WEBVTT - Fallout From The SVB Collapse

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<v Speaker 1>This is Bloomberg Daybreak Asia for this Monday, March thirteenth

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<v Speaker 1>in Hong Kong, Sunday March twelfth in New York, and

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<v Speaker 1>coming up today, The FED and the US Treasury are

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<v Speaker 1>said to be considering an emergency lending program to backstop

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<v Speaker 1>demands of clients of SVB. Treasury Secretary Janet Yellen says

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<v Speaker 1>officials are focused on protecting depositors as they seek to

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<v Speaker 1>avoid financial contagion. And China reappointed several top economic officials

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<v Speaker 1>in a leadership reshuffle on Sunday. Bandia's government oppose this

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<v Speaker 1>same sex marriage round says they'll buy Russian fighter jets

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<v Speaker 1>while eight people are dead after two boats collide off

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<v Speaker 1>of San Diego. That's all straight ahead on Bloomberg Daybreak Asia,

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<v Speaker 1>the business news you need to start your day in

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<v Speaker 1>just one fifteen minute podcast, available on Apples, Spotify, the

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<v Speaker 1>Bloomberg Business app, and everywhere you get your podcasts. Good morning,

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<v Speaker 1>I'm Brian Curtis and I'm dot Prisoner. Here are the

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<v Speaker 1>stories we're following today. US regulators racing against the clock

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<v Speaker 1>to find solutions for the failed Silicon Valley Bank. The

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<v Speaker 1>FDIC kicked off that auction process. The aim is to

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<v Speaker 1>make a portion of clients uninsured deposits available as soon

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<v Speaker 1>as Monday, is Stransury Secretary Janet Yellen on CBS's face

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<v Speaker 1>the nation. Let me be clear that during the financial crisis,

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<v Speaker 1>there were investors and owners of systemic large banks that

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<v Speaker 1>were built out, and we're certainly not looking and the

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<v Speaker 1>reforms that have been put in place means that we're

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<v Speaker 1>not going to do that again. But we are concerned

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<v Speaker 1>about depositors and are focused on trying to meet their needs,

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<v Speaker 1>a Stratesury Secretary Janet Yellen heard here on Bloomberg. Separately,

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<v Speaker 1>the International Monetary Fund said it is closely monitoring developments

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<v Speaker 1>and potential financial risks from SVB, while we are hearing

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<v Speaker 1>the Federal Reserve in the US Treasury are making moves

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<v Speaker 1>to calm bank customers rattled by the failure of SVB.

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<v Speaker 1>We have more from Bloomberg's US Anna Palmer. Our source

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<v Speaker 1>says the Fed and the Treasury Department are considering an

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<v Speaker 1>emergency lending program to backstop demands by bank customers to

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<v Speaker 1>withdraw money. This as the US seeks to stave off

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<v Speaker 1>a deeper crisis after SVB Financial Group's failure. The measure,

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<v Speaker 1>which would come in addition to easing terms for the

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<v Speaker 1>Fed's discount window, would be made under the fed's Emergency

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<v Speaker 1>Lending authority. The FED has approved invoking that authority and

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<v Speaker 1>is awaiting final approval from the Treasury. Representatives from the

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<v Speaker 1>Federal Reserve and the Treasury either declined to comment or

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<v Speaker 1>didn't immediately respond to messages seeking comment. Susanna Palmer Bloomberg,

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<v Speaker 1>day Break Asia and as mentioned by Susanne, the FED

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<v Speaker 1>is considering easing the terms of banks access to the

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<v Speaker 1>discount window. This could be huge. It would give firms

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<v Speaker 1>a way to turn the assets that have lost so

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<v Speaker 1>much value into cash without the kind of losses that

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<v Speaker 1>toppled SVB. Such a move would also increase the ability

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<v Speaker 1>of banks to keep up with demands from depositors to

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<v Speaker 1>withdraw their money. They also wouldn't have to book losses

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<v Speaker 1>by actually selling the bonds and other assets that have

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<v Speaker 1>deteriorated so much in value with all of these rate hikes.

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<v Speaker 1>We're told that some banks begin or did begin drawing

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<v Speaker 1>on the discount when way back on Friday, seeking to

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<v Speaker 1>shore up their liquidity after authorities seized svb's silicon Valley Bank.

