WEBVTT - Silicon Valley Bank and a Possible Fed Pivot 0:00:00.760 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.720 at Bloomberg dot com slash podcast. Let's get into the 0:00:22.960 --> 0:00:28.280 details here of what actually happened at SVB. How should 0:00:28.280 --> 0:00:30.920 we think about in the context of regional banks in general. 0:00:31.480 --> 0:00:33.440 Let's bring in a couple of experts. These geeks do 0:00:33.520 --> 0:00:37.040 this every day. They look at regional banks. Herman Chan 0:00:37.159 --> 0:00:40.760 he covers the equity Arnold Kakuta, he covers the credit side. 0:00:40.920 --> 0:00:44.440 Both for Bloomberg Intelligence. They're both in our Bloomberg Interactor, 0:00:44.440 --> 0:00:47.919 a broker's studio today. We appreciate it. So Herman, let 0:00:47.960 --> 0:00:51.519 me start with you. It seems painfully clear to me 0:00:51.600 --> 0:00:54.400 that what happened in SVB is pretty much an SVB 0:00:54.720 --> 0:00:58.720 type of thing, and it's probably not that indemniue. It's 0:00:58.720 --> 0:01:03.520 an unique situation. They were absolutely horrible at managing their 0:01:03.600 --> 0:01:05.880 duration risk, is what we're saying, Like so worse than 0:01:05.959 --> 0:01:09.280 anybody else in the entire banking industry. What are you 0:01:09.280 --> 0:01:14.119 telling your client's termoring about just the regional banks in general. Yeah, 0:01:14.200 --> 0:01:17.760 it's a very dynamic market that we're in today. SBB 0:01:18.120 --> 0:01:21.280 was indeed a unique bank that took on a lot 0:01:21.280 --> 0:01:25.000 of interest rate risk, and the fact that their deposits 0:01:25.040 --> 0:01:30.039 were exiting the door really exasperated their problems. What we're 0:01:30.080 --> 0:01:33.360 seeing today. Let me quantify that. So I noticed on 0:01:33.400 --> 0:01:35.880 the FAGO function on the Bloomberg terminal, if you're clicking 0:01:35.959 --> 0:01:37.840 the balance sheet, you can see that they had at 0:01:37.880 --> 0:01:41.720 the end of last year over ninety one billion dollars 0:01:41.800 --> 0:01:45.120 in a hold to maturity portfolio. How much do you 0:01:45.120 --> 0:01:49.880 think that was actually worth? So they were talking about 0:01:49.920 --> 0:01:54.080 a fifteen billion dollars unrealized loss at the end of 0:01:54.120 --> 0:01:56.520 the fourth quarter on that health of maturity perform at 0:01:56.520 --> 0:01:58.440 the end of the fourth quarter, and since then we'd 0:01:58.480 --> 0:02:02.760 seen the your treasury go above four percent, So probably 0:02:03.280 --> 0:02:06.280 much bigger, correct, And if they would have taken a 0:02:06.360 --> 0:02:09.320 loss on the health of maturity book, that effectively would 0:02:09.320 --> 0:02:12.360 have wiped out their book value. Arnold, you cover the 0:02:12.360 --> 0:02:15.520 credit side for all these banks. What's happening in the 0:02:15.520 --> 0:02:18.000 credit markets for regional banks over the last four or 0:02:18.000 --> 0:02:20.440 five days. Yeah, not good even even for the bigger 0:02:20.480 --> 0:02:23.880 guys as well. It's just remarkably shocking how all this 0:02:23.919 --> 0:02:26.880 can transpire in a day, right, and this is a 0:02:27.160 --> 0:02:30.480 you know, investment grade credit maybe about three four billion 0:02:30.480 --> 0:02:33.600 of debt, so it's not a huge per se, but 0:02:33.960 --> 0:02:36.880 it's just quite shocking how this could transpire. So doing 0:02:36.919 --> 0:02:40.120 what I'm doing, and I'd know nothing about a bank accounting, 0:02:40.160 --> 0:02:42.720 and I'm pretty happy about that. This whole heald to 0:02:42.800 --> 0:02:45.720 maturity thing. As Matt was just pointing out, I'm now 0:02:45.760 --> 0:02:48.560 looking at the balance sheet on the FA function for 0:02:48.600 --> 0:02:51.480 a lot of these companies. Is that what talking about 0:02:51.480 --> 0:02:54.880 health to maturity? And how where should it be? A 0:02:55.080 --> 0:02:57.040 what is it? Where should it be for most banks? 