exploited Britain's

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Speaker 1: company register to launder money from the war in Ukraine.

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Speaker 1: Sources have told Bloomberg that authorities have identified hundreds of

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Speaker 1: sham companies listed under Russia names. They say these firms

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Speaker 1: are trying to exploit the warfull financial gain. The government

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Speaker 1: is in the process of strengthening laws to reform company's

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Speaker 1: house and clamp down on financial crime. Now, French President

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Speaker 1: Emmanuel maccomp and British Prime Minister Rishie Sunac will aim

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Speaker 1: to turn the page on years of acrimonious relations later

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Speaker 1: today with more from Paris. He our UK correspondent Lizzie

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Speaker 1: Burton here in the city of Romance. France and Britain

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Speaker 1: will today try to rekindle theirs as UK Prime Minister

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Speaker 1: Rishi Sunac heads to Paris for the first such state

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Speaker 1: visit in five years. After seven years of post Brexitta crimony.

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Speaker 1: On the agenda will be defense, migration, nuclear power, and

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Speaker 1: green subsidies. But above all, as Russia looks on, the

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Speaker 1: two sides are determined to present a united front on

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Speaker 1: the war in Ukraine. In Paris. I'm Lizzie Burden Bloomberg

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Speaker 1: Daybreak Europe. Now, a New York judge has ordered JP

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Speaker 1: Morgan to turn over more records from CEO Jamie Diamond

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Speaker 1: to the US Virgin Islands. The order is related to

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Speaker 1: a lawsuit accusing the bank of facilitating Jeffrey Epstein's sex trafficking.

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Speaker 1: JP Morgan has denied the Virgin Islands claim that Diamond

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Speaker 1: had a role in retaining Epstein as a client. The

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Speaker 1: latest news comes after the US learnder sued former executive

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Speaker 1: Jeff Staley, whose relationship with Epstein is the focus of

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Speaker 1: the lawsuits. Okay, let's get more now, then, on the

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Speaker 1: banking story that is ripping through these global markets. Fears

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Speaker 1: over the financial health of Silicon Valley Bank have sent

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Speaker 1: bank stocks globally tumbling and depositors considering their holdings at

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Speaker 1: the lender favored by startups. Joining us now is Christina Keeno,

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Speaker 1: who leads Our Markets Today live blog on the Bloomberg

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Speaker 1: website and Michael Moore, Managing editor for me at Finance

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Speaker 1: at Bloomberg. Michael, can we start with you and just

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Speaker 1: outline for our listeners what exactly happened at Silicon Valley Bank? Sure, so,

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Speaker 1: I think there are a few issues that have crapped up.

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Speaker 1: You know, everyone thinks higher rates good for banks, and

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Speaker 1: that is general really true, but not true in every situation.

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Speaker 1: It's how the bank's position, how much is in loans,

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Speaker 1: how short term or long term those loans are, what

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Speaker 1: types of securities it owns. So SVB had a lot

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Speaker 1: of bonds that it owned and has taken some losses

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Speaker 1: on those, and then lately they've faced a bit of

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Speaker 1: a crisis of confidence. Their depositor base is very, very

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Speaker 1: heavily skewed toward startups, particularly tech startups, and you had

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Speaker 1: some significant vcs and backers of those startups tell their

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Speaker 1: portfolio companies were not comfortable with this, You need to

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Speaker 1: pull some money out, and that triggered your typical bank

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Speaker 1: run with a number of depositors pulling out. At the

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Speaker 1: same time, you know, SVB is trying to reassure clients,

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Speaker 1: trying to raise outside fun to put a backs up

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Speaker 1: on this, but that's the situation. Yeah. Also, just in

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Speaker 1: terms of size and scope, two hundred and twelve billion

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Speaker 1: dollars roughly just over two hundred billion dollars in assets

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Speaker 1: at SVB, roughly a tenth less than a tenth of

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Speaker 1: the size of one of the big Wall Street banks

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Speaker 1: like JP Morgan. So in size, it's it's not enormous,

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Speaker 1: and yet it's having a big impact on bank stocks

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Speaker 1: around the world. Christine, let me bring you in here.

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Speaker 1: How badly are other banking stocks being hit? Can we

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Speaker 1: call this contagion? Well, Caroline, it's very badly reacting this morning, certainly,

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Speaker 1: But I think what we're seeing at the moment it

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Speaker 1: is kind of a knee jer self verson, ask questions

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Speaker 1: later sort of reaction. I mean that that's usually the

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Speaker 1: first step that investors take anytime that they see quite

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Speaker 1: alarming headlines as we've seen overnight. So the question of

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Speaker 1: contagion is probably too early to tell at this stage.