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<v Speaker 1>It's unclear though, how many banks actually did this. We

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<v Speaker 1>here changes are under discussion. The FED declined to comment,

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<v Speaker 1>so the issue, obviously one in fact, is systemic risk.

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<v Speaker 1>We heard earlier from the former US Treasury Secretary Larry Summers,

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<v Speaker 1>who said the collapse of SVB should not pose a

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<v Speaker 1>risk to the financial system so long as depositors are

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<v Speaker 1>made whole. What is absolutely imperative is that, however this

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<v Speaker 1>gets resolved, depositors be paid back and paid back in full.

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<v Speaker 1>And I don't see anything in any aspect of this

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<v Speaker 1>situation that would be a basis for that being called

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<v Speaker 1>into questions. Former Treasury Secretary Larry Summers. There now, the

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<v Speaker 1>crisis of SVB has spurred broader concern about a mismatch

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<v Speaker 1>between banks funding cost on one hand, and the rates

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<v Speaker 1>they earn on their assets on the other. We know

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<v Speaker 1>the FED steep path on rate hikes over the past

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<v Speaker 1>year has forced banks to pay out more to depositors,

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<v Speaker 1>while at the same time those banks receiving lower rates

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<v Speaker 1>on some of their longer dated assets. Now, mister Summers said,

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<v Speaker 1>these are the issues regulators need to focus on going forward.

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<v Speaker 1>Bran and we know that SVB had positions and had

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<v Speaker 1>joint ventures and actual branches all over the world, and

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<v Speaker 1>so it becomes very important. We know that Silicon Valley's bank,

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<v Speaker 1>the joint venture in China, came out and said that

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<v Speaker 1>its operations have been independent and stable. The question on

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<v Speaker 1>this dug is exactly how many people will believe these

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<v Speaker 1>claims from officials, and will get to a little bit

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<v Speaker 1>more on that in just a moment. Also in China,

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<v Speaker 1>several top officials have been appointed to their roles during

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<v Speaker 1>a leadership shuffle, another big story that we will cover

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<v Speaker 1>for you today. We get more here from Bloomberg's David

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<v Speaker 1>in Glaze. PBUC Governor Egang will remain in his post,

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<v Speaker 1>as well as the ministers of Finance and Commerce. The

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<v Speaker 1>reappointments were announced at a National People's Congress, and they

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<v Speaker 1>came as a surprise, as analysts were expecting a larger reshuffle.

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<v Speaker 1>Many predicted officials with international experience like the PBUC Governor

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<v Speaker 1>E would be replaced by men with closer personal ties

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<v Speaker 1>to Shi jing Ping. The retention of E in particular

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<v Speaker 1>may be positive for market since it shows continuity. But

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<v Speaker 1>there was a change at Vice Premier. The role went

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<v Speaker 1>to Halifang, a close ally of President chi Jing Ping Huh,

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<v Speaker 1>will likely replace Deo Huh as the nation's top economic official.

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<v Speaker 1>Beijing has already created a powerful new financial regulatory body

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<v Speaker 1>and signaled tighter government oversight and institutional reform in Hong Kong.

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<v Speaker 1>I'm David Ingless lubric de Brick Asia. I'm Brian Curtis

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<v Speaker 1>at seven minutes past the hour along with Doug Kisner. Doug,

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<v Speaker 1>you have direct contagion and whether or not we might

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<v Speaker 1>see a run on the banks, and then you have

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<v Speaker 1>this kind of indirect contagion, which is really why I

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<v Speaker 1>think the access to the FEDS discount window is such

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<v Speaker 1>a big thing, because everyone was drinking from the same

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<v Speaker 1>well water here. Borrowers loading up on low yielding, long

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<v Speaker 1>duration securities that can only be sold at a loss.

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<v Speaker 1>And if you're in a position where you need the

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<v Speaker 1>money now, then you've got a big problem because they

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<v Speaker 1>are way underwater and you're going to show some losses.