0:02:57.160 --> 0:02:59.840 And where was it for SBB? YEH know, SBB, like 0:03:00.000 --> 0:03:01.960 I think you know, as you guys mentioned fifteen billion 0:03:02.000 --> 0:03:04.520 of unrealized losses in the healthy maturity, but I think 0:03:04.560 --> 0:03:08.480 even the fourth quarter correct, which looks way worse on 0:03:08.720 --> 0:03:10.760 March ninth. But but the thing is, I think the 0:03:10.800 --> 0:03:14.519 important thing is is is the liquidity and the deposits, right, 0:03:14.600 --> 0:03:19.560 and the velocity of these deposits um you know at SVB, 0:03:19.720 --> 0:03:22.040 and in particular this you know tech community that was 0:03:22.200 --> 0:03:24.920 very very tight, right tech NVC. You know, once they 0:03:24.960 --> 0:03:29.160 started recognizing the stock was down thirty they recognize, oh, 0:03:29.440 --> 0:03:32.480 they said, hey, there might be some risk there, take 0:03:32.520 --> 0:03:35.880 your deposits out. So in that situation, you know, any 0:03:35.920 --> 0:03:38.840 bank where you know, let's say twenty five percent or 0:03:38.880 --> 0:03:42.840 more of whatever deposits fleeing, not many really can survive, right, 0:03:42.880 --> 0:03:45.440 And so I think that is the situation. Can't they 0:03:45.480 --> 0:03:48.600 borrow from other banks? Isn't there an overnight lending policy 0:03:48.680 --> 0:03:50.640 at a very low rate so they can just take 0:03:50.680 --> 0:03:53.240 the cash and then cover it at a certain point 0:03:53.400 --> 0:03:56.760 point because those are collateralized right by by your liquid assets, 0:03:56.840 --> 0:03:58.839 So it's only up to a certain point. So even 0:03:58.840 --> 0:04:01.880 if some of these measures were necessarily in place before, 0:04:02.280 --> 0:04:05.080 you know, could they have stemmed everything? Okay? Maybe maybe 0:04:05.160 --> 0:04:07.080 yes or maybe no. But it's you know, when a 0:04:07.080 --> 0:04:09.200 lot of these deposits run out the door at the 0:04:09.240 --> 0:04:11.120 same time, you know, you can say I have this 0:04:11.240 --> 0:04:15.000 much access to liquidity, but okay, over what time period? Right? Yeah? 0:04:15.040 --> 0:04:17.480 If if like I think it was at forty two billion, right, 0:04:17.839 --> 0:04:21.880 deposits tried to flee the door in a day at SVB, 0:04:22.080 --> 0:04:24.039 and I think they had a total of one hundred 0:04:24.040 --> 0:04:26.840 and seventy billion deposits, right, So and then they came 0:04:26.880 --> 0:04:30.320 out that day with a negative one billion a cash account. 0:04:30.440 --> 0:04:33.360 So that's that's what we that. Those are the numbers 0:04:33.400 --> 0:04:35.360 we know. We only know that they tried to get 0:04:35.400 --> 0:04:37.720 forty two million out customers tried to pull forty two 0:04:37.760 --> 0:04:40.680 billion sorry out. We don't know how much actually came out, 0:04:41.360 --> 0:04:44.960 So the remaining negative billion doesn't really mean very much. 0:04:45.400 --> 0:04:47.360 So it's before you even kind of get to that. 0:04:47.480 --> 0:04:50.280 So the fear is okay, yeah, there is that, um, 0:04:50.640 --> 0:04:53.120 you know, solvency concern if they have to recognize that 0:04:53.160 --> 0:04:55.640 fifteen billion loss. But before all that stuff, you know, 0:04:55.760 --> 0:04:58.240 you die because of liquidity, right, And so I think 0:04:58.279 --> 0:05:02.880 what needs to be addressed is, okay, fine, the unsure 0:05:02.920 --> 0:05:06.080 deposit holders of SVB and SPNY, they were made whole, 0:05:06.560 --> 0:05:09.359 but maybe something like that make that bigger guarantee to 0:05:09.400 --> 0:05:12.279 the rest of the market. Right, what is stopping There's 0:05:12.320 --> 0:05:15.840 nothing I happened to fed already implicitly done that. They 0:05:16.240 --> 0:05:20.800 said in their in their memo yesterday that they have 0:05:20.839 --> 0:05:25.760 a big enough backstop to cover the entirety of US deposits, 0:05:25.800 --> 0:05:29.080 which is like nineteen trillion dollars. So even though they're 0:05:29.120 --> 0:05:31.760 not saying, hey, we promise we got you, they're saying 0:05:31.839 --> 0:05:34.440 we could get you if you need it. I mean, 0:05:34.640 --> 0:05:36.720 I think the program that they've announced, I mean the 0:05:37.120 --> 0:05:39.080 you know, you correct me if I'm wrong, But it's 0:05:39.080 --> 0:05:41.680 it's a way for the banks to manage kind of 0:05:41.680 --> 0:05:44.200 when they get the deposit outslow. Notice, oh, you can 0:05:44.240 --> 0:05:47.000 pledge collateral to the FED at par right, but then 0:05:47.279 --> 0:05:50.120 once it kind of glows below a certain amount, you know, 0:05:50.160 --> 0:05:51.880 if deposits run out of the door. This is a 0:05:51.960 --> 0:05:56.280 lifeblood of funding for these institutions. Right, if your blood 0:05:56.600 --> 0:05:59.159 drains out so much, there's only so many like temporary 0:05:59.360 --> 0:06:01.560 you know body that you know, what this issue really 0:06:01.600 --> 0:06:05.160 hits telling you is that the posits are the source 0:06:05.320 --> 0:06:08.719 of the value of banks, and when that value disappears, 0:06:08.800 --> 0:06:11.159 then there's really get You don't have any legs to 0:06:11.200 --> 0:06:13.559 really stand on. Hey, I only ask you one question. 0:06:13.680 --> 0:06:17.720 You're talking to a really smart hedge fund manager who 0:06:17.760 --> 0:06:20.719 invests in regional banks. What is he or she doing today? 0:06:21.040 --> 0:06:24.040 Do you think there's net buyers or net sellers? Unfortunately, 0:06:24.080 --> 0:06:26.320 it's it's not going to be helpful to the market today, 0:06:26.760 --> 0:06:29.000 You're you're seeing a lot of fear and you're you're 0:06:29.040 --> 0:06:31.800 not going to fight the tape no matter what you 0:06:31.800 --> 0:06:35.200 think fundamentally, and selling M ANDT Bank because I don't 0:06:35.240 --> 0:06:37.000 because it's down a little bit and I think it's 0:06:37.040 --> 0:06:39.760 going to be brought down by some contanging risk. Why 0:06:39.760 --> 0:06:41.560 am I not at there buying M ANDT Bank Because 0:06:41.560 --> 0:06:43.880 I know it's a seein. If you think that these 0:06:43.920 --> 0:06:45.520 banks are going to be around for a long run, 0:06:45.600 --> 0:06:47.719 which I think MMT will be that, then it is 0:06:47.880 --> 0:06:50.360 a buying opportunity. But you really have to pick your 0:06:50.400 --> 0:06:54.320 spots because the contagion risk is looking to continue and 0:06:54.440 --> 0:06:58.360 extend and we're in a some uncharted territories seasons. Are 0:06:58.360 --> 0:07:02.600 there any other banks that have such uniform depositor base 0:07:02.960 --> 0:07:06.400 as we saw with SVB? I mean all of its 0:07:06.440 --> 0:07:10.880 depositors were like early tech startups and VC. So what 0:07:10.920 --> 0:07:15.160 you're saying is, if you the banking community and the 0:07:15.280 --> 0:07:18.120 analysts and the buy side are are looking at deposit 0:07:18.160 --> 0:07:24.200 concentration and the concentration of assets above the FDIC insurance 0:07:24.200 --> 0:07:29.120 limit uh SVB signature, those are are the ones that 0:07:29.200 --> 0:07:34.240 have high business concentration that have very lumpy deposits, and 0:07:34.280 --> 0:07:37.200 so that that's why you've seen them fall um. There 0:07:37.240 --> 0:07:40.640 are others that have similar issues. This is crazy, you know, Matt. 0:07:40.680 --> 0:07:43.160 Let's get these guys back at twelve or nine, okay, 0:07:43.200 --> 0:07:45.880 because they're not going to have time. They have time. 0:07:46.000 --> 0:07:48.000 When I tell them to be there, they'll be there. 0:07:48.040 --> 0:07:50.760 These guys are the best. Herman Chin on a cocuta 0:07:50.760 --> 0:07:52.920 that cover the equities of the credit side. He started 0:07:52.960 --> 0:07:54.960 out saying, you guys are geeks, but now you're the best. 0:07:55.040 --> 0:07:57.800 Now you did a good job. You're of the nerds 0:07:57.800 --> 0:08:00.640 exactly the nerds, are you? Guys? Thanks so much for joining. 