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Speaker 1: It really has to boil down to how much exposure

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Speaker 1: does the broader banking sector have to SVB and what

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Speaker 1: are the ripple effects of that, And that's something that

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Speaker 1: will probably become clear over the next few days and

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Speaker 1: weeks and we start kind of hearing about what sort

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Speaker 1: of connections the broader banking sector has to this specific instance. Michael,

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Speaker 1: let's bring you back in at this point. Then, is

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Speaker 1: it a question of the exposure of other banks, whether

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Speaker 1: in the US or here and your two SVP you

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Speaker 1: would imagine that certainly here and that would be relatively limited.

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Speaker 1: Or is it investors waking up to the potential risks

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Speaker 1: around unrealized losses on these securities in an environment where

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Speaker 1: rapid rate moves have obviously shaken the sentiment at least

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Speaker 1: around some of those assets. Yeah, I think it's definitely

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Speaker 1: more the ladder and this question of you know, for banks,

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Speaker 1: are there you know, are there particular banks whose business

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Speaker 1: or whose depositor basis too concentrated in one client group

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Speaker 1: in one area As you say, I think, you know,

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Speaker 1: SVB has has grown rapidly, but it's not a humongous bank,

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Speaker 1: so the it's not big in the capital market, so

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Speaker 1: that the contagion effects there would not be, you know,

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Speaker 1: something like we saw in the last crisis. I think

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Speaker 1: it's more about waking up to rate rises. Um, you know,

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Speaker 1: typically aren't this fast and typically only aren't this extreme

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Speaker 1: and that can cause someone because that's the unspoken fear

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Speaker 1: is we were kind of back to two thousand and eight,

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Speaker 1: two thousand and nine, We have to be really careful

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Speaker 1: about not putting ourselves there because it's a very different

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Speaker 1: set of circumstances. To just maybe maybe push forward on

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Speaker 1: that point a little bit. Why what are the differences

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Speaker 1: between now and two thousand and two thousand nine, particularly

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Speaker 1: around I guess the regulatory oversight right, and the market

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Speaker 1: moves you're seeing are you know, relatively limited, and there

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Speaker 1: can't they come after banks have had extraordinary gains over

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Speaker 1: the last six months. You know, banks have been beneficiaries

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Speaker 1: from the higher environment, especially here in Europe. So yeah,

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Speaker 1: this is this is giving back some gains. This is

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Speaker 1: not you know, falling out of bed. So I think

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Speaker 1: it is kind of just kind of investors adjusting to that.

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Speaker 1: And you know, you see a lot of banks, a

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Speaker 1: lot of big US banks have had these losses on

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Speaker 1: their security portfolios, but over the last twelve months, but

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Speaker 1: the profits have been so good that it's been a

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Speaker 1: question more of will they have to limit their buybacks

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Speaker 1: rather than any type of issue. You know, it's been

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Speaker 1: more capping the upside rather than a downside. Yeah, that's interesting. Okay,

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Speaker 1: So in terms Christine, then of the other leg of

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Speaker 1: the story, as it were, whether it actually shifts bets

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Speaker 1: on what the Federal Reserve does next, I think that's

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Speaker 1: kind of quite interesting. Whether it actually changes the picture

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Speaker 1: for Jerome palm makes people think twice about fifty basis points.

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Speaker 1: That definitely, Caroline, that question is being asked in markets today,

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Speaker 1: and even you know, the initial reaction that we're seeing

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Speaker 1: in Europe, we have seen those rate high beds for

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Speaker 1: the European Central Bank and the Bank of England for instance,

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Speaker 1: come back down from the peaks that we priced earlier

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Speaker 1: this week. I mean earlier we were looking at about

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Speaker 1: four percent for the ECB and then five percent for

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Speaker 1: the Bank of England. But we're well off those peaks now,

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Speaker 1: And yeah, I think investors are really asking the question,

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Speaker 1: is this the first or one of the many signs

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Speaker 1: already that we've seen of things in the real economy

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Speaker 1: breaking as a result of what we've seen from interest

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Speaker 1: rate hikes? And is that going to be enough to

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Speaker 1: give policymakers at least a little bit of pause. You'd