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<v Speaker 1>So access to the FEDS discount window gets around that

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<v Speaker 1>if that gets formally approved. And we should say this

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<v Speaker 1>that a lot of these securities have actually increased in

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<v Speaker 1>value a lot here just in the past couple of days,

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<v Speaker 1>but holders are still under water. Well that is true, Brian,

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<v Speaker 1>But it maybe it goes back to banking regulation and

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<v Speaker 1>the degree aways banks are required to hold their capital

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<v Speaker 1>at certain tiers of credit quality. This is something that

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<v Speaker 1>could not have been foreseen necessarily, right. This is a

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<v Speaker 1>function of the market where when yields were down on

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<v Speaker 1>the long end and yields were up, that yield curve inversion,

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<v Speaker 1>and how banks have really been hit by that process. Well,

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<v Speaker 1>we've got Kim Forrest coming up in a few moments,

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<v Speaker 1>founder in Cio at Book Capital Partners will get more

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<v Speaker 1>from her. But now it's time for global news. Both

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<v Speaker 1>prime ministers from Britain and Australia are in the United

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<v Speaker 1>States to meet with President Biden. Dan Schwartzman has all

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<v Speaker 1>the details in the New York Newsroom. Dan, that's right, Brian.

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<v Speaker 1>British Prime Minister Rishi Sunak arriving in the US today.

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<v Speaker 1>He will meet with President Biden as well as Australian

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<v Speaker 1>Prime Minister Anthony Albanetz as the three countries discussed the

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<v Speaker 1>next phase of the Aucus nuclear submarine program. Now all

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<v Speaker 1>three leaders are scheduled to meet tomorrow in San Diego

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<v Speaker 1>as Australia is looking to acquire a fleet of nuclear

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<v Speaker 1>powered subs built on a modified British design but with

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<v Speaker 1>American parts. Before the new subs are commissioned, though the

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<v Speaker 1>US could either sell Virginia class subs to the Australians

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<v Speaker 1>or just based nuclear subs in the country. Reactions still

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<v Speaker 1>coming in over the surprise announcement Friday that China had

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<v Speaker 1>broken the deal between Iran and Saudi Arabia, which reopened

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<v Speaker 1>diplomatic ties between the two countries. House Intelligence share Mike

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<v Speaker 1>Turner blames the Biden administration for China possibly becoming the

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<v Speaker 1>power broker in the Middle East instead of this administration

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<v Speaker 1>stepping forward and being a partner to Saudi Arabia our

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<v Speaker 1>ally and working with them to defend themselves against tax

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<v Speaker 1>from Iran. They subject Saudi Arabia's a significant amount of criticism,

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<v Speaker 1>and we're slow to react and respond to the militarian

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<v Speaker 1>needs of Audirabia. So it's not unexpected that they might

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<v Speaker 1>look elsewhere for support. It certainly is very unexpected and

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<v Speaker 1>certainly very troubling and disappointing that they would turn to Iran.

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<v Speaker 1>The Republican from Ohio was speaking to ABC News Iran

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<v Speaker 1>says that they have a deal in place to buy

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<v Speaker 1>SU thirty five fighter jets from Russia, which would significantly

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<v Speaker 1>upgrade their aging fleet of jets. US and British officials

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<v Speaker 1>are concerned that the transfer of the aircraft could be

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<v Speaker 1>as part of a quid pro quo for Iran sending

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<v Speaker 1>kamikaze drones, which Russia has used in Ukraine. Currently around

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<v Speaker 1>flies a small fleet of aging US and Russian jets

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<v Speaker 1>acquired before the Islamic Revolution back in nineteen seventy nine.

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<v Speaker 1>Eight people are dead and seven are missing after two

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<v Speaker 1>boats collided off of San Diego late last night. Officials

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<v Speaker 1>believe the two Panga boats were involved in smuggling. Both

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<v Speaker 1>the San Diego Fire and Police departments, along with the

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<v Speaker 1>US Coastguard and Customs in Border Protection, continue to search

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<v Speaker 1>for the missing, but some believe that some may have

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<v Speaker 1>escaped on the beach, located about fifteen miles north of

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<v Speaker 1>San Diego. If I've done something here, just tell me

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<v Speaker 1>what I don't you but you didn't send to me?