0:08:03.840 --> 0:08:06.360 I want to get right into this segment. Joe Wisenthal, 0:08:06.440 --> 0:08:09.600 host of Odd Lots podcast Bluebird News, joins us here, which, 0:08:09.640 --> 0:08:12.400 by the way, thanks to his partner Tracy Alloy, that 0:08:12.480 --> 0:08:14.960 is a great listen. I highly recommend now it's all 0:08:15.000 --> 0:08:19.440 Tracy to be honest. Yeah, Joe, we're haven't you perfect 0:08:19.520 --> 0:08:23.840 timing today? Perfect timing? Why the US backstop after svb's 0:08:23.840 --> 0:08:27.320 failure is a bailout? I don't even know why. It's 0:08:27.320 --> 0:08:29.640 a debate, Yeah, I don't. Someone someone this morning I 0:08:29.640 --> 0:08:32.960 think Shinali Bassett suggested it was a non bailout bailout, 0:08:33.040 --> 0:08:36.400 but it's a bailout equity out. Yeah, but here's the thing, 0:08:36.559 --> 0:08:38.880 and this is why, like I mean, yes, in the 0:08:38.920 --> 0:08:42.679 case of SVB, the equity was wiped out, but you know, 0:08:42.800 --> 0:08:47.000 like a lot we misremember two thousand and eight City 0:08:47.040 --> 0:08:50.280 Group sharers fell ninety eight percent that year. That was 0:08:50.320 --> 0:08:54.040 a de facto equity wipeout. So even the most quintessential 0:08:54.080 --> 0:08:57.760 parts you have City and AIG is. There should be 0:08:57.800 --> 0:09:00.480 a reminder to people that even in the most famous 0:09:00.480 --> 0:09:04.200 bailouts of all time, these were not some big shareholder rescues. 0:09:04.360 --> 0:09:08.160 And the arguments for why this different innocent depositors, people 0:09:08.240 --> 0:09:10.520 that just wanted to get their money out. That was 0:09:10.640 --> 0:09:13.439 why we did tarp at all. That people think was like, oh, 0:09:13.440 --> 0:09:16.480 we're like protect the CEOs. Very look, of course there 0:09:16.480 --> 0:09:21.199 are some details, different circumstances, very different, but fundamentally those 0:09:21.520 --> 0:09:26.439 bailouts were not about protecting management. The AIG management was replaced, 0:09:26.760 --> 0:09:31.600 the government installed Ben Moche and the summer of two 0:09:31.600 --> 0:09:35.640 thousand and nine not that much different fundamentally a little bit, 0:09:35.679 --> 0:09:37.200 but like this is what we call this is what 0:09:37.240 --> 0:09:40.120 a bailout is. I think it's so clear that I 0:09:40.120 --> 0:09:42.320 can't even believe anyone would question. Well, now that Joe 0:09:42.320 --> 0:09:44.240 explain it to me, I get it now. I mean, look, 0:09:44.280 --> 0:09:47.880 if you would have had you had depositors who were like, Okay, 0:09:47.920 --> 0:09:50.480 we know FDIC insurance goes up to two hundred and 0:09:50.480 --> 0:09:53.280 fifty thousand, but we're gonna put three billion dollars in there. 0:09:53.600 --> 0:09:56.480 I mean, that's just a dumb risking is And now 0:09:56.480 --> 0:09:59.560 they're getting bailed out, you know. I think, like, what 0:09:59.720 --> 0:10:03.240 is the different between a bailout versus like the FDIC 0:10:03.520 --> 0:10:06.040 just doing its job. I say, if you have if 0:10:06.080 --> 0:10:09.080 you announced a new rule over the weekend that was 0:10:09.160 --> 0:10:11.760 not in place, And the FED definitely did that because 0:10:11.920 --> 0:10:15.520 they say, well, one of the key things it did 0:10:15.880 --> 0:10:19.360 is for all banks they can now for the next 0:10:19.440 --> 0:10:23.520 year pledge their treasure can be as at a part 0:10:23.720 --> 0:10:25.560 at part, which is a pretty big thing after like 0:10:25.600 --> 0:10:27.880 the mark to market hit right. So that's a de 0:10:27.960 --> 0:10:31.320 facto capital injection that the FED did, which is another thing. 0:10:31.320 --> 0:10:33.920 You don't want to start this bad policy, Joe. And 0:10:34.000 --> 0:10:36.480 this goes back to two thousand. I'm gonna say I'll 0:10:36.520 --> 0:10:38.760 say this, I'll say two things I don't feel like 0:10:38.920 --> 0:10:42.600 comfortable assessing, like the exact implementation smarter people than me. 0:10:42.880 --> 0:10:45.160 But you gotta stop a bank run, okay, and so 0:10:45.280 --> 0:10:48.520 I mean I think that's clear. Look, there's multiple failures 0:10:48.559 --> 0:10:51.640 would likely have happened today, and you just get those 0:10:51.760 --> 0:10:53.800 don't stop on their own right once they get going. 