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Speaker 1: have to imagine they'd be talking about this at least

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Speaker 1: a little bit as they head into some big central

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Speaker 1: brank meetings next week. Yeah, you'd imagine this. This is

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Speaker 1: a real test, really, isn't it that of that commitment

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Speaker 1: they could keep reiterating their determination to get inflation back

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Speaker 1: down to their targets two percent for the Fed. Of course,

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Speaker 1: this is a test, as you say, when we start

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Speaker 1: to see these fissures, these ruptures across the financial sector,

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Speaker 1: whether they're going to hold the line on these planned

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Speaker 1: interests right increases. What else are you looking at, then, Christine,

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Speaker 1: in terms of the market reaction and the feed through

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Speaker 1: to central banks. Well, John, we're certainly looking at the

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Speaker 1: bond market en masks, both on the government bond space,

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Speaker 1: but particularly also in the corporate credit space. And that's

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Speaker 1: another sort of canary in to call line, if you will,

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Speaker 1: in terms of showing any size of systemic risk, if any,

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Speaker 1: from an event like this, because you know, something like SVV,

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Speaker 1: which of course is very much tied to providing funding

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Speaker 1: for smaller startup companies, that has very real feed through

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Speaker 1: to just the state of the corporate sector itself, right,

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Speaker 1: and so credit spread something to be keeping an eye

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Speaker 1: out for sure. In any of her side of a

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Speaker 1: company struggling to get funding in general, Michael, the last

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Speaker 1: word to you please about where this story goes next.

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Speaker 1: What we should be thinking about Bill Ackman mentioning government

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Speaker 1: bailout or help of some kind for SVB. What do

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Speaker 1: you think happens now? Yeah, I think you know what

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Speaker 1: we're on the lookoup for is they had attempted a

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Speaker 1: share of sale to bring in more equity. Whether that

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Speaker 1: goes through or there is some sort of investor that

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Speaker 1: steps in here. I think that is kind of the

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Speaker 1: next question to be answered for SPB in particular. Okay, Michael,

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Speaker 1: thank you so much for your time. Michael Moore is

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Speaker 1: managing editor for in me a Finance at Bloomberg, and

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Speaker 1: Christina Akino leads our Markets Today live blog, which is

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Speaker 1: on the Bloomberg website. Well worth a look for this

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Speaker 1: kind of moving story. Thank you so much to both

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Speaker 1: of you for joining us. So, look, that's the kind

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Speaker 1: of big market story. But this court myer, are you

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Speaker 1: a TikTok phantom? No? No, okay, so you won't have

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Speaker 1: seen this. I can tell you all about it. So

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Speaker 1: graduates getting very hot unto the collar about the at

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Speaker 1: that these young people in the UK just discovering that

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Speaker 1: even if they're getting a very good salary offer there

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Speaker 1: a lawyer, or how they're going into tech or something,

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Speaker 1: their pay is still nothing compared to what their rivals

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Speaker 1: are the graduates in the US. Wait, this is a

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Speaker 1: dog bites man story, not a man bites dog story.

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Speaker 1: Of course they're getting paid more in the United States.

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Speaker 1: Wages are much higher in the United States. You can

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Speaker 1: start at the bottom of the rung in the lapd

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Speaker 1: on seventy thousand US dollars. I know, but listen, you're

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Speaker 1: a bunch of years through into your career. This is

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Speaker 1: not news to you. It does seem to be news

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Speaker 1: to young people on TikTok. And I just think that

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Speaker 1: it's a far wealthy nation. Yes, it is a far

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Speaker 1: poorer nation, but that has still going to get paid less. Yeah,

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Speaker 1: that has not stopped the outrage and the annoyance that

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Speaker 1: TikTok users have found. I love that we still some

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Speaker 1: people still compare ourselves to the US in terms of

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Speaker 1: our economic vibrants. We're not We're not there. We're nowhere

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Speaker 1: near the strength of the US. Sorry, but we're just

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Speaker 1: not And therefore the comp's not going to be the

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Speaker 1: same and it's depressing, but it's a reality. Well, having

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Speaker 1: said that, the law firms are having to up their

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Speaker 1: pay in the UK because they have to compete the

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Speaker 1: Americans who have offices in London. Anyway, it's a really

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Speaker 1: nice TikTok story and we've written it up, including the

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Speaker 1: little clip you know that shows you just well that

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Speaker 1: the TikTok video is really clear anyway,