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<v Speaker 1>Well that's what I was thinking, Like, I just don't

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<v Speaker 1>like you no more? Do you like me? Yesterday? That,

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<v Speaker 1>of course is Colin Farrell and Brendan Gleeson, two actors

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<v Speaker 1>up for big Awards tonight. It's the ninety fifth Academy Award,

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<v Speaker 1>hosted by Jimmy Kimmel. Everything Everywhere, All at Once leads

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<v Speaker 1>away eleven Oscar nominations right behind All Quiet on the

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<v Speaker 1>Western Front and Banshees in a Shearing which you just heard,

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<v Speaker 1>with nine nominations, including Colin Farrell, who's happy to be

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<v Speaker 1>nominated for Best Actor amongst all the other nominations for

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<v Speaker 1>the film. It's really lovely and it's just feel very

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<v Speaker 1>smoiled to have this moments in such a shared environment.

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<v Speaker 1>It feels like a really much more communal experience than

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<v Speaker 1>it might have otherwise. History could be made as Michelle Yoe,

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<v Speaker 1>the star of Everything, Everywhere, All at Once, could become

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<v Speaker 1>the first Asian woman to win Best Actress. Global News

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<v Speaker 1>twenty four hours a day, powered by more than twenty

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<v Speaker 1>seven hundred journalists and analysts in over one hundred and

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<v Speaker 1>twenty countries on Dan Schwartzman and this is Bloomberg. I'm

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<v Speaker 1>Brian Curtis here in Hong Kong alongside Rashad Salama, and

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<v Speaker 1>our guest is Kim Forrest, founder and Cio at Boukaya

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<v Speaker 1>Capital Partners kim, it's going to be about credibility today.

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<v Speaker 1>Silicon Valley Bank was a pretty good sized bank, was

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<v Speaker 1>the eighteenth biggest bank before all of this hit, and

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<v Speaker 1>for many people the fact that a bank that size

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<v Speaker 1>could go bust in a couple of days will send

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<v Speaker 1>shockwaves through depositors. I'm wondering if you think this morning

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<v Speaker 1>here in Asia that we might expect some kind of

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<v Speaker 1>a run on the banks to happen, Well, that's a

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<v Speaker 1>definite Maybe. I think people are rattled. I think there

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<v Speaker 1>are there is a group of people in the world

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<v Speaker 1>that have been looking for fallout from all of the

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<v Speaker 1>I would say whip last reaction to COVID. Right, So

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<v Speaker 1>we brought rates down almost immediately upon the lockdown, and

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<v Speaker 1>you know, the US government was trying to ameliorate the

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<v Speaker 1>effects of shutting down, you know, our entire economy. And

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<v Speaker 1>then the FED taking the actions that they thought was

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<v Speaker 1>needed last year to raise the interest rate from pretty

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<v Speaker 1>much zero to four plus percent, right. I mean, these

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<v Speaker 1>are really whiplash moves, and I think we found out

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<v Speaker 1>where some of the breakage is coming. But again, I

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<v Speaker 1>think there's people that are afraid, and no bank can

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<v Speaker 1>sustain a run on the bank if there's a sufficient

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<v Speaker 1>number of people. Because banks are in the business of

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<v Speaker 1>lending out money. They don't just put your you know,

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<v Speaker 1>your money in cash and leave it there. They can't.

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<v Speaker 1>They have to make money off of your money, so

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<v Speaker 1>at a minimum they must put it to work. And

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<v Speaker 1>if everybody wants their money all at the same time,

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<v Speaker 1>that bank is not going to survive. It's got some

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<v Speaker 1>headlines as you came coming through something US SVB deposits

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<v Speaker 1>will have access to all money Monday saying signature bank

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<v Speaker 1>closed today by state authority. Those are some lines. I

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<v Speaker 1>can't really flesh those out fegure at the moment, but

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<v Speaker 1>you know, as a quantitative tighting continues, we've seen reserves

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<v Speaker 1>actually continue to fool and argue seem deposits to Now

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<v Speaker 1>it's worth noting in the past year that banks have

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<v Speaker 1>been increasing their borrowing and that makes the question, if

0:13:17.480 --> 0:13:21.000
<v Speaker 1>there's so much excess liquidity around, why the need Well,

0:13:21.000 --> 0:13:22.880
<v Speaker 1>I don't think it's the need. I think again, this

0:13:23.080 --> 0:13:28.120
<v Speaker 1>was the reality of two thousand or twenty twenty one

0:13:28.160 --> 0:13:32.840
<v Speaker 1>when the government and twenty twenty when the government shoved

0:13:32.960 --> 0:13:37.040
<v Speaker 1>tons of money out there for businesses, the PPP loans,