0:10:54.080 --> 0:10:56.439 You can't. No country can like have a wholesale run 0:10:56.480 --> 0:10:58.200 on its banks. The interesting thing to me is that 0:10:58.240 --> 0:11:00.720 they did just that, and I thought, yeah, no, I 0:11:00.760 --> 0:11:03.400 mean exactly, there could be unintended consequences. Who knows what 0:11:03.440 --> 0:11:07.040 they'll be. There will be, I'm sure, but they put 0:11:07.040 --> 0:11:10.040 a stop to the bank run so swiftly that it 0:11:10.080 --> 0:11:13.720 surprises me to see so many shares down today. Why 0:11:13.880 --> 0:11:15.880 I am surprised too. I mean, it may just be 0:11:16.040 --> 0:11:19.240 even still, I have to say, I'm surprised. And you know, 0:11:19.400 --> 0:11:24.640 like to me, yesterday ended the debate about whether there 0:11:24.679 --> 0:11:28.679 will ever be a cat on deposit insurance all deposits. 0:11:29.000 --> 0:11:32.120 To my mind, that's what they're effectively doing. Yeah, and 0:11:32.160 --> 0:11:35.240 I don't see It's like when when I just don't 0:11:35.280 --> 0:11:37.480 see this, I think the debate is over that all. 0:11:37.600 --> 0:11:39.360 If you have a deposit in the bank and they 0:11:39.400 --> 0:11:41.200 might change the rgs so that banks have to be 0:11:41.240 --> 0:11:43.520 more careful and have more liquid assets. But I think 0:11:43.559 --> 0:11:47.040 basically the FED has told us that from here on out, 0:11:47.080 --> 0:11:51.240 all deposits almost at any level are so does dot 0:11:51.320 --> 0:11:53.880 Frank does? Should it? Do you think it will be 0:11:53.920 --> 0:11:57.200 implemented down to smaller regional banks? So this is a 0:11:57.440 --> 0:12:01.680 there's backstory here because I guess twenty eighteen, yeah, there 0:12:01.679 --> 0:12:05.040 were a number people, including some SVB executives, who are 0:12:05.080 --> 0:12:11.160 lobbying against Dodd Frank m overseeing or regulating banks with 0:12:11.280 --> 0:12:16.480 smaller amounts of deposits like less than certain liquidity requirements, 0:12:16.520 --> 0:12:19.120 ability to make drawals. You know, the thing is maybe 0:12:19.160 --> 0:12:21.200 that will go into force right now. You know. The 0:12:21.280 --> 0:12:25.760 other thing I'll say is, however, um, when you have 0:12:25.840 --> 0:12:30.560 an instantaneous massive bank run, everyone that I'm not even 0:12:30.760 --> 0:12:35.120 sure that more liquidity requirements actually would have saved them. 0:12:35.200 --> 0:12:38.960 Maybe it would have a little bit, But the scale 0:12:39.040 --> 0:12:43.240 of the demanded withdrawals on Friday it was like so 0:12:43.280 --> 0:12:46.400 far like orders of magnitude off the charts. But it 0:12:46.440 --> 0:12:50.200 does seem likely now that people are gonna look, but 0:12:50.320 --> 0:12:52.040 it's gonna be tough. You know, there's like real like 0:12:52.200 --> 0:12:55.600 fights I think the big fight that's coming, in my opinion, 0:12:56.160 --> 0:12:58.439 is not even necessarily going to be about the degree 0:12:58.480 --> 0:13:01.560 to which certain Dodd Frank requirements applied to some of 0:13:01.559 --> 0:13:04.240 the smaller or sort of the regional banks. But like 0:13:04.400 --> 0:13:07.600 the deeper fight is like, well, like Canada has like 0:13:07.640 --> 0:13:09.880 six banks, like they know they don't have a really 0:13:09.920 --> 0:13:11.880 a small bank. We have like thousands of thousands of 0:13:11.920 --> 0:13:13.880 banks in this country. And I think there's gonna be 0:13:13.920 --> 0:13:17.120 a fight now about like, well, why do we have 0:13:17.240 --> 0:13:19.240 so many banks? And you're gonna like, and I think 0:13:19.320 --> 0:13:22.200 it will be very intense. Do we want to just 0:13:22.240 --> 0:13:25.200 have JP Morgan and City and Wells and a few others? 0:13:25.320 --> 0:13:27.360 Why is that? Why do we have so many versus 0:13:27.400 --> 0:13:30.480 say Canada, for example. I wish I knew the banking history, 0:13:30.520 --> 0:13:31.880 and I think it has to do with like our 0:13:31.960 --> 0:13:35.920 populist past. Yes, that there has been a deep discomfort 0:13:36.000 --> 0:13:40.360 throughout American history about the centralization of banking power. And 0:13:40.400 --> 0:13:42.760 I think that's like a very sort of like historical 0:13:43.000 --> 0:13:45.880 like thing we associate with us that like a lot 0:13:45.920 --> 0:13:49.920 of people do not want banking held in just a 0:13:49.920 --> 0:13:52.280 few hands. And I think we still have that today. 0:13:52.800 --> 0:13:55.120 But look a lot of people are asking. They're like, wait, 0:13:55.200 --> 0:13:56.840 do I want to be exposed to a bank that 0:13:56.920 --> 0:14:00.400 has very specific geography geographical exposure? I want to be 0:14:00.400 --> 0:14:03.840 exposed to a bank that is just like exposure to 0:14:03.840 --> 0:14:06.840 a specific industry, just open to chase a kin who cares? 0:14:06.920 --> 0:14:10.400 We have one search engine globally, and we have like 0:14:10.480 --> 0:14:13.520 three social networks, one of which is controlled by the Chinese. 0:14:13.559 --> 0:14:16.120 I mean, we don't care about anything like that anymore. Well, right, 0:14:16.160 --> 0:14:17.640 I think a lot of people are just gonna say, 0:14:17.880 --> 0:14:19.440 you know what, I'll just go to a chase and 0:14:19.440 --> 0:14:21.360 so I do think, you know, some of these moves 0:14:21.680 --> 0:14:25.480 that we're seeing might not be bank run type panics, 0:14:25.680 --> 0:14:28.320 but just could be like the expectation that a lot 0:14:28.360 --> 0:14:31.080 of their depositors are going to migrate anyway, even if 0:14:31.080 --> 0:14:34.440 they're not afraid. Do you think it's I mean, to me, 0:14:34.920 --> 0:14:37.760 this may just be a silly little detail that I 0:14:37.840 --> 0:14:40.880 can't get over, But they had a ninety one billion 0:14:40.960 --> 0:14:45.240 dollars portfolio of holding mat charity securities and only one 0:14:45.320 --> 0:14:48.560 hundred and seventy billion in deposits. It seems like the 0:14:48.600 --> 0:14:53.520 worst mismanagement of duration risk of any bank in America. 0:14:53.560 --> 0:14:56.200 I mean, I've been scanning the fays of every bank 0:14:56.240 --> 0:14:58.240 I can pull up on the Bloomberg, and nobody had 0:14:58.320 --> 0:15:04.120 that much. It does seem like it does seem something 0:15:04.320 --> 0:15:07.320 was off. And again this is I talk about questions 0:15:07.360 --> 0:15:10.040 that I personally don't feel particularly you know, I'm not 0:15:10.080 --> 0:15:12.960 a no one should hire me as a bank risk manager. 0:15:13.040 --> 0:15:17.120 It does seem there was something very strange about their arrangement. 0:15:17.720 --> 0:15:20.920 But like I think, in a normal time, like I 0:15:21.040 --> 0:15:25.640 also think that like why did everyone rush out of 0:15:25.680 --> 0:15:28.600 this like bank that was like operating? People seem to 0:15:28.640 --> 0:15:30.520 like in twenty four hours, this is the new world. 0:15:30.520 --> 0:15:33.240 I do think like social media group chats what's happened 0:15:33.880 --> 0:15:36.000 was also part of this. They announced like a couple 0:15:36.080 --> 0:15:38.960 billion dollars in equity raise and an equity raise, and 0:15:38.960 --> 0:15:41.880 all of a sudden, the most important vcas in California, 0:15:41.920 --> 0:15:45.840 like everybody get out. Yeah it's odd. It's so it's 0:15:45.880 --> 0:15:49.000 just like everything about this seems to like the way 0:15:49.040 --> 0:15:52.000 I think about it is like everything about this sort 0:15:52.040 --> 0:15:55.480 of like hit in this sort of like risk scenario 0:15:55.600 --> 0:15:58.520 that just people were not thinking about, not anticipate a 0:15:58.680 --> 0:16:00.800 very How about the signature bank that one kind of 0:16:00.840 --> 0:16:03.040 surprised me over the weekend. I don't feel like I 0:16:03.080 --> 0:16:05.400 don't know enough about it. But well, the thing is 0:16:05.400 --> 0:16:09.240 is that they have really like got They leaned pretty 0:16:09.240 --> 0:16:11.400 hard into crypto, and so if you look at their church, 0:16:11.560 --> 0:16:14.000 it's not it was like silver Gate at silver Gate 0:16:14.040 --> 0:16:16.480 a little bit, but they like sort and so then 0:16:16.520 --> 0:16:19.560 they also have this sort of like outflow of deposits 0:16:20.720 --> 0:16:23.480 because crypto is for the moment kind of a shrinking. 