0:13:37.440 --> 0:13:39.920
<v Speaker 1>and it had to go somewhere, and the banks again

0:13:40.080 --> 0:13:42.880
<v Speaker 1>have to do something without money, and nobody was really

0:13:42.920 --> 0:13:46.400
<v Speaker 1>borrowing money at that time, so they bought treasuries and

0:13:46.520 --> 0:13:50.439
<v Speaker 1>they probably did it of relatively short duration. They weren't

0:13:50.480 --> 0:13:53.200
<v Speaker 1>probably out there buying thirty years. They were buying four

0:13:53.880 --> 0:13:58.920
<v Speaker 1>or two years probably, you know, among others. And again

0:13:59.040 --> 0:14:02.280
<v Speaker 1>this is a math problem where the price of those

0:14:02.320 --> 0:14:06.600
<v Speaker 1>two year notes have fallen as rates have risen dramatically,

0:14:07.280 --> 0:14:11.000
<v Speaker 1>And this is exactly the kind of fallout that I

0:14:11.040 --> 0:14:14.280
<v Speaker 1>think the said did not anticipate. I mean, nobody sat

0:14:14.320 --> 0:14:17.680
<v Speaker 1>down with a pencil and paper and figured it out. Yeah,

0:14:17.720 --> 0:14:20.320
<v Speaker 1>we're seeing a run to haven assets this morning. No

0:14:20.320 --> 0:14:23.640
<v Speaker 1>doubt this will be very, very good for US treasuries.

0:14:24.040 --> 0:14:27.040
<v Speaker 1>But it does beg the question where would it be

0:14:27.040 --> 0:14:30.160
<v Speaker 1>in the belly of the curve. You certainly probably wouldn't

0:14:30.160 --> 0:14:33.440
<v Speaker 1>want to be buying ten year securities here. But as

0:14:33.520 --> 0:14:36.040
<v Speaker 1>more value comes into the market there, those yields will

0:14:36.120 --> 0:14:39.000
<v Speaker 1>drop and that eases some of the pressure, right, And

0:14:39.280 --> 0:14:43.520
<v Speaker 1>you know it could I hate to be overly optimistic,

0:14:43.960 --> 0:14:49.680
<v Speaker 1>you know, people running for safety might just solve the problem.

0:14:50.040 --> 0:14:54.520
<v Speaker 1>And again this is all not linear problems. It doesn't

0:14:54.560 --> 0:14:58.120
<v Speaker 1>scale one for one, So it doesn't take everybody withdrawing

0:14:58.160 --> 0:15:00.240
<v Speaker 1>their money out of a bank to kill it, nor

0:15:00.320 --> 0:15:04.680
<v Speaker 1>does it take everybody buying treasuries to make the price

0:15:04.800 --> 0:15:08.480
<v Speaker 1>go up. But it is some small number, like I

0:15:08.520 --> 0:15:13.280
<v Speaker 1>don't know, maybe twenty percent of unusual activity that may

0:15:13.360 --> 0:15:18.000
<v Speaker 1>just reset these bonds much lower and thus even stop

0:15:18.080 --> 0:15:21.840
<v Speaker 1>people from thinking about, well maybe I should buy that CD,

0:15:22.520 --> 0:15:27.760
<v Speaker 1>you know, and taking action if the price falls precipitously. Well,

0:15:27.920 --> 0:15:31.160
<v Speaker 1>I suppose everybody, everybody over the weekend was probably you know,

0:15:31.400 --> 0:15:34.080
<v Speaker 1>reconciling all of their accounts under two hundred and fifty

0:15:34.080 --> 0:15:39.040
<v Speaker 1>thousand for sure. Yep. But this is I think this

0:15:39.080 --> 0:15:41.240
<v Speaker 1>is what the government is really trying to stop, is

0:15:41.360 --> 0:15:45.280
<v Speaker 1>mass movements of money. That is what they're trying to stop.