0:16:23.600 --> 0:16:26.000 I saw a Bloomberg story, so obviously we all know 0:16:26.080 --> 0:16:29.080 now that Circle had three billion, yeah at SBB of 0:16:29.080 --> 0:16:32.600 the forty billion circulation. Then I saw some other stable 0:16:32.640 --> 0:16:38.800 coin operators have much of their coins backed by Circle. Oh, yes, 0:16:38.960 --> 0:16:41.480 that's right. And the funny thing is, yeah, so the 0:16:41.520 --> 0:16:44.120 funny thing is a lot of the so called decentralized 0:16:44.120 --> 0:16:49.920 stable coins algorithmic ones. They have other cryptocurrencies that automatically 0:16:50.040 --> 0:16:55.440 serve as a form of collateral, but USDC usd coin 0:16:56.560 --> 0:16:59.320 is the backing of some of these so called decentralized 0:16:59.480 --> 0:17:03.680 even the d centralized ones are implicitly backed by dollars 0:17:03.680 --> 0:17:06.840 in a regulated bank account. There is this is which 0:17:06.920 --> 0:17:09.720 I mean, this is another conversation. There's a lot less 0:17:09.800 --> 0:17:12.840 decentralization to crypto than the people in the industry, clear, 0:17:13.440 --> 0:17:16.760 all right, So the US backstop for SVB was a 0:17:16.840 --> 0:17:19.720 bailout obviously. Oh come on, alright. I mean, it's just 0:17:19.760 --> 0:17:22.600 so silly to debate something like that. And I will 0:17:22.600 --> 0:17:24.320 say the same thing to the rest of my life 0:17:24.320 --> 0:17:27.640 about the raid at Marilago. To call it anything other 0:17:27.680 --> 0:17:30.320 than a raid, it's just a silly attempt to be political. 0:17:30.400 --> 0:17:33.960 I mean, oh, that was a test. It was obviously 0:17:34.000 --> 0:17:37.200 a raid. Alright, alright, alright, Joe, what all right? Joe, 0:17:37.320 --> 0:17:39.800 thanks so much. We really appreciated. Joe Wisenthal, host of 0:17:39.800 --> 0:17:43.840 Odd Lots podcasts along with Tracy Alloway for He's from 0:17:43.880 --> 0:17:47.600 Bloomberg News, as is Tracy. Odd Lots podcast really really good, 0:17:47.600 --> 0:17:49.880 one of my most popular ones out there. So take 0:17:49.920 --> 0:17:55.840 a listen, boy. The mark sent bouncing around open down 0:17:55.960 --> 0:17:58.640 pretty significantly, bounced up and now down a little bit. 0:17:58.640 --> 0:18:05.560 So market trying to digest what's going on. Market unrushed 0:18:05.640 --> 0:18:08.560 leavable to your treasury down fifty five basis point four 0:18:08.600 --> 0:18:11.560 point zero three percent. We were just at five percent, dude, exactly. 0:18:11.640 --> 0:18:13.960 I mean on Monday when I was last year, a 0:18:14.000 --> 0:18:19.400 week ago before I was struck down by COVID nineteen. 0:18:20.280 --> 0:18:22.960 We were talking about the entire yield curve above four percent. 0:18:23.040 --> 0:18:25.399 Now I'm looking at a tenure that's three forty five. 0:18:25.640 --> 0:18:28.480 I know, just amazing, so big, big moves there. Let's 0:18:28.520 --> 0:18:30.320 check in with a professional has to deal with this 0:18:30.359 --> 0:18:36.240 stuff every day. Efan Devitt, chief investment officer for Moneta Group. Ifan, 0:18:36.280 --> 0:18:37.760 thanks so much for joining us. What do you make 0:18:37.800 --> 0:18:40.160 of the last I don't know. Seventy two hours. We've 0:18:40.280 --> 0:18:42.800 kind of learned once again to except we forgot it 0:18:42.840 --> 0:18:46.520 what a bank run looks like. Yes we have. We're 0:18:46.560 --> 0:18:49.639 seeing bank round by smartphone or by Twitter. Certainly at 0:18:49.640 --> 0:18:52.719 the moment it's a whole new feel when everything can 0:18:52.720 --> 0:18:55.639 be communicated real time. Look, we have been dealing with 0:18:55.680 --> 0:18:58.480 our clients. We've been fielding calls. I will say it's 0:18:58.520 --> 0:19:01.560 not a drill. We are very much engaged now in 0:19:01.600 --> 0:19:04.640 assuring clients around the safety of their say, their custody 0:19:04.640 --> 0:19:07.240 accounts and money of which will not be would not 0:19:07.280 --> 0:19:09.399 have been with it with a small regional bank. But 0:19:09.560 --> 0:19:12.600 we're looking also we're fielding questions around money market funds. 0:19:12.840 --> 0:19:15.800 We're also seeing some concern about the different sectors, particularly 0:19:15.800 --> 0:19:19.280 the financial sector, which clearly took a hit on Friday. Overall, though, 0:19:19.440 --> 0:19:22.160 we're looking at context, and we're looking at the way 0:19:22.200 --> 0:19:26.119 these institutions have mobilized so quickly and so effectively to 0:19:26.200 --> 0:19:28.879 address this problem. This is almost like a repeat of 0:19:28.880 --> 0:19:30.840 what we saw going on in the UK around the 0:19:30.840 --> 0:19:34.119 time of another liquidity crisis, which was around the pension 0:19:34.160 --> 0:19:36.920 songs of LDI. We saw the Bank of England. They're 0:19:36.920 --> 0:19:40.919 mobilizing very quickly. So I think there hasn't some lessons learned, however, 0:19:41.040 --> 0:19:44.479 from these great financial crisis. However, what we're also seeing 0:19:44.760 --> 0:19:46.639 is this for something in the sense that we actually 0:19:46.640 --> 0:19:49.800 thought the banks were very robusted, that was the characterization 0:19:49.880 --> 0:19:53.679 of the financial institutions this time around. Did we miss this? 0:19:53.840 --> 0:19:56.960 Did financial analysts miss this? Very likely in the case 0:19:57.000 --> 0:20:00.000 of SBB. Now it's going to be a question of friends. 0:20:00.000 --> 0:20:02.960 They going through the other financial institutions to see who's 0:20:03.000 --> 0:20:05.159 in the same boat. Well, I went through all of 0:20:05.200 --> 0:20:09.920 the US listed US banks to see if anybody had 0:20:10.040 --> 0:20:14.639 as big whole to maturity portfolio relative to deposits as SVB, 0:20:14.840 --> 0:20:19.679 and nobody else had it even close. I mean they 0:20:19.720 --> 0:20:23.960 they were about fifty percent of their whole to maturity 0:20:23.960 --> 0:20:26.360 as was about fifty percent of their total depositor base. 0:20:26.480 --> 0:20:30.919 So it does seem very unique in that sense. You 0:20:31.119 --> 0:20:33.680 say there have been questions raised about money markets. Is 0:20:33.720 --> 0:20:38.240 there a possibility that they also have a duration mismatch. No, 0:20:38.440 --> 0:20:40.160 we don't think so. I think it's just that whole 0:20:40.200 --> 0:20:42.920 affect of the money markets breaking the book, which is 0:20:42.960 --> 0:20:46.160 of course what we saw financial crisis that has clearly 0:20:46.280 --> 0:20:48.680 lingered very much in the memory. We see that most 0:20:48.720 --> 0:20:50.760 money market, especially that the ones that are back by 0:20:50.800 --> 0:20:53.480 the full space and credit of the US government very safe. 0:20:53.800 --> 0:20:56.280 We see that for the most part, these are we 0:20:56.280 --> 0:20:58.480 don't think there's any concern they're they're they're run by 0:20:58.560 --> 0:21:02.359 robust institutions. They're not in these longer duration assets. But 0:21:02.480 --> 0:21:05.280 we still we have to make clients feel at ease, 0:21:05.680 --> 0:21:07.880 and we have to verify that we need and we're 0:21:07.920 --> 0:21:10.960 still in a process of discoveries getting that assurance from 0:21:10.960 --> 0:21:14.560 the very large group. So many, so many banks getting 0:21:14.560 --> 0:21:19.400 punished today, which is puzzling to a lot after you'd 0:21:19.440 --> 0:21:24.360 after you had this fed backstop, Are there opportunities that 0:21:24.440 --> 0:21:27.480 offer you opportunities even in terms of getting in there 0:21:27.480 --> 0:21:31.760