0:15:45.720 --> 0:15:50.040
<v Speaker 1>Good luck, all right, So what do you think they

0:15:50.040 --> 0:15:54.760
<v Speaker 1>should do next? Hig him? Well, I think probably something

0:15:54.840 --> 0:15:58.920
<v Speaker 1>I'm concerned about, because I like to think further into

0:15:59.280 --> 0:16:04.000
<v Speaker 1>the future, is if people at Silicon Valley Bank, and

0:16:04.080 --> 0:16:07.720
<v Speaker 1>people I mean corporations because largely it was a business bank,

0:16:07.840 --> 0:16:11.600
<v Speaker 1>not a person a retail bank. So if they can't

0:16:11.600 --> 0:16:15.120
<v Speaker 1>get their hands on their money to pay their client

0:16:15.280 --> 0:16:20.800
<v Speaker 1>or their employees. You know, now things really start to fail.

0:16:21.280 --> 0:16:24.720
<v Speaker 1>And I think that's really what the government is signaling

0:16:24.760 --> 0:16:28.320
<v Speaker 1>that if you're a depositor and you need to get

0:16:28.320 --> 0:16:31.120
<v Speaker 1>your money out to pay people, of course we're going

0:16:31.160 --> 0:16:33.760
<v Speaker 1>to like figure this out and try to make it happen.

0:16:34.120 --> 0:16:39.200
<v Speaker 1>And I think that is key in making people not

0:16:39.320 --> 0:16:43.440
<v Speaker 1>run on other banks as well. It's amazing, isn't it

0:16:43.520 --> 0:16:46.520
<v Speaker 1>that the US jobs report now is a distant memory.

0:16:46.840 --> 0:16:50.680
<v Speaker 1>I know, I know, and we can't even get into

0:16:50.680 --> 0:16:53.600
<v Speaker 1>that crazy. It's not really a conspiracy theory, but I

0:16:53.640 --> 0:16:56.480
<v Speaker 1>think there was a lot of conflicting data in this

0:16:56.520 --> 0:16:59.480
<v Speaker 1>one that makes me think maybe the half million jobs

0:16:59.480 --> 0:17:02.280
<v Speaker 1>that they say are created are more of a function

0:17:02.320 --> 0:17:06.760
<v Speaker 1>of somebody trying to smooth out and seasonally adjust that data.

0:17:06.880 --> 0:17:12.040
<v Speaker 1>And maybe you know, the employment picture isn't quite as strong,

0:17:12.359 --> 0:17:15.080
<v Speaker 1>but things are going in the right direction for a

0:17:15.200 --> 0:17:19.440
<v Speaker 1>cooling economy. Not a cold economy, not a rock falling economy,

0:17:19.880 --> 0:17:24.760
<v Speaker 1>but you know, a calming down economy. You know, the

0:17:24.800 --> 0:17:30.080
<v Speaker 1>wage rates were lower and unemployment was higher. Oh kim, Okay,

0:17:30.080 --> 0:17:32.680
<v Speaker 1>with everything that's going on right now, is cash your

0:17:32.720 --> 0:17:41.280
<v Speaker 1>best option for what I meant under your mattress. Now,

0:17:41.359 --> 0:17:44.200
<v Speaker 1>I think that's a terrible idea. No, I don't think

0:17:44.240 --> 0:17:46.840
<v Speaker 1>cash is your best option. I think what you need

0:17:46.880 --> 0:17:51.200
<v Speaker 1>to do is always always be looking at equity markets.

0:17:51.240 --> 0:17:54.520
<v Speaker 1>If a quality company, and I do mean quality, I'm

0:17:54.560 --> 0:17:57.680
<v Speaker 1>talking you know somebody that does not bank at Silicon

0:17:57.760 --> 0:18:01.440
<v Speaker 1>Valley Bank. I'm being glib, but really an older kind

0:18:01.480 --> 0:18:05.919
<v Speaker 1>of company that has steady earnings, that has good management

0:18:05.960 --> 0:18:09.480
<v Speaker 1>and has plans for the future and product marketing sort

0:18:09.520 --> 0:18:13.440
<v Speaker 1>of processes. If you can identify those and buy them

0:18:13.440 --> 0:18:16.960
<v Speaker 1>when they're on sale when people are panicking, and hold them,

0:18:17.600 --> 0:18:20.639
<v Speaker 1>you are going to benefit in the long run, and

0:18:20.720 --> 0:18:24.840
<v Speaker 1>by that I mean three to five years. This is

0:18:24.880 --> 0:18:27.920
<v Speaker 1>Bloomberg Daybreak Asia, your morning brief on the stories making

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0:19:03.280 --> 0:19:07.000
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0:19:07.080 --> 0:19:09.480
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